Despite the ongoing pandemic and several other industry headwinds, the Canadian insurance market posted “favorable” results in 2021, a new report from AM Best has revealed.
According to the credit rating agency, Canada’s economy has been steadily recovering since 2020, when it suffered its worst slump in history with a contraction of 5.4%. For 2021, the country’s economy grew by 4.5%, and while this growth is expected to slow down to 3.4% in 2022 and 1.8% in 2023, the International Monetary Fund is expecting Canada to grow faster than any of its G7 counterparts in both years, AM Best noted.
But 2021 was not just about recovery – the year saw the spillover impacts of Russia’s then impending invasion of Ukraine, mounting geopolitical tensions, stricter financial conditions, higher inflation, depressed consumer and business sentiment, continued supply chain complications, housing market vulnerabilities, and a slowdown in economic domestic and global activity, AM Best said. But in spite of all these things, Canada’s insurers managed to stay on top.
Canada’s property & casualty (P&C) market was noted to have “good overall underwriting performance” and “solid risk adjusted capitalization” throughout 2021, according to AM Best’s report. The segment saw three years of operating performance improvement thanks to increases in underwriting profits despite the pandemic, macro-economic challenges, and the growth of weather-related events.
“Canada has navigated the challenges presented by the COVID-19 pandemic for the last two and a half years reasonably well, and P/C insurers have persevered in this unprecedented environment,” AM Best commented in its report.
It was mentioned in the report that 97% of the AM Best-rated entities in Canada had either a Superior (A++ or A+) or an Excellent (A or A-) financial strength rating (FSR), which the rating agency observed was consistent with trends in recent years. Additionally, most of the rating actions taken by the agency in 2021 where in fact affirmations of high FSRs, reflecting the resilience of the industry.
Overall net income for the Canadian P&C industry rose 76% (or $3.5 billion) from the prior year-end to $8.3 billion. Net earnings were driven chiefly by positive underwriting performance, which AM Best said was only partially offset by a decline in investment income.
Meanwhile, Canada’s life & annuity (L&A) insurance segment also managed to remain stable in 2021 amid regulatory challenges and economic uncertainty. AM Best’s outlook for the industry is “stable,” based on the segment’s consistently strong regulatory capital levels; favorable earnings and underwriting in spite of COVID-19’s impact on mortality and global economic instability; refined business profiles thanks to acquisitions, divestiture of legacy and capital-intensive businesses; and greater clarity among all stakeholders about the impacts of IFRS 17.
“Canada’s L/A insurers have been resilient over the past year, bolstered by strong equity market returns, only a modest rise in COVID-related mortality, and a renewed awareness of life insurance by the general population because of the pandemic, which resulted in record life insurance sales,” said AM Best.
AM Best remarked that, for 2021, all of Canada’s life insurance companies had financial strength ratings (FSRs) of A- (Excellent) or higher, with only one with a negative outlook.
