Both life and P&C Canadian insurers are facing increasing challenges due to economic volatility, says a recent report from A.M. Best.
They’re pulling in lower levels of investment income as a result of depressed interest rates and significant losses from weather-related events.
Also, unstable equity markets and tepid growth in the domestic market create major obstacles for companies competing in the life insurance market.
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Still, life insurance companies are maintaining adequate levels of capitalization—although their use of leverage has increased—and the P&C industry’s capitalization has continued to increase since last year.
Companies haven’t diverged from their investment strategies, preserving their focus on appropriate risk management in the domestic market.
Pressures on earnings and capital have led Canadian management teams to re-evaluate their business models in terms of product breadth and distribution. The shift to less market-sensitive product lines is indicative their concerns.
Overall, the P&C market is stable, which was reflected in A.M. Best’s rating activity over the past year. Consolidation within the market has increased recently, with several acquisitions made by Intact Financial Group and RSA Insurance Group.
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How these acquisitions play out will likely have a wide-ranging impact on the competitive landscape.
The report suggests “continued development and utilization of various exposure and risk-management tools will also have a significant impact on the industry, likely leading to even more pricing segmentation.”
Access a copy of the special report.