Canadian Insurance Market Flush With Cdn$11 Billion In Excess Capacity

Canada’s insurance market has Cdn$11 billion in excess capacity, enough to underwrite another replica of Canada, which could fuel a soft market well into 2012.

Joel Baker, president of MSA Research, made the observation as a panelist at

the Standard & Poor’s June 24 panel discussion, “Canadian P&C Insurance Sector– What The Future May Bring.”

His fellow panelist, Bruce Thompson, the director of the monitoring and analytics and support division of the Office of the Superintendent of Financial Institutions (OSFI), said he didn’t want to comment on Baker’s Cdn$11 billion figure. He did agree the Canadian insurance industry is “very well capitalized.”

Thompson cautioned that Canada’s solvency regulator isn’t necessarily concerned about the excess of capital, per se. “Good, solid, stable earnings, in my opinion, far outweigh the level of capital, after you have a certain amount, of course,” he said. “Capital exists for companies in the case of uncertainty or mistakes, in the absence of perfect certainty — and we all live in those days.”

Baker noted the current soft market has been driven to a large degree by rate cutting in the commercial lines, which started to soften in 2002-03.