Canadian Market (June 01, 2009)

GOOD BYE M&A, HELLO IPO

The “big players” in Canada’s insurance market will likely take the IPO (initial public offering) route to expansion rather than the merger and acquisition route, says Jack Lee, vice president of BFL Canada.

Lee was a speaker at the Property Casualty Underwriters Club luncheon in Toronto on May 20. He was asked if he anticipated a flurry of mergers and acquisitions activity in Canada.

“I can only expect that there will be some mergers and acquisitions,” he said. “We have too much capacity and not everybody is going to rebound as well as others.”

But, he added, “an acquiring company isn’t going to overpay to help someone else out. What you may see for some of the larger companies having problems [is that] when they’re not going to sell at a distress price, they may go the IPO route.”

NDP MAKES AUTO INSURANCE CAPS AN ISSUE IN NOVA SCOTIA ELECTION

The NDP in Nova Scotia has dragged auto insurance into the province’s current political campaign, promising to scrap the existing Cdn$2,500 cap on insurance payments for minor auto injuries and replacing it with some form of deduction instead.

Nova Scotia NDP leader Darrell Dexter told metronews.ca(Halifax) the cap on minor injuries is too broad and suggested some injury claimants haven’t been fairly compensated after life-altering collisions.

“People who suffer very serious injuries are not able to get the compensation they deserve,” Dexter is quoted as saying in metronews.ca.“It’s just not fair to these people.”

Dexter is reported to favour a deductible set high enough that only those with major injuries would proceed with a claim. The Canadian Press paraphrased Dexter as suggesting the deductible amount might be within the range of between Cdn$10,000 and Cdn$15,000.

The province’s incumbent governing party, the Progressive Conservative Party of Nova Scotia, cited PC candidate George Jordan, a former Consumer Advocate for Insurance, as saying the NDP plan would ultimately increase consumers’ auto rates.

“Scrapping the cap is a tremendously risky proposition,” Jordan says in a press release posted on the Nova Scotia Tories’ Web site. “Insurance rates have fallen almost 27% since the cap came into place in 2003.

“Removing it opens the door to large cash settlements for minor injuries and that can lead to higher premiums for everyone.”

Jordan says the average cost of insurance for Nova Scotia drivers was Cdn$1,069 in 2003, whereas it was down to Cdn$782 in 2008.

ING’S HOME INSURANCE LOSSES DRIVE 2009 Q1 LOSS

ING Canada Inc. (Now Intact Financial Corporation) reported a net loss of Cdn$36.3 million in 2009 Q1, compared to a net gain of Cdn$23 million in 2008 Q1. The company cited home insurance results as a major contributor to the loss.

“Our operating performance continued to be healthy during the quarter driven by good underwriting results,” said Charles Brindamour, president and CEO of ING Canada Inc. “All our business lines performed well in the current environment except our home insurance business.

“We are focused on improving our home insurance results through a robust action plan.”

ING Canada said its home insurance business sustained a quarterly loss of Cdn$26.9 million and finished the quarter with a combined ratio of 112% “due to higher claims frequency related to the rapid snow melt.”

In contrast, the company’s results in personal auto lines increased by Cdn$24.2 million and the combined ratio fell 4.8% (down to 96.1%). On the commercial side, the company reported an underwriting profit of Cdn$15.4 million and a combined ratio of 94.1%.

Overall, the company reported a 99.2% combined ratio for 2009 Q1 and an ROE of 2.4% (ROE was 13% in 2008 Q1).