Canadian P&C insurers showing signs of stress: OSFI

After several years of strong operating results, Canada’s federally-regulated property and casualty insurers are starting to show signs of stress, the Office of the Supervisor of Financial Institutions (OSFI) said in its 2007-08 Annual Report.The industry’s overall combined ratio (COR) increased from 88.6% to 91.9% in 2007, OSFI noted. But the solvency regulator further observed that even though the COR increased, the result indicates the core business of the property and casualty industry continues to operate profitably.The return on equity (ROE) of OSFI-regulated insurers was 16.1% in 2007, down from 20.3% the previous year. The industry was not affected to a significant degree by the ongoing credit turmoil, but there was an increase in unrealized capital losses during the course of the year, OSFI said.The results of 2007 operations continued to support strong minimum capital test (MCT) results for Canadian companies and branch adequacy of assets test (BAAT) results for branches of foreign companies, OSFI noted. “The 2007 combined MCT/BAAT result for the industry was 250% — relatively unchanged from 2006 levels, and significantly above OSFI’s minimum supervisory target of 150%.”But the P&C industry remains inherently volatile, with increasing claims pressures, increasing weather-related losses, and automobile lines remaining subject to provincially legislated coverage provisions, OSFI added.“OSFI will continue to monitor loss exposure and the risk management processes of P&C companies to mitigate these risks.”