What’s on Dec? | Episode 25 | Commercial lines: State of the market

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Commercial lines such as cyber and D&O remain in a soft market in Canada’s P&C insurance industry.

In our latest What’s on Dec? podcast, we examine the factors that could reverse the current soft market, as well as the impact of economic influences like shifting client exposures, uncertainty around U.S. tariffs, investments, and bankruptcies.

Matt Studley, Chief Operating Officer for HUB’s Ontario & Atlantic regions, also explores two specific lines of business: trade credit insurance and reps & warranties (M&A insurance). He describes each type of insurance and how clients are using them. He also shares his thoughts on how M&A deal flow in the P&C industry is trending.

Audio transcript

Intro | Jason Contant

Hi, I’m Jason Contant, Associate Editor, Canadian Underwriter, and co-host of our podcast series “What’s on Dec?” Recently, I sat down with Matt Studley from HUB to discuss Canada’s commercial lines market. We explored the state of the industry, specific lines like trade credit and reps and warranties, and how the macroeconomic environment is affecting commercial insurance. This episode is sponsored by AM Best.

Jason Contant:

For today’s episode, we’re gonna take a closer look at the soft commercial lines market and what factors could be influencing those conditions. We’re also gonna focus on some different lines of business to see what’s happening there. So, as we know, Matt, there’s certain lines like D&O and cyber are in a soft market and so I was wondering if you could sort of share what you think would temper the soft market in commercial lines.

Matt Studley:

Yeah, absolutely Jason, thank you for having me. So I think from a D&O and a cyber perspective, obviously we’re talking about long-tail liability with those two lines, right? So I think what’s been happening is you’ve had a lot of additional capacity and newer insurers coming into Canada or additional capacity coming from Lloyd’s of London that have really started to increase the supply to both of those two markets in the last couple of years and obviously has driven down those prices. So I think the biggest thing that could kind of reverse that trend would just be losses in those two lines. And I think if some of those insurers who don’t have as well established of a Canadian book of business in those two lines were to feel a little bit of the pain of losses, ultimately they could reconsider some of their strategy. I think that’s more likely to happen in the short- to medium-term with cyber simply because I don’t think we can open the newspaper it seems daily without seeing another cyber loss. So I think that ultimately that market will effectively catch up to what the actuaries are saying about the long-term viability of everything. It is true that more clients are buying than ever, so that helps in terms of premium volume, but it certainly doesn’t swamp the losses if you end up having loss ratios that start to tick up. I think on the D&O side, it’s a little bit more complicated because we’ve been seeing the softening market for probably since the fall of 2023 is when the D&O market started to really turn in Canada. And, you know, prior to COVID, everybody was talking about D&O in Canada being a loss leader specialty line for the insurers. So we’ve effectively gone, everybody took rate in the D&O market through COVID to try to fix that situation because we knew it wasn’t long-term viable for them. But ultimately in, you know, about two years, it’s essentially all been given back. And as the economy gets a little bit shakier, if that continues to perpetuate then, of course, D&O losses can take place. I think what you’re gonna see though is you’re gonna to see more kind of large-scale issues because, of course, it’s just a different level, when we talk about the D&O market and especially the cyber market, you have different levels of sophistication within the clientele and so different losses that ultimately drive it. I’ve said to many clients before, the good and the bad of D&O is everything is a D&O claim. So the other thing that I keep an eye on obviously is some of the more, some of the kind of trends that are starting to take place, right? So you have, you know, the integration of artificial intelligence, ultimately if you do a bad job of that in the commercial context, that can become a D&O claim. Same thing when you have a lot of pressure from the regulators right now in Canada on ESG and some of the disclosures that are taking place, that can also become a D&O claim. Whether it becomes large enough to create meaningful losses, I suppose time will tell.

Jason Contant:

Yeah, that’s interesting too because, and you had mentioned the economy, so that’s a good segue I think into the next question I was gonna ask like in, we have heard, I think there was some contraction in the economy in the last quarter, right? I think 0.4% or something. So there are these fears and we don’t know what this quarter is gonna be, but there are fears we’re in a recessionary environment in effect, right? So I’m trying to get sort of an impact. What do you think the impact could be on commercial lines if the economy sort of gets worse?

Matt Studley:

Yeah, so I think there’s kind of three key buckets, if I could call it that on the commercial side. So one of them is just change in client exposure, right? So you have situations where inevitably if, you know, your business isn’t doing as well, you know, you’re gonna maintain less inventory, you’re gonna have other knock-on effects that normally you’d be insuring that you’re just going to buy less insurance for because you have less assets to insure. So I think that that, you know, cascades into a bit of a problem for some of the insurers depending on where they play in the space because you can have circumstances where, you know, they wanted to grow, the risk is growing, but at the same time, they’re actually getting less premium. I think the second piece would be just from an investment lens, both on the insurer side, but also from the client side. So if we’re going to be in a shakier economy for a longer period of time, then, you know, inevitably you’re going to pause or at least reexamine whether you want to make material investments to build your business, right? I’m a big believer that I think the tariffs unfortunately are gonna be here to stay for a long period of time. I know a lot of us are hoping, oh they’ll be quickly reversed. I don’t see how that’s gonna happen in the US simply because like any other government situation, the revenue’s going to start to show up and it’s gonna be very, very difficult for them to turn off the tap once it’s started. Right, so I could see a lot of situations where clients are taking longer to make those investments, reconsidering or really being deliberate about what investments they’re making, which then, of course, means less to insure, so less premiums for the insurance companies. And then the third piece would, of course, just be the bankruptcies, right? So you’re going to have, and we’ve had a lot more conversation with clients in 2025 and I think the industry has, about the implications of bankruptcies, you know, distressed asset sales, and inevitably, there is going to be a percentage of the market that is going to just be out of the market because they won’t exist anymore.

Jason Contant:

I think that’s a normal sort of reaction with the economy. Like whenever the economy is sort of shaky, I think people just are hesitant to invest, right? Like they’re just not sure. They always say, you know, diversify and everything, but if you don’t see the income coming in, it’s hard to diversify if you don’t wanna spend the money, right?

Matt Studley:

Yeah, and I think that’s been the biggest impact probably of the tariffs that I’ve seen is just the massive uncertainty it’s created for businesses, right? And so, you know, in some ways, as painful as it would’ve been just to have the tariffs hit and hit on everything, you know, when Trump came into office, I think some businesses would’ve had an easier time managing that. It was this will they, won’t they, what products are impacted. Maybe mine are included, maybe they’re in the next round. Like I don’t know how you run a business trying to figure out all these different iterations of what could happen to your company. It’s impossible.

Jason Contant:

Yup, and there was a new one, I think he said November 1st, I don’t remember what it was, but he was gonna put tariffs November 1st on something and then there’s lumber and there’s manufacturing and everything and there’s the auto ones already and they were off and they were on. So yeah, it’s the uncertainty as we said, right? And we’ve actually heard too, one of my colleagues was at the RIMS Canada Conference in Calgary last month I guess it was. And they heard that, you know, policyholders sometimes aren’t using the premium savings that they get in a soft market to extend their limits or anything like that, even though it’s taking longer and more money to rebuild after disasters, they’re kind of hoarding the money if it were just because of the uncertainty. So have you found this is the case with your clients as well?

Matt Studley:

So, I’d say it’s a bit of a mixed group. I would say a lot of our clients I would say are spending some of the savings if I could put it that way. But I think inevitably when there’s uncertainty with some of the commercial businesses, I think there’s been a lot more rigour from the clients asking to justify why additional limits and why specifically for them and essentially getting into a specialized advisory conversation, which is what I think the best brokers do better than anybody is have those custom conversations versus try to sell a product. So I think that, you know, the answer is yes, they’re spending some of the savings, but I also think in an economy like this, or if there’s potential turmoil coming down the road, a lot of these businesses are also being very, very mindful of their cash flow. And so there’s a lot of scrutiny being put on any expense. And so in situations where, you know, we’re looking for clients or we’re suggesting to clients, why don’t you increase the limits as part of your savings, we really want to make sure that they have all the analytics and have actually gone through the process with us of understanding why that’s our recommendation. Not just, oh, there’s savings, so buy more limit, ’cause I think there’s a group of the brokerage community that, you know, pushes it that way and I just don’t think most clients kind of are in the mental, in the right mental space to hear it that way in an economy like this where they have a few nerves going on in the background and insurance isn’t what they’re doing every single day.

Jason Contant:

Yeah, just sort of think of this as a side note, are there certain, I guess, lines of business that you’re finding there are more premium savings and you are recommending that clients invest more in?

Matt Studley:

Yeah, so I mean, you touched on them at the beginning a little bit. Like a lot of the specialty lines, right, you’re seeing rates collapse. And so in those situations, it is a good opportunity to actually reinvest and kind of bring your insurance program up to a certain level of sophistication if that’s what makes sense for you and that’s what was making sense, you know, a year ago, two years ago. Like the tricky thing with long-tail liability in the specialty lines is it’s very hard to quantify in the short-term is this a good return on investment, right? Because like anything in insurance, the reality is you probably won’t have a claim. So for a year or two years, it’s easy to justify, you know, a wise decision or potentially a foolish decision was actually wise. You know, if you don’t have a claim, you know, it wasn’t technically bad, but it doesn’t mean it was the right decision. You got lucky, you know. And for commercial businesses, you know, obviously luck is not a strategy.

Jason Contant:

Yeah, for sure. Now, I’m thinking sort of we shift gears a bit like in terms of specific markets like, for example, like trade credit insurance, maybe you can give us a bit of an overview of what you see happening in that space.

Matt Studley:

Yeah, absolutely. So maybe if it’s okay, I’ll start for a second on kind of what trade credit is a little bit just ’cause I find it’s one of those specialties that some have heard of, some have gotten into before, but it’s really a very specialized area. So I mean, functionally what you’re doing is you’re ensuring your receivables. And for most commercial businesses, especially those who export product outside of Canada, there is a risk that you don’t receive payment and the goods are gone, right? So if you’re shipping to another country, you know, all the goods arrive, how are you gonna get them back if you don’t have the bill paid? And because it’s such a big piece of the balance sheet for those firms, it’s a huge risk and I find it’s a risk that not that many firms think about or at least just haven’t had as much kind of exposure to. So we’ve seen a huge increase in the number of clients who are wanting to talk about trade credit and the number of prospects that are wanting to talk about it just to understand what it is and how they can kind of strategically use it. Because it’s one piece ensuring your receivables, but also for those customers who have, you know, most of them have credit lines with the banks, they have lending facilities, if you start to insure some of your receivables, it’s often you can go to that existing lender and say, can I get more access to this capital that you already offered me? Because now I’ve insured one of the assets on my balance sheet. And so I can essentially take my existing lending facility and stretch it even further, which I find in an economy looking like this where everybody’s a bit nervous, you know, nobody’s wanting to take on new debt right now, but if you can strategically use your debt better to grow the business, I find a lot more clients are open to that conversation.

Jason Contant:

Yeah, for sure. And another thing I’m thinking in this market too is sort of reps and warranties like M&A insurance, we’re always hearing deals, always all the time happening, from what I’ve heard, but there’s fewer deals now, right? So is there any indication as to, you know, when these deals may be coming back?

Matt Studley:

Yeah, so I think there’s two pieces to it. So one, the deal flow has started to tick up materially in the US and in Canada, but it’s coming off of quite a low point, right? So it’s been kind of a shrinking group for a couple of years now. But you know, deal flow has started to pick up in 2025. I think what’s become a bit trickier is that one of the reasons why, like A, we’re not back to the heights of, you know, 2022-2023, so we have a ways to go before we get back there for sure. But I also think the biggest impact we’ve seen is just the time from, you know, signing a letter of intent with a company you may wanna take over and actually closing the deal has really stretched out. And I think because of all the, because of all the components of the economy and all the uncertainty that we’ve been talking about, people wanna do a lot more due diligence on these deals and make sure they really understand what they’re getting themselves involved in and how they’re gonna kind of monetize that investment. So we’re seeing those deals that, you know, typically were turning around in two weeks, four weeks, a month, you know, now they’re doing due diligence for six months, which just takes a lot more effort on the insurer side, but also on the client side. And I also find with, you know, the potential uncertainty there, there’s also a lot of heightened interest on kind of distress deals. So firms taking a look at these companies and saying, you know, if you’re in a bad situation and I was gonna take you over, I’ll still take you over, but I just might wait six months to do it ’cause then we’re gonna be talking about a completely different price, unless you can fix the issues you’re dealing with.

Jason Contant:

Yeah, so is it actually that there are fewer deals or they’re just taking longer or is it sort of both?

Matt Studley:

I think it’s both. I think it’s both. And, you know, it is fewer deals, especially from the height. You know, do we get back to that place? I think we do. I think like any other cycle, it will come back. How high it goes, how fast we get back, you know, to that level, that was an extreme, you know, a couple of years ago, which you have to kind of play the cyclicality so to speak and make sure clients understand the cyclical nature of it. I think the positive side of it for clients who are in like the M&A market and are examining it, especially with reps and warranties, is you don’t have as much competition for the insurance deals. So insurers are hungry for them because they’re not seeing deal after deal after deal, you know, multiple times a week. And, you know, the downside of a couple of years ago where there was so much deal flow is if you were a smaller M&A opportunity, it could be harder to get an underwriter to look at it quickly ’cause they’re prioritizing bigger deals over your.

Outro | Jason Contant:

That wraps up today’s episode, sponsored by AM Best. We hope you enjoyed the discussion. Thanks for tuning in. We’ll see you next time on What’s on Dec?