How Carney’s trade missions could shift P&C industry focus

More than a week after Prime Minister Mark Carney’s World Economic Forum speech proclaimed an end to the international rules-based order and that “the strongest would exempt themselves when convenient,” fallout is still drifting in from the White House and several cabinet officials in Washington.

So far, Carney is rebuffing the gripes, and many of his meetings at Davos with other world leaders aimed at securing economic and security cooperation among the ‘middle powers’ referenced in his speech.

The buzz is sparking fresh discussions about Canada’s business sector as global trade rebalancing gradually weakens this country’s economic output. In that context, it was no surprise on Wednesday when the Bank of Canada held interest rates at 2.25%.

In an accompanying monetary policy report, the bank notes U.S. trade restrictions are triggering structural adjustments in Canada’s economy. “Tariffs have led to a lasting reduction in U.S. demand for Canadian goods, weighing on jobs, productivity and living standards in Canada,” it reads. “This transition will be challenging for affected workers and businesses, and growth will be modest.”

Car trouble?

Carney’s trade mission stops prior to Davos led to a deal with China to lower tariffs to 6.1% on 49,000 Chinese-built electric vehicles (EVs) in exchange for reduced tariffs from China on various Canadian agricultural products. Ratings agency Morningstar DBRS calls the change credit positive for Canada’s grain industry, especially considering “the previous tariffs [84%] had locked Canadian canola out of the Chinese market.”

Should these trade talks bear fruit, Canada’s P&C insurers and brokers could find themselves needing to secure more complex insurance coverages for Canadian goods being transported to new destinations, and to shifting modes of transport that present different risks than road and rail based exports to the U.S.

The industry may also need to watch for any unique risks related to the planned EV imports from China, for which there is currently no North American crash performance or safety data. The vehicles are, though, already being imported into Australia, Belgium, Germany and the U.K., which have safety standards similar to, or stricter than, Canada.

In response to a CU query, Transport Canada says, “Under this regulatory regime, manufacturers are responsible for certifying that all new vehicles and equipment…comply with Canada’s Motor Vehicle Safety Regulations and its associated Canada Motor Vehicle Safety Standards.”

Banking on defence

Already, the middle powers Carney mentioned in Davos are looking to cooperate through security, which includes substantial increases in military spending. Among those efforts is the new Defence, Security and Resilience Bank (DSRB), a multilateral lender modelled after the World Bank to provide long-term liquidity and credit to suppliers and streamline procurement.

DSRB is seeking a home, and Ontario is pitching to have its headquarters in Toronto on the strength of the city being a national financial centre with a deep talent base and access to global capital markets. “It is expected to create approximately 3,500 skilled jobs and countless more secondary jobs,” says a provincial government information packet.

Both Montreal and Ottawa also hope to host the bank which, if located in Canada, could have long-term impacts on Canada’s defence, aerospace and advanced manufacturing sectors. Such businesses have unique risks and create opportunities for insurers and brokers to craft specialized coverages.

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Ontario alters contractor laws

New amendments to Ontario construction regulations under Bill 60 will be largely “credit positive for contractors and subtrades,” says a new report from Morningstar DBRS. The ratings agency notes the changes will permit builders to recognize profits earlier (which could reduce borrowing costs) and improve cash flow. “In our view, the amendments are most meaningful for smaller firms that rely more heavily on external capital,” the report says.

The changes will “among other things, [create] a new statutory framework for holdback, adjudication, lien, and trust procedures, which have material implications for Ontario’s construction industry,” the report says. Plus, Bill 60 expands adjudication rules from primarily payments “to include items such as the scope of work to be performed, a request for a change in the contract price, and a request for an extension in time.”

Such additional legal risks could alter the insurance requirements for construction projects, since disputes can be complex.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.