Property and casualty (P&C) insurers facing losses from recent storm activity should be able to recover through higher prices, but the market may need government intervention if increasingly severe weather reflects a long-term change, suggests Moodys’ Investors Service.
In a new report, the rating agency reflects on TD Bank’s recent announcement of expected third-quarter net losses in its insurance business, noting that the losses “reflect charges to strengthen insurance reserves” for the Ontario auto insurance market and to meet flood-related claims.
The losses in the auto insurance market may be tough to recoup, given the government’s role, it suggests, noting that TD “has limited ability to recover its higher costs through rate increases”, particularly as the latest provincial budget included plans to reduce auto insurance premiums by 15%.
Moody’s says that recovering from flood losses will be easier “because rate flexibility in personal property lines makes it likely that TD will earn an adequate return in this product. TD can re-underwrite property coverage at renewal by increasing rates and modifying terms and conditions.”
That said, it also notes that “volatility related to severe weather will remain an inherent part of the business.” And, it suggests that this could eventually lead to some government intervention.
“Ultimately, flood losses may pose a less controllable risk for Canadian insurers if they reflect long-term changes in weather patterns,” it says, adding, “We would expect public policy intervention if elevated catastrophe losses led to sustained increases in homeowner insurance.”