Financial results for the first half of 2002 for Canada’s home, auto and business insurers show signs that a modest recovery is underway, but the situation is expected to remain weak for at least the next year or two.

The latest edition of Perspective — the Insurance Bureau of Canada’s quarterly analysis of the financial performance of the property and casualty insurance industry — shows the industry has seen recent improvements through higher prices and tighter underwriting.

Revenues will grow faster this year than claims costs for the first time since 1995. Revenue growth is the strongest since 1986. Unfortunately the growth in claims costs remains high, particularly for auto insurance coverage, continuing to add to pressure on pricing.

The report says P&C insurers are encouraged by the proposed auto product reform legislation in Ontario. The legislation offers to provide insurers with some tools to improve management of the intense cost pressures that are driving up the cost of insurance. It laments that auto reform discussions in other parts of Canada are not showing as much progress.

“The collapse this year in investment markets is disappointing news as reduced income from industry investment portfolios is adding to the pressure on pricing,” said Paul Kovacs, senior vice president and chief economist at IBC, in a release “The industry invests primarily in bonds and other fixed income instruments and this has moderated the adverse impact. Nevertheless the weakness is disappointing and unexpected.”

The report notes that rising medical costs put increasing pressure on auto insurance rates. To help re-establish rate stability, medical costs need to be put under control. IBC is currently addressing this issue through the proposals for legislation reform of the Ontario Insurance Act and through the activities of the IBC health care project.