Canada’s property and casualty and life insurers are in solid capital positions, but are facing increasing challenges from a difficult economic environment, according to a new report from A.M. Best Co.
The firm says that “low interest rates, volatile equity markets and tepid growth in the domestic market” are challenging Canadian life companies. And, at the same time, Canadian P&C firms are seeing lower levels of investment income, also due to low rates, and seeing significant losses from weather-related events, it notes.
Notwithstanding the slow growth environment, A.M. Best says that the life companies are maintaining adequate levels of capital, although their use of leverage has increased. And, it says, the P&C industry’s capitalization continued to improve in 2011. However, the tough business climate has firms facing strategic challenges.
In the Canadian life sector, it notes that companies, “have not diverged significantly from their investment strategy and have continued to focus on appropriate risk management in the domestic market.”
“Pressures on earnings and capital have led Canadian management teams to re-evaluate their business models in terms of product breadth, distribution channels and areas of geographic focus. The shift to less market-sensitive product lines is indicative of risk management in practice,” it says.
Overall, the P&C market remains stable, the firm notes, although industry consolidation has increased recently. “How these and future acquisitions play out will likely have a wide-ranging impact on the competitive landscape,” it says. “Furthermore, the continued development and utilization of various exposure and risk-management tools will also have a significant impact on the industry and likely lead to even more pricing segmentation.”