COVID-19 Takes Toll on Canada’s Auto, Life Insurers

Canada’s property/casualty insurance industry thus far has fared better than its life counterpart amid the economic and market dynamics created by the COVID-19 pandemic, according to an AM Best report.

In its Best’s Market Segment Report, titled, “COVID-19 Taking Its Toll on Canada’s Economy and Insurance Industry,” AM Best states that the country’s overall insurance industry remains well-capitalized.

According to the report, Canada’s property/casualty companies continue to show that they have the ability to remain profitable and meet the challenges presented by COVID-19, on top of those presented by increasingly volatile weather and climate conditions, fire and seismic activity, as well as economic volatility and competitive and regulatory issues.

The personal auto insurance line remains a soft spot, however, as performance deteriorated again in 2019, and experienced a 10-point rise in the loss and loss adjustment expense ratio, reversing two years of improvement. All auto lines remain exposed to loss frequency brought on by factors such as distracted driving and more miles driven. In addition, inflation and a continual increase in loss severity due to rising repair costs are still affecting the auto lines. Early indications are that frequency trends will be down significantly in 2020, as shelter-in-place requirements, business closures, and remote working arrangements have caused a steep decline in miles driven across the country.

AM Best said it maintains a stable outlook on Canada’s property/casualty segment.

However, Canada’s life insurance industry is a different story. For life insurers, top-line growth has been materially affected, as consumers reacted to COVID-19-fueled economic strain, and agents and life insurance representatives transitioned with varying degrees of success to a digital sales environment. Life insurers’ operating earnings also have been impacted because of the market dynamics and asset valuations, and earnings likely will be pressured by the prolonged volatility in the equity markets and low interest rates, leading to lower fee-based revenue as well.

In April, AM Best revised its outlook on Canada’s life insurance industry to negative, owing to the significant disruption to the financial markets caused by the COVID-19 outbreak. AM Best said remains concerned about companies with higher exposures to commercial mortgage loans, particularly in the hotel and retail segments, as well as office space, given that many companies have been cautious in returning to an office environment.

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