5/23/13. w w w. m s a r e s e a r c h. c o m / c i f f. Agenda. Wednesday, May 22 nd, 2013 Metro Toronto Convention Centre

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1 w w w. m s a r e s e a r c h. c o m / c i f f Wednesday, May 22 nd, 2013 Agenda Year-End 2012 Industry Snapshots Ontario Auto mood swings Property & CATs Commercial over-capacity Tax on Related Party Unlicensed Reinsurance Investments The Flat Earth Society 1

2 Snapshots Industry ex MPI Summarized Income Statement Key Ratios D% Premiums Written Direct 50,086,517 48,504, Net Loss Ratio Assumed 6,554,568 4,460, Expense Ratio Ceded 9,100,159 6,512, Combined Ratio Net 47,540,925 46,452, Net Premiums Earned 46,783,890 45,555, Net UW Leverage Net Claims & Adj Expenses 31,328,935 32,136, Gross UW Leverage Acquisition Expenses 10,307,798 10,130, General Expenses & Other 3,286,172 2,996, Investment Yield 3.81 Total U/W Expenses 44,921,174 45,187, ROE U/W Income 1,862, , MCT or BAAT Ratio Net Inv. Income 4,464,154 4,463, Other Income -57, ,641 Net Inc. B. Tax & Ex. Items 6,269,194 4,708, NET INCOME 5,125,880 3,328, Other Comprehensive Income -110,714-38,578 Total Comprehensive Income 5,015,165 3,289, MSA Research Inc. All Rights Reserved Source: MSA Researcher P&C Software Reserves released in thousands (ex. Inv. Inc.): $2,003,992 AY LR = AY COR = 100 Snapshots Personal and Multi Line Writers (ex Gov monopolies) Summarized Income Statement Key Ratios D% Premiums Written Direct 34,426,982 33,244, Net Loss Ratio Assumed 3,371,004 1,412, Expense Ratio Ceded 5,652,018 3,433, Combined Ratio Net 32,145,968 31,223, Net Premiums Earned 31,479,202 30,305, Net UW Leverage Net Claims & Adj Expenses 21,095,543 21,378, Gross UW Leverage Acquisition Expenses 7,346,078 7,064, General Expenses & Other 2,326,512 2,101, Investment Yield 4.08 Total U/W Expenses 30,768,133 30,469, ROE U/W Income 711, ,010 MCT or BAAT Ratio Net Inv. Income 2,516,563 2,677, Other Income 78,383-83,249 Net Inc. B. Tax & Ex. Items 3,306,014 2,430, NET INCOME 2,672,040 1,535, Other Comprehensive Income -71,846 31,643 Total Comprehensive Income 2,600,195 1,566, MSA Research Inc. All Rights Reserved Source: MSA Researcher P&C Software Reserves Released in thousands (ex. Inv. Inc.): $846,851 AY LR = AY COR = 100 2

3 Snapshots Commercial Writers (Inc. Lloyds) Summarized Income Statement Key Ratios D% Premiums Written Direct 9,965,987 10,458, Net Loss Ratio Assumed 1,341, , Expense Ratio Ceded 2,597,025 2,359, Combined Ratio Net 8,710,799 9,001, Net Premiums Earned 8,772,244 8,928, Net UW Leverage Net Claims & Adj Expenses 5,156,647 5,500, Gross UW Leverage Acquisition Expenses 2,154,234 2,269, General Expenses & Other 594, , Investment Yield 2.96 Total U/W Expenses 7,905,564 8,291, ROE U/W Income 866, , MCT or BAAT Ratio Net Inv. Income 875, , Other Income -39, ,940 Net Inc. B. Tax & Ex. Items 1,702,060 1,856, NET INCOME 1,443,893 1,561, Other Comprehensive Income -81, ,542 Total Comprehensive Income 1,362,685 1,663, MSA Research Inc. Reserves All Rights Reserved Released in Source: thousands MSA Researcher (ex. P&C Inv. Software Inc.): $987,664 AY LR = AY COR = No Hard Commercial Market Here Yet Why? Ranking of Commercial Lines Writers in 2012* Personal/Commercial Writers indicated in Red 1 Intact 11 FM Global 2 Lloyd's Underwriters 12 Wawanesa Mutual Insurance Company (The) 3 Aviva Canada 13 American Bankers Insurance Company of Florida 4 RSA 14 Chubb Insurance Company of Canada 5 Northbridge 15 Dominion of Canada General Insurance Company (The) 6 AIG 16 ACE INA Insurance 7 Zurich Insurance Company Ltd. 17 Travelers Canada 8 Economical Mutual Insurance Company 18 Continental Casualty Company 9 Co-operators including CUMIS 19 Allianz Global Risks US Insurance Company 10 Insurance Corporation of British Columbia 20 Liberty Mutual Insurance Company * Ranking excludes personal property and private passenger auto business $600 million of DPW In

4 Snapshots Reinsurers (ex FMRP and Promutuel Re) Summarized Income Statement Key Ratios D% Premiums Written Direct 399, , Net Loss Ratio Assumed 1,882,797 1,845, Expense Ratio Ceded 876, , Combined Ratio Net 1,405,537 1,444, Net Premiums Earned 1,423,754 1,474, Net UW Leverage Net Claims & Adj Expenses 853,838 1,011, Gross UW Leverage Acquisition Expenses 331, , General Expenses & Other 77,555 73, Investment Yield 2.71 Total U/W Expenses 1,262,168 1,426, ROE 9.00 U/W Income 161,586 47, MCT or BAAT Ratio Net Inv. Income 225, , Other Income -18, Net Inc. B. Tax & Ex. Items 368, , NET INCOME 288, , Other Comprehensive Income -38,515 68,998 Total Comprehensive Income 249, , MSA Research Inc. Reserves All Rights Reserved Released in Source: thousands MSA Researcher (ex. P&C Inv. Software Inc.): $200,646 AY LR = AY COR =

5 Ontario Auto AB versus BI Mood Swings 5

6 Ontario Auto Budget Fallout Political Football 15% rate rollback how will it be implemented? Unravelling of minor injury guideline. Prevented? Conclusion on cat definition? Favorable? Arbitration backlog Shrinking? BI getting worse Will it continue? Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #1 Assumptions Claims Inflation (Reduction)% 0 Premium Reduction% 0 Analysis DPE ,322,836 Adj. DPE 10,322,836 Claims Incurred ,952,321 Adj. Claims Incurred 7,952,321 DLR % Adj DLR 77.0% COR % Adj COR 105.0% Source: MSA Research Inc. 6

7 Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #2 Assumptions Claims Inflation (Reduction)% 0 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 7,952,321 DLR % Adj DLR 90.6% COR % Adj COR 116.4% Source: MSA Research Inc. Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #3 Assumptions Claims Inflation (Reduction)% -10 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 7,157,089 DLR % Adj DLR 81.6% COR % Adj COR 107.3% Source: MSA Research Inc. 7

8 Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #4 Assumptions Claims Inflation (Reduction)% -5 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 7,554,705 DLR % Adj DLR 86.1% COR % Adj COR 111.8% Source: MSA Research Inc. Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #5 Assumptions Claims Inflation (Reduction)% 0 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 7,952,321 DLR % Adj DLR 90.6% COR % Adj COR 116.4% Source: MSA Research Inc. 8

9 Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #6 Assumptions Claims Inflation (Reduction)% 5 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 8,349,937 DLR % Adj DLR 95.2% COR % Adj COR 120.9% Source: MSA Research Inc. Potential Impact of ON Auto Priv. Pass Rollbacks Scenario #7 Assumptions Claims Inflation (Reduction)% 10 Premium Reduction% 15 Analysis DPE ,322,836 Adj. DPE 8,774,411 Claims Incurred ,952,321 Adj. Claims Incurred 8,747,553 DLR % Adj DLR 99.7% COR % Adj COR 125.4% Source: MSA Research Inc. 9

10 The Rise of Telematics The Race is on! Rise of Telematics Questions Pricing algorithms rate expectations? Consumer acceptance? Overcoming Big Brother. Will it modify behaviour? Competitive dislocation will slow adopters be hurt? Will experience and deep historical actuarial data be rendered less useful? How will telematics interact with ON rate requirements? 10

11 Rise of Telematics Fraud and Manipulation? Turning to Property 11

12 Property Property 12

13 Catastrophe Snapshots from PCS-Canada Catastrophe Snapshots from PCS-Canada Alberta Hail/Wind Aug 1-3, 2009 Alberta Hail/Wind July 12-13, 2010 Alberta Slave Lake Fire May 14-17, 2011 Alberta Flooding, Hail/Wind, Aug 12,

14 No Hard Commercial Market Here Yet Why? Existing over-capacity Hyper competition Influx of additional players Encroachment by multi-line writers Tepid economic growth No mega cats here No Hard Commercial Market Here Yet Why? 14

15 No Hard Commercial Market Here Yet Why? No Hard Commercial Market Here Yet Why? + Lloyd s + NB Commercial + Zurich + AIG + Chubb 15

16 No Hard Commercial Market Here Yet Why? Ranking of Commercial Lines Writers in 2012* Personal/Commercial Writers indicated in Red 1 Intact 11 FM Global 2 Lloyd's Underwriters 12 Wawanesa Mutual Insurance Company (The) 3 Aviva Canada 13 American Bankers Insurance Company of Florida 4 RSA 14 Chubb Insurance Company of Canada 5 Northbridge 15 Dominion of Canada General Insurance Company (The) 6 AIG 16 ACE INA Insurance 7 Zurich Insurance Company Ltd. 17 Travelers Canada 8 Economical Mutual Insurance Company 18 Continental Casualty Company 9 Co-operators including CUMIS 19 Allianz Global Risks US Insurance Company 10 Insurance Corporation of British Columbia 20 Liberty Mutual Insurance Company * Ranking excludes personal property and private passenger auto business $600 million of DPW In No Hard Commercial Market Here Yet Why? FRFI Entry, Exit, and Ongoing* Entry and Exit Applications Entry Ongoing Entry Exit Ongoing Exit - Canadian P&C - Foreign *Applications in progress at the end of

17 Potential GST/HST Grab on Affil/Unreg Reinsurance Investment Yields - The Flat Earth Society 17

18 Three Year Investment Yields Exhibit Inv-1 Three Year Investment Yields for Canadian P&C Insurance Industry Year Investment Yield (1) Yield excluding gains, losses & expenses % 3.10% % 3.10% % 3.67% (1) Calculated using OSFI page formula Source: MSA Research Inc. based on P&C page and available data In Summary Ontario auto is once again in flux Property was largely spared For most in the commercial space growth remains elusive amid over capacity. Interest rates continue to grind along the bottom. HST on related party reinsurance is throwing a wrench into planning OSFI is continuing to tighten up regulation but on the positive side The CDN insurance market remains strong w/no loud alarm bells ringing. 18

19 Joel Baker President & CEO, MSA Research Inc. 19