A.M. Best s Insurance Market Briefing Canada Views on Property Casualty and Reinsurance September 6, 2017 Raymond Thomson Associate Director Gordon McLean Senior Financial Analyst
Canadian P&C Industry Outlook: STABLE Solid risk-adjusted capitalization Underwriting and operating profitability recorded in 2016 Continued refinement and sophistication of underwriting technology Continuing attention to developing and enhancing risk management fundamentals
Canadian P&C Industry A.M. Best Rating Trends All ratings are in the category of Good, Excellent, or Superior based on the A.M. Best Financial Strength Rating Scale Wawanesa Mutual Insurance Company was downgraded in 2017. Several outlook changes (both negative and positive) have taken place in 2016 and 2017 The pace of movement among rating categories has slowed Not anticipating significant number of rating changes
Canadian P&C Industry Interactive Rating Distribution 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 100 100 100 109 108 108 103 102 2010 2011 2012 2013 2014 2015 2016 2017* *Through June 30, 2017. All other years, as of year end. Superior Excellent Good Fair
Canadian P&C Industry Market Share All Lines Rank Group / Company DPW (C$B) % 1 Intact Group 8.3 15.6% 2 Aviva Group 5.1 9.6% 3 Desjardin Group 4.5 8.4% 4 TD Insurance Group 3.0 5.7% 5 Co-operators Group 2.8 5.3% 6 Wawanesa Mutual Insurance Company 2.8 5.3% 7 Lloyds Underwriters CAB 2.8 5.3% 8 RSA Group 2.8 5.2% 9 Economical Group 2.1 3.9% 10 Travelers Group 1.5 2.8% Total 35.7 67.2% Source: A.M. Best data and research 2016
Canadian P&C Industry Combined Ratio Components Underwriting Expense Ratio Loss & Loss Adjustment Expense Ratio 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0-95.8 31.2 *Excludes Lloyd s CAB & ICBC 99.8 98.2 95.5 98.2 31.4 31.7 32.2 32.5 64.6 68.4 66.5 63.3 65.7 2012 2013 2014 2015 2016
Canadian P&C Industry Operating Ratio 100.0 95.0 90.0 85.0 80.0 75.0 70.0 65.0 60.0 55.0 50.0 88.6 *Excludes Lloyd's CAB & ICBC 93.2 90.2 89.9 92.0 2012 2013 2014 2015 2016 Operating Ratio
Canadian P&C Industry Net Investments: Income vs. Yield Net Investment Income (C$ Billions) 3.2 3.0 2.8 2.6 2.4 2.2 5.0 4.5 4.0 3.5 3.0 2.5 Net Investment Yield (%) 2.0 *Excludes Lloyd's CAB & ICBC 2012 2013 2014 2015 2016 Net Investment Income (C$ Billions) 2.0 Net Investment Yield
Canadian P&C Industry Auto Net Loss Ratio Trends 100.0 90.0 84.2 89.6 Loss Ratio (%) 80.0 70.0 60.0 64.4 76.6 62.6 50.0 54.7 40.0 2012 2013 2014 2015 2016 *Excludes Lloyd's CAB & ICBC Auto - Liability Auto - Personal Accident Auto - Other
Canadian P&C Industry Auto Net Premiums Written 25.0 NPW (Millions) 20.0 15.0 10.0 16.7 17.1 17.8 18.3 19.3 5.0 - *Excludes Lloyd's CAB & ICBC 2012 2013 2014 2015 2016 Auto - Other Auto - Personal Accident Auto - Liability
Canadian P&C Industry Catastrophe Losses 1991-2016 Year Date Location Event Loss & LAE Current Dollar 2016 May - August Fort McMurray, Alberta Fire 4,000 4,047 1999 February Quebec, Ontario, New Brunswick Ice Storm 1,574 2,205 2013 June Alberta Heavy Rains/Flooding 1,740 1,843 2013 July Toronto Heavy Rains/Flooding 940 996 2011 May Slave Lake, Alberta Fire 742 806 2005 August Ontario Wind/Rainstorm 625 761 2010 July Calgary and Southern Alberta Wind/Thunderstorm 630 703 2012 August Calgary Flooding/Hail/Wind 552 592 1991 September Calgary Hail 343 538 2009 July Ontario Heavy Rains 376 424 2016 July - August Alberta, Manitoba, Ontario, Saskatchewan Wind/Thunderstorm 370 374 2005 June Alberta Flooding 300 365 2017 July - Present British Columbia Fire TBD TBD, Bank of Canada Incurred Losses (C$ Million)
Canadian P&C Industry Net Loss Ratios 85.0 80.0 75.0 78.8 Commercial Personal 74.4 70.0 68.2 72.8 66.5 65.0 60.0 55.0 50.0 60.3 * Excludes Lloyd's CAB & ICBC 64.1 60.1 54.8 60.6 2012 2013 2014 2015 2016
Canadian P&C Industry Key Future Issues Consolidations / M&A activity Distribution Channel Expansion Ontario Auto Technology / Infrastructure / Modeling Cyber Risk
Canadian P&C Industry Fort McMurray Fire Largest single catastrophic occurrence in Canadian History: (C$3.6 Billion IBC to C$4.6 Billion PCS) Earnings event for the overall Canadian industry Primary (Domestic) Market fared well Reinsurers shouldered relative loss burden Pre-event soft reinsurance climate Lessons learned from Slave Lake OSFI s BC Quake 1/500 reinsurance mandate Industry s response to 2013 and 2014 catastrophic loss years
Canadian P&C Industry Fort McMurray Fire Lessons Learned Insured Exposures v. Concentration of Insured Exposures Risk Transfer Claims Handling Local Regulations Understanding Capabilities Risk / Concentration Analysis Restoration of pre-loss conditions
Canadian Reinsurance Market 2016 Canadian Reinsurance NPW by Line 2.1 5.1 3.4 14.7 10.1 20.7 43.9 Commercial Property Personal Property Liability Auto Liability Surety Auto Other All Other
Canadian Reinsurance Market NPW and Shareholders Equity 4.0 3.6 3.4 3.5 3.4 3.0 3.6 3.8 C$ in Billions 2.5 2.0 1.5 1.0 1.7 1.6 1.4 1.5 1.5 0.5 PHS NPW 0.0 2012 2013 2014 2015 2016
Canadian Reinsurance Market Combined Ratio 120.0 Expense Ratio Loss and LAE Ratio 100.0 80.0 87.3 27.7 95.7 27.6 74.0 71.2 101.8 28.2 86.7 28.3 60.0 28.1 30.2 40.0 20.0 59.6 68.1 45.9 41.0 73.6 58.4-2012 2013 2014 2015 2016 5 Yr Avg.
Canadian Reinsurance Market Combined Ratio vs. Global Reinsurance Market 120.0 Canadian Reinsurance Global Reinsurance 100.0 91.7 87.3 95.7 87.9 89.7 90.4 101.8 95.2 91.0 86.7 80.0 74.0 71.2 60.0 40.0 20.0-2012 2013 2014 2015 2016 5 Yr Avg.
Canadian Reinsurance Market Total Return on Equity 18.0 Canadian Reinsurance Global Reinsurance 16.0 14.0 12.0 10.0 8.0 10.8 12.4 13.0 15.5 11.6 13.6 9.5 8.2 9.3 10.9 6.0 4.0 2.0 4.6 2.4-2012 2013 2014 2015 2016 5 Yr Avg.
Global Reinsurance Market Outlook - NEGATIVE Capitalization remains strong but Performance has deteriorated and pressure on margins continues to mount. Returns for some reinsurers will fall short on a riskadjusted basis. Headwinds Tailwinds
Global Reinsurance Market Top 50 Global Reinsurers Reinsurance Premiums Written Life & Non-Life 2017 Rankings Company Name (USD m) Gross Net 1 Swiss Re Ltd. 35,622 33,570 2 Munich Reinsurance Company 33,154 31,891 3 Hannover Ruck SE 17,232 15,192 4 SCOR S.E. 14,569 13,238 5 Berkshire Hathaway Inc. 12,709 12,709 6 Lloyd's 11,576 8,694 7 Reinsurance Group of America Inc. 10,107 9,249 8 China Reinsurance (Group) Corporation 7,857 7,517 9 Great West Lifeco 6,195 6,112 10 Korean Reinsurance Company 5,554 3,903 Rank 1-10 68.6% Rank 11-20 16.0% Rank 21-30 7.6% Rank 31-40 5.0% Rank 41-50 2.8%
Global Reinsurance Market Combined Ratio 100% 90% Loss Ratio Expense Ratio Loss Reserve Development 10% 9% 80% 70% 31.6% 31.9% 33.5% 34.8% 34.7% 32.6% 33.3% 8% 7% 60% 6% 50% 5% 40% 4% 30% 20% 60.2% 55.9% 56.2% 56.2% 60.6% 62.2% 57.8% 3% 2% 10% 1% 0% 2012 2013 2014 2015 2016 2017 Q2 5yr Avg 0%
Global Reinsurance Market 120% Combined Ratio by Reinsurance Sector Loss Ratio Expense Ratio 100% 91% 89% 92% 92% 96% 97% 93% 87% 87% 91% 92% 93% 91% 87% 88% 90% 98% 80% 60% 40% 20% 0% 2012 2013 2014 2015 2016 2017 Q2 2012 2013 2014 2015 2016 2017 Q2 2012 2013 2014 2015 2016 European "Big Four" U.S. & Bermuda Lloyd's
Global Reinsurance Market Return on Equity ROE (%) 14.0 13.0 12.4 12.0 10.0 8.0 6.0 11.6 9.5 8.2 8.1 10.9 4.0 2.0-2012 2013 2014 2015 2016 2Q17 ROE 5 Yr Avg
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Global Reinsurance Market Return on Equity by Sector 9.7% 11.5% 11.0% 13.1% 13.0% 8.1% 6.8% 7.5% 10.9% 11.4% 10.6% 8.1% 10.9% 8.1% 8.9% 14.7% 16.2% 15.1% European "Big Four" U.S. & Bermuda Lloyd's 2012 2013 2014 2015 2016 2017 Q2 Five Year Average
Global Reinsurance Market Return on Equity Less Loss Reserve Development 12% 10.9% 10% 8% 6.8% 6% 4% 2% 0% Source: AM Best Data and Research 5yr Avg ROE 5yr Avg ROE excl. Loss Res. Dev.
Global Reinsurance Market Operating Cash Flow as a % of Equity by Sector 25% 20% 15% 10% 5% 5.5% 15.4% 17.1% 17.9% 11.4% 19.2% 2.9% 9.9% 9.7% 11.4% 10.4% 10.9% 10.9% 7.2% 6.0% 5.4% 13.2% 0% European "Big Four" U.S. & Bermuda Lloyd's 2012 2013 2014 2015 2016 2017 Q2 Source: AM Best Data and
Global Reinsurance Market Alternative Capital M&A will continue Alternative capacity is driving change Market is still largely influenced by global leaders Alternative capital is driving a great deal of structural change in the market. However, the market continues to be heavily influenced by the global reinsurance leaders.
USD Billions Global Reinsurance Market Estimated Total Dedicated Reinsurance Capacity 500 450 400 60 75 80 68 350 48 300 250 200 150 320 340 332 345 355 100 50-2013 2014 2015 2016 2017E Traditional Capacity Convergence Capacity
Global Reinsurance Market Third Party Capital Breakout 90 80 70 60 50 40 30 20 10 0 Direct Institutional Investors Reinsurance Sponsored Managers (including sidecars) Dedicated ILS Managers 2017E
Global Reinsurance Market Alternative Capital Major Players Nephila Credit Suisse Asset Management LGT Insurance-Linked Partners Fermat Capital Management Stone Ridge Capital Management Securis Investment Partners Catco Leadenhall Capital Management Elementum Advisors Aeolus Vast majority of alternative capital is influenced by these major market players
Mergers and Acquisitions The Result of Strategic Opportunities Broader product capability Broader geographic reach Greater influence Opportunity for growth Greater attractiveness to alternative capital
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