The Office of the Superintendent of Financial Institutions (OSFI) released its annual report, urging the need to maintain core underwriting, and raising concerns over the mandated 15 per cent auto premium reduction target.
This year’s 2013-2014 report is also Julie Dickson’s swan song with OSFI, as she reflected on the recent challenges that she and the financial sector faced in recent years.
“This will be my final year as Superintendent of Financial Institutions. During my tenure the world has gone through one of its most difficult financial crises, the effects of which are still being felt today,” says Dickson. “I am proud of the way the Canadian financial system pulled together to work our way through the numerous challenges that were presented.”
Among those challenges were the Calgary flood in June and the Toronto rain storm in July of 2013.
“As a result, underwriting income was effectively break-even, with investment returns being the main contributor to overall earnings,” states OSFI. “Net income for the P&C industry of $2.4 billion decreased 37.5 per cent over the previous year’s net income of $3.9 billion, while return on equity fell to 7.4 per cent, from 11.4 per cent a year earlier.”
The importance of core underwriting was stressed, given the decline in return on investment.
“For the P&C industry, investment income before realized gains of $2.5 billion in 2013 was similar to that reported last year, but the return on investments before realized gains continued to decline, falling to 2.64 per cent in 2013 from 2.71 per cent in 2012,” states OSFI. “Realized gains (from the sale of higher yielding assets) fell to $290 million in 2013 compared with $862 million in 2012. These results reflect the lower yields available as the portfolio is reinvested. This continuing decline highlights the importance of core underwriting to achieve and sustain financial results.” (continued.)
#pb#
A cautionary note was sounded over Queen’s Park mandated 15 per cent auto rate reduction target for 2015, as OSFI said the legislated premium reduction may “negatively impact Ontario personal auto insurance underwriting profitability if the additional claims-related measures introduced in the 2013 Ontario budget are delayed in implementation.”
OSFI continued developing a new capital framework for its standardized Minimum Capital Test (MCT) approach in consultation with the property and casualty (P&C) insurance industry over the past year. In May 2013, it issued a discussion paper outlining intended modifications to its capital framework, as well as a QIS to assess the impact of the proposed changes.
Based on comments provided by various stakeholders, OSFI made some adjustments to the proposed capital framework and a draft MCT guideline was issued in December 2013 for further public consultation.
“This initiative is in keeping with OSFI’s long-term plan and priorities to ensure the MCT remains a sensitive and forward-looking risk management tool,” states OSFI.
