Tough year not over yet, Dickson tells NICC

A tough year in the Property & Casualty sector isn’t over yet, the Office of the Superintendent of Financial Institutions Canada told brokers gathered this morning for the 2013 National Insurance Conference of Canada in Gatineau, Quebec.

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A tough year in the Property & Casualty sector isn’t over yet, the Office of the Superintendent of Financial Institutions Canada told brokers gathered this morning for the 2013 National Insurance Conference of Canada in Gatineau, Quebec.

“When I was here last year, I commented on how well the Property and Casualty insurance industry was going,” OSFI’s Julie Dickson told conference attendees in Gatineau, Quebec. “What has happened this year? In terms of more P&C-focused risks, what a difference a year makes. Indeed, for many in the P&C industry, the year has been, as the Queen said in 1992, an Annus Horribilis – and the P&C year is not over yet.”

Dickson went on to suggest that CEOs may be thinking like Her Majesty the Queen, saying that “2013 will not be a year on which they shall look back with ‘undiluted pleasure.’”

Dickson gave a laundry list of the challenges faced by the insurance industry this year, including a “normal” Canadian winter compared to the easy one of 2012, resulting in more collisions; the forthcoming changes to auto insurance in Ontario; and the extreme flooding in Alberta and Toronto, coupled with the tragic train explosion in Lac Megantic. (continued.)

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“The industry’s response to these catastrophic events has been admirable, but they will cause a negative impact on company bottom lines,” said Dickson, reminding everyone at this year’s NICC of her office’s push in 2012 for new initiatives such as ORSA (Own Risk and Solvency Assessment), and a new framework for the Minimum Capital Test.

“P&C companies need to be prepared for everything, from financial turmoil in global markets to natural catastrophes, and therefore cannot be complacent – even in a good year – about the need to manage risk,” she said. “Given the catastrophes that have occurred so far this year and the potential for others to occur, many Canadians have come to realize just how important P&C companies are – and P&C companies have been reminded of how important it is to manage the myriad risks that they face.”

Dickson outline the need for insurers to focus on climate and stress testing, the quality of risk modeling and “non-modeled” risks, such as flooding.

“The catastrophe models available for Canada focus on earthquake, with some limited modeling of winter storm and tornado, wind and hail,” she said. “There are no commercially available Canadian models that cover flooding, bush or forest fires or hurricanes, a gap brought to the fore worldwide in 2011 because of the severe flooding that occurred in Thailand that year.”

Dickson told the conference attendees that the short-term impact of the recent catastrophe losses in Canada is becoming clearer, with some lessons learned include a growing need to meet the additional challenge of being prepared to deploy claims teams in the case of the occurrence of multiple events. (continued.)

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“Insurers for catastrophes, at least above a certain size, will need to actively manage their capital,” she said. “Another lesson is that ambiguity in policy wording can be expensive and difficult to avoid, especially under the public spotlight of a major catastrophe. And companies will also need to think about how many reinsurance reinstatements to have, what type of coverage and what collateral arrangements to put in place.”

Without spreading too much doom and gloom, Dickson did offer encouragement to brokers, saying that with proper risk management, a bad year can be made good.

“In OSFI’s view, those companies that have top-notch risk management and governance regimes in place will be ahead of the curve and better able than their peers to deal with challenges as they arise,” says Dickson. “In other words, even a bad year can turn into an Annus Mirabilis (wonderful year), knowing that effective risk management kicked in, losses were lower than what they might have been, and lessons were learned.”
 

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