IBC Reports 2004 Financials for Auto, Home and Business Insurance Companies

Insurance Bureau of Canada (IBC) recently announced estimated 2004 financial results for Canada’s home, auto and business insurance companies.

Industry data indicate that in 2004, the industry’s 206 companies posted combined net earnings of $4.2 billion. The industry also paid
out $20.6 billion in claims and contributed an estimated $6 billion in taxes to governments. Shareholders’ return on equity was 20.6%.

“These financial results confirm that the P/C insurance industry has
returned to financial health following a period of the weakest earnings in its history,” said Stan Griffin, president and CEO, Insurance Bureau of Canada. “Last year we returned to profitability and today with some relief we can say to policyholders, government and shareholders that the industry is strong again,” he added.

Stronger financial results have allowed insurers to reduce auto insurance premiums substantially in every jurisdiction where the product is delivered by the private sector.

“Drivers across Canada are among the key beneficiaries of this recovery. In these provinces, consumers can expect to save $1.4 billion in their car insurance payments in 2005, as a result of joint industry and government efforts to manage insurance claims costs more effectively. Not surprisingly, consumer complaints about insurance premiums have declined by more than 80% over the past year,” Griffin added.

Return on equity
“The insurance industry’s ROE for 2004 is strong but insurance is a cyclical business – years of profit are often preceded by years of low returns. Over the last five-year period, the ROE was 8.6%. Many other sectors of the economy have averaged closer to 20%,” Griffin said.

Griffin noted that insurance earnings are also modest compared to other costs such as claims and taxes. “Since 2000, annual income for insurance companies has averaged 6 cents for every insurance revenue dollar (premiums and investments). “That means 94 cents flowed back as claims pay outs to policyholders, taxes to government, and operating expenses, such as salaries,” Griffin added.

These strong financial results have also eased concerns about the
industry’s solvency. “A healthy insurance industry is solvent and stable,” Griffin said. “Late last year, Canada’s federal regulator, the Office of the Superintendent of Financial Institutions (OSFI), had expressed concerns about the financial stability of the industry. Some 46 insurance companies were on the regulator’s solvency watch list a year ago. More recently, however, Nicholas Le Pan, the federal Superintendent of Financial Institutions, said that after five years of deteriorating results, there has been an improvement in the health of the P/C insurance industry.”

In addition to commenting on the importance of a healthy insurance
industry, Griffin also pointed to the important role the insurance industry plays in the Canadian economy. “Property and casualty insurers provide more than just a financial service. We underpin virtually all economic activity in the country by removing the financial uncertainty associated with devastating losses.

“Our industry also has a long and proud history and today employs more than 100,000 people in communities right across Canada. In addition to paying $6 billion in taxes to government to support vital public services, insurers also invest $27 billion in provincial and municipal bonds that make infrastructure renewal possible. We do all that on top of being there when the next ice storm, hurricane or forest fire strikes.”