Canada Q3 Market Dynamics


Landscape

A snap election in September 2021 left Canada’s political picture largely unchanged, as Prime Minister Justin Trudeau retained his position, but the Liberal party failed to secure the outright parliamentary majority it had hoped for. Voting took place in the context of a fourth wave of COVID-19. Canada’s provinces did not reimpose full lockdown measures like the extended stay-at-home orders seen in the first half of the year, but in September the largest provinces responded to rising cases and hospitalisations by bringing in a ‘vaccine passport’ system requiring users of indoor public spaces to prove they have been vaccinated. Around 70% of the population was fully vaccinated by late September.


As Canada suffered from its third wave in the second quarter of 2021, its GDP fell in real terms by 0.3% compared with the first quarter, although the National Bank of Canada forecasts real GDP growth for the year of 5%. As economic activity has returned inflation has risen, although the interest rate target remains at 0.25%. The government’s strategy for economic recovery includes a CAD 10 billion infrastructure plan over three years.

Key Indices - Canada


Market Dynamics

Canada Featured Products Q3 2021


Q3 Automobile Summary

Overall (Challenging) The market is challenging, driven by continued insurer remediation focus which manifests through rate increases and underwriting rigor. Legislative changes in British Columbia have led to a shift to a no-fault auto accident environment, and impending changes to Alberta legislation are leading to a shift to a Direct Compensation Property Damage approach – both indicators of government-driven changes intended to reduce insurance costs.

Rates (+>30%) Profitability concerns continue for most insurers, so pricing remains challenged, although less so than in recent quarters. Loss-active and US-exposed risks are experiencing the most challenging pricing environment.

Capacity (Ample) Despite the withdrawal of a few insurers from the Auto market, capacity is generally sufficient; however, finding appetite for primary limits sufficient to satisfy Umbrella insurers can be challenging – driven largely by reinsurance constraints.

Underwriting (Prudent) Underwriters are strictly adhering to underwriting guidelines and are looking closely at organizations'’ safety standards and procedures. There is greater reliance on safety surveys to support risk assessment.

Limits (Increasing) Limits are increasing, driven primarily by underlying limit requirements of Umbrella insurers.

Deductibles (Stable) Poor performing risks are experiencing mandatory deductible increases while deductibles for the market at large remain flat.

Coverages (Stable) Coverages are generally stable, with no across-the-board restrictions being imposed.

A Look Ahead (Stable) Market pricing will be modestly challenged. Stringent underwriting and risk selection is expected to continue.


Q3 Casualty/Liability Summary

Overall (Challenging) Markets continue to reconcile their overall capacity and approach, leading to significant volatility in Excess layers.

Rates (+11-30%) Pricing for Primary and Umbrella layers is relatively predictable while there is significant volatility in Excess layer pricing. If capacity is lost within the tower, replacement markets are typically well above incumbent pricing.

Capacity (Constrained) Generally, insurers are reducing their capacity, sometimes, significantly.This is pressuring larger tower placements.

Underwriting (Stringent) Underwriting authority has shifted from regional teams to home office, and the underwriting process has become more burdensome and rigorous. Risks with wildfire exposure, or with large US losses, have become a point of discussion and are challenging to place. There is continued focus on pollution risks, with a trend to require risk engineering.

Limits (Decreasing) Limits are constrained, driven largely by contracting market capacity.

Deductibles (Stable) Deductible increases have flattened out and most placements are renewing with expiring deductibles.

Coverages (Restricting) Exposures like wildfire have become more challenging to cover, due to US losses. Cyber, and respective carve backs for PD/BI, are being challenged. Insurers are much less willing to consider manuscript forms.

A Look Ahead (Challenging) Most insurers are nearing completion of the cycle of capacity and appetite reconciliation but are expected to continue to evaluate their approaches. Larger towers will remain volatile as insurers continue to review their stances on wildfire and US risks.


Q3 Cyber Summary

Overall (Challenging) Insurers are suffering from frequency and severity of ransomware claims. This loss experience is providing insurers with a more complete view of the exposure which is leading to coverage restrictions and serving to drive up rates and create a more rigorous underwriting environment.

Rates (+>30%) As loss data accumulates, rates continue to escalate. The current pricing environment is very challenging, with across-the-board adjustments continuing.

Capacity (Constrained) Given the frequency and severity of claims, and the aggregation of exposures to specific types of attacks, i.e., solar winds, insurers are significantly reducing their capacity on any one risk. Underwriting (Aggressive) Rigorous technical underwriting and a focus on risk control activities continues, driven primarily by ransomware exposure.

Limits (Decreasing) Limit reductions are occurring with greater frequency, driven by both insurer requirements and insured cost-management strategies.

Deductibles (Increasing) Deductible increases are being used in two ways: to ensure the insured is invested in maintaining good cyber hygiene, and to help moderate rate increases.

Coverages (Restricting) There is an increased trend of limiting ransomware coverage and/or imposing co-insurance conditions.

A Look Ahead (Challenging) Insurers will continue to require rate and deductible increases while reducing capacity and scrutinizing underwriting information.


Q3 Directors & Officers Summary

Overall (Challenging) The market continues to be challenging due to loss of capacity, profitability challenges and ongoing concern related to the impact of COVID-19.

Rates (+11-30%) Significant rate increases continue; however, they are becoming more predictable, and increases are decelerating.

Capacity (Constrained) Insurers continue to deploy capacity management strategies, especially where no corrective action was taken in 2020. New capacity entering the market is cautious; there is a tendency to offer only low limits and/or leverage quota share strategies.

Underwriting (Stringent) Underwriters continue to request supplemental information, especially for industries materially impacted by COVID-19 such as retail, hospitality, travel, and airports.

Limits (Decreasing) Insurers are using limits management strategies, aiming to reduce them for poor-performing risks / risk-types.

Deductibles (Increasing) Deductible increases are being imposed, especially for challenging risk types such as large TSX traded, dual listed, bio-tech, and cannabis).

Coverages (Restricting) Coverage terms are restricting in areas such as allocation and derivative investigation.

A Look Ahead (Challenging) The market is expected to return to risk-based underwriting, with pockets of competition for top tier risks, Side A, and risks perceived to have emerged from COVID in a positive manner. The market will continue to be challenging for certain segments; e.g., US traded risk, IPOs, de-SPAC transactions, Oil and Gas, Mining, Cannabis, Bio Tech, and COVID impacted.


Q3 Enviromental Summary

Overall (Stable) The market is modestly challenging. While capacity increases and pricing remains moderate, underwriting strategy continues to evolve with more scrutiny than ever before.

Rates (+1-10%) Rates are increasing modestly, driven by increased remediation expenses.

Capacity (Abundant) While some insurers are reducing their single risk capacity deployment, the market overall is expanding through new entrants to the market.

Underwriting (Prudent) Premises Environmental Liability is experiencing underwriting scrutiny, capacity deployment controls and technical underwriting whereas underwriting for the Contractors' Environmental Liability remains flexible, with an abundance of capacity.

Limits (Decreasing) Contractors' Environmental Liability remains stable whereas the Premises Environmental Liability is experiencing a single market capacity reduction which is resulting in more excess or quota share placements.

Deductibles (Stable) Deductibles are reviewed during the technical underwriting process; however, in the end, most remain stable from the prior year.

Coverages (Stable) There is a trend toward more restrictive base coverage forms; however, many insurers are open to expanding terms through endorsement.

A Look Ahead (Stable) Insurer appetite re-evaluation will continue to be a challenge for renewals that fall out of legacy appetite.


Q3 Marine Cargo Summary

Overall (Stable) Market conditions are stable as new insurers enter this space from the US and Europe, increasing competition and moderating rate increases.

Rates (+1-10%) Rates continue to increase, but the increases continue to decelerate.

Capacity (Ample) Capacity is stable, with most programs easily satisfied.

Underwriting (Prudent) Underwriting authority continues to transition from local teams to Head Office underwriting departments.

Limits (Stable) Limits are steady but closely monitored by Head Office underwriting departments.

Deductibles (Stable) Insurers are not routinely imposing deductible changes; however, some insureds are exploring deductible increases as a way to manage premium costs.

Coverages (Stable) As Cyber and COVID exclusions become commonplace over the past renewal cycle, very few restrictions are being required in Q3

A Look Ahead (Stable) The continued pressure for growth is expected to keep appetite strong and pricing moderated.


Q3 Property Summary

Overall (Challenging) While challenging market conditions continue, there are signs of moderation in some segments, with some pockets of competition, bringing more options for clients.

Rates (+11-30%) In general, pricing is moderating; however, for some risks - despite consecutive terms of rate increase - pricing remains well below 'technical' rate adequacy and as such significant increases are imposed, although these are decelerating.

Capacity (Constrained) Insurers are reducing their lines but very few are withdrawing completely. Specific segments such as unprotected frame property are seeing a notable contraction. Some insurers are committing to providing additional capacity at the next renewal for well-performing risks.

Underwriting (Stringent) There is heavy scrutiny related to risk control and insureds’ responses to past inspection recommendations. Most large renewals require the frontline underwriter to secure leadership (possibly multiple level) approvals. There remains some willingness to negotiate, particularly on price.

Limits (Stable) Increased building and Business Interruption values are tending to push property limits higher and there is a general push for reconciliation of sub-limits to risk size.

Deductibles (Increasing) Insurers continue to seek deductible increases, especially for Nat Cat / flood.

Coverages (Stable) There is a notable shift in insurer demands to use their own forms, reducing the use of the bespoke wording design historically used by large and complex risks. Prairie flood exposure is being sub-limited where there is any flood exposure (250 year or less). There is notable push-back on cyber-related risk.

A Look Ahead (Challenging) Rate and terms are expected to further stabilize as insurers re-establish profitability following years of remediation efforts. This moderation will likely not apply to frame unprotected property and residential real estate.


Q3 Surety Summary

Overall (Soft) Pandemic-driven losses did not materialize as expected due to credit supports and government stimulus. As a result, the surety market remains favorable. Capacity is abundant and insurers are aggressively competing for business

Rates (Flat) Following a prolonged period of rate decreases, rates are now stable.

Capacity (Abundant) Surety is generally a profitable line for insurers, and each consolidation event brings a new market entrant.

Underwriting (Flexible) Underwriting has shifted and is now flexible and accommodating.

Limits (Increasing) Limits are available for all risks at requested amounts. Deductibles (Not Applicable)

Coverages (Stable) There is an increasing use of Surety in lieu of other financial security such as Lines of Credit.

A Look Ahead (Stable) Market conditions will remain soft, with favorable pricing and abundant capacity, especially for risk with strong credit.