Canadian Property/Casualty Insurance Industry · Risk management capabilities are superior and are...

Canadian Property/Casualty

Insurance Industry

Greg Williams

Senior Director

A.M. Best Annual Insurance Market Briefing Canada

September 5, 2018

Review

• Updated BCRM went live on October 13, 2017

• All Canadian ratings will be rated under new methodology by year-

end

2

Baseline

Balance

Sheet

Strength

Baseline

Operating

Performance

(+2/-3)

Business

Profile

(+2/-2)

Enterprise

Risk

Management

(+1/-4)

Comprehensive

Adjustment

(+1/-1)

Rating

Lift/Drag

Issuer

Credit

Rating

Country Risk

Maximum + 2

Interactive Rating Distribution

3

100 100 100109 108 108

103 101 101

-

20.0

40.0

60.0

80.0

100.0

120.0

2010 2011 2012 2013 2014 2015 2016 2017 2018*

Nu

mb

er

of

Rati

ng

s

Fair Good Excellent Superior

Canada Property/Casualty – Interactive Ratings Distribution (2010-2018*)

• No Canadian P/C rating changes tied directly to updated rating

methodology

*Through June 30, 2017. All other years, as of year end.

Source: A.M. Best data and research

4

Balance Sheet Strength

Balance Sheet Strength Assessment

5

Assessment Key Characteristics

Strongest

The rating unit has the strongest BCAR score with a demonstrated pattern of stability. Its quality of capital and ALM are also

the strongest. It has an appropriate and diverse reinsurance program. Any additional analytical factors are in line with an

assessment of strongest.

Very Strong

The rating unit has a very strong BCAR score with a demonstrated pattern of stability. Its quality of capital and ALM are also

very strong. It has an appropriate and diverse reinsurance program. Any additional analytical factors are in line with an

assessment of very strong.

StrongThe rating unit has a strong BCAR score with a demonstrated pattern of stability. Its quality of capital and ALM are also strong.

It has an appropriate and diverse reinsurance program. Any additional factors are in line with an assessment of strong.

AdequateThe rating unit has an adequate BCAR score that has been relatively stable. Its quality of capital and ALM are adequate. It has

an appropriate reinsurance program. Any additional factors are in line with an assessment of adequate.

WeakThe rating unit has a weak BCAR score with a demonstrated pattern of volatility. Its quality of capital and ALM are weak. Its

reinsurance program is weak. Any additional factors are in line with an assessment of weak.

Very WeakThe rating unit has a very weak BCAR score with a demonstrated pattern of volatility. Its quality of capital and ALM are very

weak. Its reinsurance program is very weak. Any additional factors are in line with an assessment of very weak.

Balance Sheet Strength: BCAR Global Medians

6

Assessment VaR 95% VaR 99% VaR 99.5% VaR 99.6%

BCAR Median – CaribbeanStrongest 68.0 63.7 63.5 63.4

BCAR Median – US PCStrongest 78.0 67.9 63.7 62.3

BCAR Median – BermudaStrongest 74.1 64.8 60.6 59.1

BCAR Median – Central & South AmericaStrongest 75.0 64.0 59.5 59.0

BCAR Median – US L/AStrongest 67.1 57.9 53.8 52.8

BCAR Median – Europe, Africa & AsiaStrongest 70.5 58.7 54.1 52.5

BCAR Median – CanadaStrongest 67.6 51.8 45.6 43.6

Balance Sheet Strength: BCAR

7

0

10

20

30

40

50

60

70

80

90

100

Var 95.0% Var 99.0% Var 99.5% Var 99.6%

BC

AR

Canada P/C - Rating Unit BCARs

Balance Sheet Strength: BCAR

• For 42% of ratings the BCAR assessment does not match the rating unit balance

sheet strength assessment

– BCAR Rating

– BCAR Balance Sheet Strength Assessment

8

77.8%

55.6%

11.1%

33.3%

11.1% 11.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BCAR Assessment Balance Sheet Assessment

Strongest Very Strong Strong Adequate

Balance Sheet Strength- BCAR vs Combined (down)

•Reinsurance dependence

•Financial flexibility

•Quality of assetsVery Strong



•Strength of reserves/fungibility of capitalStrong



•Impact of holding companyAdequate

•Financial leverage & fungibility of capitalWeak

9

BCAR

Stress Tests

Liquidity

ALM

Quality of Capital

Quality of Reinsurance

Appropriateness of

Reinsurance Program

Fungibility of Capital

Internal Capital Models

10

Operating Performance

Operating Performance Assessment

11

Assessment Notches Key Characteristics

Very Strong +2Historical operating performance is exceptionally strong and consistent. Trends are positive and

prospective operating performance is expected to be exceptionally strong. Volatility of key metrics is low.

Strong +1Historical operating performance is strong and consistent. Trends are neutral/slightly positive and

prospective operating performance is expected to be strong. Volatility of key metrics is low to moderate.

Adequate 0Historical operating performance and trends are neutral. Prospective operating performance is expected to

be neutral. Volatility of key metrics is moderate.

Marginal -1Historical operating trends have been inconsistent. Trends are neutral/slightly negative with some

uncertainty in prospective operating performance. Volatility of key metrics is moderate to high.

Weak -2Historical operating performance is poor. Trends are slightly negative and prospective operating

performance is expected to be poor. Volatility of key metrics is high.

Very Weak -3Historical operating performance is very poor. Trends are negative and prospective operating performance

is expected to be very poor. Volatility of key metrics is very high.

Operating Performance

12

Canada P/C - Operating Performance U.S P/C - Operating Performance

Notch Distribution (%) Notch Distribution (%)

Assessment Notch % Assessment Notch %

Very Strong +2 0.0% Very Strong +2 2.2%

Strong +1 11.1% Strong +1 29.9%

Adequate 0 72.2% Adequate 0 51.0%

Marginal -1 16.7% Marginal -1 16.3%

Weak -2 0.0% Weak -2 0.7%

Very Weak -3 0.0% Very Weak -3 0.0%

2%

11%

30%

72%

51%

17%

16% 1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Canada P/C

U.S. P.C

Very Strong +2 Strong +1 Adequate 0 Marginal -1 Weak -2 Very Weak -3

Operating Performance – Canada P/C

13

80

85

90

95

100

105

110

0 10 20 30 40

10

-ye

ar

me

dia

n c

om

bin

ed

ra

tio

10-year Standard Deviation

70

75

80

85

90

95

100

105

0 5 10 15 20 25 30 35

10

-ye

ar

me

dia

n o

pe

rati

ng

ra

tio


Combined Ratio Operating Ratio

Strong Adequate Marginal

Operating Performance – Canada P/C

14

0

5

10

15

20

25

0 10 20 30 40

10-y

ear

med

ian

op

era

tin

g r

ati

o


Pre-Tax ROR

Strong

Adequate

Marginal

Other Operating

Performance Metrics

Change in NPW

Change in Total Reserves

Financial Forecasts/Plans

Pre-Tax Operating ROR

Operating ROE

15

Business Profile

Business Profile Assessment

16


Very

Favorable+2

The company’s market leadership position is unquestionable, demonstrated, and defensible with high brand

recognition. Distribution is seen as a competitive advantage; business lines are non-correlated and generally lower

risk. Its management capabilities and data management are very strong.

Favorable +1

The company is a market leader with strong business trends and good control over distribution. It has diversified

operations in key markets that have high to moderate barriers to entry with low competition. It has a strong

management team that is able to meet projections and utilize data effectively.

Neutral 0

The company is not a market leader, but is viewed as competitive in chosen markets. It has some concentration

and/or limited control of distribution. It has moderate product risk but limited severity and frequency of loss. Its use

of technology is evolving and its business spread of risk is adequate.

Limited -1

The company has a lack of diversification in geographic and/or product lines; its control over distribution is limited

and undifferentiated. It faces high/increasing competition with low barriers to entry and elevated product risk.

Management is unable to utilize data effectively or consistently in business decisions.

Very Limited -2

The company faces high competition and low barriers to entry. It has high concentration in commodity or higher-

risk products with very limited geographic diversity. It has weak data management. Country risk may factor into its

elevated business profile risks.

Business Profile

17

6%

6%

61%

33%

33%

57% 2%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Canada P/C

U.S. P/C

Very Strong +2 Strong +1 Adequate 0 Marginal -1 Weak -2

Canada P/C – Business Profile U.S P/C – Business Profile

Notch Distribution (%) Notch Distribution (%)

Assessment Notch % Assessment Notch %

Very Favorable +2 0.0% Very Favorable +2 0.9%

Favorable +1 5.6% Favorable +1 6.3%

Neutral 0 61.1% Neutral 0 33.4%

Limited -1 33.3% Limited -1 57.0%

Very Limited -2 0.0% Very Limited -2 2.4%

Predominant Business Profile

• Not a market leader, but competitive

• Moderate concentration offset by an advantage in a chosen market

• Risks are moderate and stable

• Evolving technology for pricing and modeling capabilities

Neutral (0)

• Lack of diversification

• High-risk product offerings

• Management performance is inconsistent

• Highly competitive market

Limited (-1)

Concentrations

Product(monoline)

Geographic (cat risks)

Well diversified books are less susceptible to

volatility, especially when the risks are not

correlated

Market expertise can be

recognized

Market Position

• Unquestionable proven track record with an ability to:

– Increase market share at a profitable and sustained rate

– Demonstrate dominant and defensible positions

– Operate in markets with high barriers to entry

– Develop scale

– Maintain brand loyalty and reputation

– Persevere in the segment

– Provide strong service capabilities

– Offer a diversified portfolio of creditworthy products

Market Position Continued

• Concentration in areas prone to catastrophes

• Low barriers to entry

• High concentration in higher-risk products

• Limited geographic diversity

• Irrational pricing

22

Enterprise Risk Management

Enterprise Risk Management Assessment

23


Very Strong +1The insurer’s ERM framework is sophisticated, time/stress-tested and embedded across the enterprise.

Risk management capabilities are superior and are suitable for the risk profile of the company.

Appropriate 0

The insurer’s ERM framework is well-developed and/or adequate given the size and complexity of its

operations. Risk management capabilities are very good and are well aligned with the risk profile of the

company.

Marginal -1

The insurer’s ERM framework is developing; however, certain key elements of the framework are not yet in

place or have proven inadequate given the complexity of its operations. Some risk management capabilities

are not aligned with the risk profile of the company.

Weak -2The insurer’s ERM framework is emerging and management is exploring the development of formal risk

protocols. Risk management capabilities are insufficient given the risk profile of the company.

Very Weak -3/4There is limited evidence of a formal ERM framework in place. Severe deficiencies in risk management

capabilities relative to the risk profile of the company are evident.

Enterprise Risk Management Notch Distribution

Appropriate, 100%

Canada P/C

Very Strong1%

Appropriate94%

Marginal5%

US P/C

Appropriate ERM Assessment

Appropriate(0)

The insurer’s ERM framework is well-

developed.

Appropriate given the size and

complexity of its operations.

Risk management capabilities are

very good.

Risk management capabilities align

with the risk profile.

Next Steps

• Finish rating all companies under updated BCRM

• Recalibrate building block assessments, if necessary

26

Baseline

Balance

Sheet

Strength

Baseline

Operating

Performance

(+2/-3)

Business

Profile

(+2/-2)

Enterprise

Risk

Management

(+1/-4)

Comprehensi

ve

Adjustment

(+1/-1)

Rating

Lift/Drag

Issuer

Credit

Rating

Country Risk

Maximum + 2

© AM Best Company, Inc. (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BYCOPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED,TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR INPART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB’s PRIOR WRITTEN CONSENT. All informationcontained herein is obtained by AMB from sources believed by it to be accurate and reliable. AMB does not audit or otherwise independently verify theaccuracy or reliability of information received or otherwise used and therefore all information contained herein is provided “AS IS” without warranty of any kind.Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relatingto, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees oragents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or(b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB isadvised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reportinganalysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements ofopinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations,nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet itscontractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk orprice volatility of rated securities. AMB is not an investment advisor and does not offer consulting or advisory services, nor does the company or its ratinganalysts offer any form of structuring or financial advice. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS,COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION ORINFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely asone factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordinglymake its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for,each security or other financial obligation that it may consider purchasing, holding or selling.

27

Canadian Life

Insurance IndustryEdward Kohlberg, CPA, FLMI, CLU

Associate Director

Anthony McSwieney

Senior Financial Analyst

A.M. Best Annual Insurance Market Briefing CanadaSeptember 5, 2018

Canadian Life Market Segment Outlook Is Stable

2

• Outlook is stable, but remains cautious

• Rating outlook reflects limited rating actions

• Company specific results remain key to rating actions

• Does not preclude positive or negative rating actions

Benchmarking – Balance Sheet Strength

3

23%

63%

14%

Strongest

Very Strong

Strong

CRT-1

Strongest a+/a

Very Strong a/a-

Strong a-/bbb+

Adequate bbb+/bbb/bbb-

Weak bb+/bb/bb-

Very Weak b+ and below

Benchmarking – Operating Performance

4

59%

36%

5%

Strong

Adequate

Marginal

Assessment Notches

Very Strong +2

Strong +1

Adequate 0

Marginal -1

Weak -2

Very Weak -3

Benchmarking – Business Profile

5

9%

23%

64%

4%

Very Favorable

Favorable

Neutral

Limited

Assessment Notches

Very Favorable +2

Favorable +1

Neutral 0

Limited -1

Very Limited -2

Benchmarking – ERM

6

4%

91%

5%

Very Strong

Appropriate

Marginal

Assessment Notches

Very Strong +1

Appropriate 0

Marginal -1

Weak -2

Very Weak -3/4

Pretax Earnings

7

13

16

13

17

14

0

2

4

6

8

10

12

14

16

18

2013 2014 2015 2016 2017

CA

D B

illio

ns


Industry Trends: Direct Premiums Written

8

Canada and United States only

21.7 23.1 25.3 24.9 23.4

8.39.7

9.6 10.78.8

24.125.3

26.7 27.927.1

11.1

12.013.3

14.415.50.6

0.7

0.8

0.9

0.6

0

10

20

30

40

50

60

70

80

90

2013 2014 2015 2016 2017

CA

D B

illio

ns

Life Annuity A&S Participating OtherSource: A.M. Best data and research

DPW Geographic Diversification

9

67.1 67.3 60.9 61.1 59.1

12.9 13.5

14.9 13.4 13.1

7.4 6.9 8.7

6.3 9.2

12.6 12.4 15.5 19.2 18.5

0

10

20

30

40

50

60

70

80

90

100

2013 2014 2015 2016 2017

%

Canada U.S. Europe Asia/Other


Mutual Fund Deposits by Geographical Distribution

10

9 9 13 13 17

25 29

45 49 51 12

21

39 42

52

0

20

40

60

80

100

120

140

2013 2014 2015 2016 2017

CA

D B

illio

ns

Canada U.S. Other


Regulatory

11

• LICAT

• IFRS 17

Innovation

12

Product Innovation

18.0%

Distribution18.5%

Data Mining and Technology

27.0%

Customer Experience

26.5%

Underwriting, 10.0%

A.M. Best Survey: Part of Business Model in Need of Update

3.5

10.4

22.9

29.9

33.3

0 5 10 15 20 25 30 35

Risk management/ compliance

New business/underwriting systems

Data aggregation and data mining

Legacy administrative & claims systems

Improving the customer (and agent)experience

A.M. Best Survey: Needed Technology Improvement


Interest Rate and Macro Concerns

13

• Bank of Canada increased overnight rate in July 2018 25 basis points to

1.5%

– Rate was .75% this time last year

– Forecast up to 2.25% in early 2019

– 10 Year may go up to 3.0% in 2019

• Economic uncertainty in Canada

– Low household ownership of life insurance

– High Household debt

• Can it derail the economy?

10-Yr Government Bond Yield

14

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018

%

Source: Bank of Canada

FX Rate

15

0.4

0.5

0.6

0.7

0.8

0.9

1

CAD/USD

CAD/Euro

CAD/GBP

TSX vs. S&P 500: 1 Year Performance

16

1000

1500

2000

2500

3000

3500

4000

13500

14000

14500

15000

15500

16000

16500

17000

S&

P 5

00

(US

D)

To

ron

to C

om

po

sit

e In

de

x (

CA

D)

TSX Composite Index S&P Index

Source: Bank of Canada

Investment Income

17

0

6

12

18

24

30

36

0

100

200

300

400

500

600

700

800

900

1,000

2013 2014 2015 2016 2017

Inve

stm

en

t Inc

om

e (C

AD

Billio

ns

)Inve

ste

d A

ss

ets

(C

AD

Billi

on

s)

Invested Assets Interest, Dividends & Income Invest. Income Excluding Derivatives


Canadian Life Companies Investments

18

Category 2013 2014 2015 2016 2017

Bonds 62.1 63.6 64.2 64.9 66.2

Total Stock 7.2 6.3 5.6 6.1 6.3

Mortgage Loans 13.6 12.1 11.7 11.3 11.0

Real Estate 3.8 3.4 3.8 3.4 3.5

Policy Loans 2.7 2.4 2.3 2.0 1.9

Cash & Short-term 5.1 5.4 5.0 4.6 4.5

Derivatives 1.8 2.9 3.2 3.0 2.0

Other Invested Assets 3.8 3.9 4.2 4.6 4.5

Total 100 100 100 100 100

Distribution of Invested Assets (%)


Bond Segmentation

19

Portfolio Components 2013 2014 2015 2016 2017

Government 150,726,576 184,790,070 198,338,871 209,634,829 215,389,285

Municipal, Public Authority, Schools 20,372,922 25,854,965 28,774,003 34,663,432 38,026,288

Corporate – Public 182,099,465 219,576,686 234,885,758 239,158,173 255,457,991

Corporate – Private 65,006,522 74,773,331 83,957,924 84,079,100 93,141,265

Total 418,205,485 504,995,052 545,956,556 567,535,534 602,014,829

Canadian Life – Bond Portfolio Distribution

Portfolio Components 2013 2014 2015 2016 2017

Government 36.0 36.6 36.3 36.9 35.7

Municipal, Public Authority, Schools 4.9 5.1 5.3 6.1 6.3

Corporate – Public 43.5 43.5 43.0 42.1 42.5

Corporate – Private 15.5 14.8 15.4 14.8 15.5

Total 100.0 100.0 100.0 100.0 100.0


Corporate Segmentation

20


Sector/Country 2013 2014 2015 2016 2017

Energy 8.4 9.3 9.3 11.4 10.0

Basic Materials 2.9 2.7 2.4 2.3 2.1

Industrial 9.3 9.7 11.1 10.5 10.1

Consumer Cyclical 6.6 6.5 6.7 4.4 4.9

Consumer Non-Cyclical 6.6 6.6 6.5 7.8 7.5

Diversified/(Health Care) 2.3 2.2 2.2 2.3 2.6

Financial 28.5 27.4 26.2 21.6 21.9

Technology 1.3 1.3 1.5 1.9 2.0

Communications 3.7 3.8 3.7 3.9 3.8

Utilities 22.6 23.3 23.8 24.9 25.2

Other 7.9 7.0 6.5 9.0 9.9

Total All Sectors 100.1 99.8 99.9 100.0 100.0

Canada 39.9 39.4 36.5 37.6 35.9

United States 37.4 37.9 39.0 41.4 40.0

Other 22.8 22.7 24.5 20.9 24.1

Total 100.1 100.0 100.0 99.9 100.0

Survey Question

1.8

4.1

4.1

5.9

6.5

14.2

14.8

15.4

16.0

17.2

0 2 4 6 8 10 12 14 16 18 20

International expansion

Mergers / Acquisitions

Enterprise risk management strategy

Improving underwriting effectiveness

Upgrading analytic / predictive analysis capabilities

Innovative product development

Reducing administrative costs

Improving the customer experience

Upgrading information systems

Improving product distribution

%Source: A.M. Best data and research

What areas are crucial to L/A success over the next 2 years?

21

Audience Polling Question: 2018 Review Preview U.S.

What do you view as the biggest opportunity for the industry?

Retirement Income Solutions

Pension Risk Transfer

Direct to Consumer Channel

Technology: Data Analytics/Predictive Modeling

Other

22

Biggest Challenges for the Industry

Aging Distribution

Low Interest Rates

Regulatory Changes

Outdated Business Model

Need For Innovation and Technology Improvements

Longevity Exposure

Cyber Risk

Capital Management

23

24

Q&A


25

Canadian Property/Casualty

Insurance IndustryRaymond Thomson, CPCU, ARe, ARM

Associate Director

Gordon McLean

Senior Financial Analyst

A.M. Best Annual Insurance Market Briefing CanadaSeptember 5, 2018

Canadian P/C Market Segment Outlook Is Stable

Canadian Life Ins - Insurance Market Briefing Canada 2

• Outlook has been stable over the long term

• Capitalization remains solid

• Operating performance remains profitable in the

headwinds of weather-related pressures

• Rating outlook indicates limited positive or negative

rating actions, which would be specific to companies

rather than industry conditions

Interactive Rating Distribution

3

100 100 100

109 108 108103 101 101

-

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018*

Nu

mb

er

of

Rati

ng

s

Superior Excellent Good Fair

Canada Property/Casualty – Interactive Ratings Distribution (2010-2018*)

*Through June 30, 2017. All other years, as of year end.


Market Share

Canadian P/C Market Share - Top 10: 2017

C$ Billions

RankGroup / Company DPW % of Industry Total

1 Intact Group 8.5 15.5%

2 Aviva Group 5.3 9.7%

3 Desjardin Group 4.5 8.2%

4 Co-operators Group 3.1 5.6%

5 Lloyds Underwriters CAB 3.0 5.6%

6 TD Insurance Group 3.0 5.5%

7 Wawanesa Mutual Insurance Company 3.0 5.4%

8 RSA Group 2.9 5.3%

9 Economical Group 2.3 4.2%

10 Travelers Group 1.6 2.9%

All Other 17.6 32.2%

Industry Total 54.7 100.0%

4


Combined Ratio

5

69.9 69.5 66.9 67.1 64.4 68.3 66.3 63.2 65.6 63.9

30.7 30.1 30.6 30.6 31.331.4 31.7

32.232.5 33.2

100.6 99.697.5 97.7 95.7

99.7 98.095.4

98.1 97.1

-

20.0

40.0

60.0

80.0

100.0

120.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

en

tag

e

Underwriting Expense Ratio Loss and Loss Adjustment Expense Ratio

Combined Ratio Components

*Excludes Lloyd’s and ICBC


Operating Ratio

6

90.3 90.588.5

90.388.4

93.190.3 89.8

91.9 92.3

100.6 99.697.5 97.7

95.7

99.798.0

95.498.1 97.1

50.0

60.0

70.0

80.0

90.0

100.0

110.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Perc

en

tag

e

Operating Ratio Combined Ratio

Operating Ratio Components



Net Investment Income vs. Yield

7

2.3

2.9

2.22.5

1.9

2.7

3.2

2.2

2.5

2.1

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2013 2014 2015 2016 2017

Net In

vestm

en

t Yie

ld (%

)N

et

Inv

estm

en

t In

co

me

(C$ B

illio

ns)

Net Investment Income(C$ Billions)

Net Investment Yield(%)

Net Investments Income Vs. Yield



Auto Loss Trends

8

76.9

74.2

67.5

62.3

67.366.3

79.3

88.189.6

79.2

69.5

71.3

72.5

76.7

80.5

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

2013 2014 2015 2016 2017

Lo

ss R

ati

o (

%)

Auto - Liability Auto - Personal Accident Auto Other

Canada Property/Casualty – Private Auto Insurers Loss Ratio Trend (2013-2017)*



Largest CAT Losses

9

Canadian P/C - Catastrophe Losses Greater than CAD 300 Million (1991-2017)

Year Date Location Event Loss & LAE Current Dollar

Incurred Losses (C$ Million)

2016 May Fort McMurray, Alberta Fire 3,753 3,910

1998 January Quebec, Ontario, New Brunswick Ice Storm 1,574 2,313

2013 June Alberta Flooding 1,599 1,745

2013 July Toronto Flooding 924 1,008

2005 August Ontario Tornado/Hail 625 784

2014 August Alberta Hail/Windstorm 546 583

2011 May Slave Lake, Alberta Fire 528 591

2012 August Calgary and Southern Alberta Hail/Windstorm 521 576

2010 July Calgary and Southern Alberta Hail/Windstorm 487 560

1991 September Calgary and Southern Alberta Hail/Windstorm 343 554

2016 July Alberta, Manitoba, Ontario, Saskatchewan Hail/Windstorm 462 481

2009 July Calgary and Southern Alberta Hail/Windstorm 376 440

2005 June Alberta Flooding 300 376

Source: A.M. Best data and research, IBC

Property Loss Trends

10

78.1

66.7

60.0

74.6

66.3

72.8

64.1

54.8

60.559.3

50.0

55.0

60.0

65.0

70.0

75.0

80.0

2013 2014 2015 2016 2017

Lo

ss R

ati

o (

%)

Commercial Property Personal Property

Canada Property/Casualty – Property Insurers Loss Ratio Trend (2013-2017)*



Canadian Composites – Net Earned Premiums

11

Canadian Net Earned Premium By A.M Best Composite – 2017

Composite Net Earned Premium Combined Ratio

Total Canadian Aggregate Auto 25,341 100.9

Total Canadian Aggregate Other 6,063 98.7

Total Canadian Aggregate Comm Cas 5,453 89.0

Total Canadian Aggregate Property 3,807 97.6

Total Canadian Aggregate Reins 1,410 74.8

Total Canadian Aggregate Finan Lns 1,293 47.7

Canadian Composites – Net Earned Premiums

12

-

5

10

15

20

25

30

35

-

5,000

10,000

15,000

20,000

25,000

30,000

Total CanadianAggregate Auto

Total CanadianAggregate Other

Total CanadianAggregate Comm

Cas

Total CanadianAggregate Property

Total CanadianAggregate Reins

Total CanadianAggregate Finan

Lns

Dev

elo

pm

en

t as %

of N

EPN

EP

(C

AD

, M

illio

ns)

Net Earned Premiums 1 Year Favorable Development

Canadian Net Earned Premium By Composite - 2017


Canadian Composites – Loss and LAE

13

-

5

10

15

20

25

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Total CanadianAggregate Auto

Total CanadianAggregate Comm

Cas

Total CanadianAggregate Other

Total CanadianAggregate Property

Total CanadianAggregate Reins

Total CanadianAggregate Finan

Lns

Dev

elo

pm

en

t as %

of R

eserv

es

Lo

ss a

nd

LA

E R

eserv

es (

CA

D,

Millio

ns)

Loss and LAE (Millions) 1 Year Favorable Development

Canadian Loss and LAE Reserves By Composite - YE 2017


Segment Outlook – Canadian Property/Casualty

14

Headwinds Tailwinds

Catastrophes – increasing frequency and severity Solid balance sheet positions

Challenges remain within the auto line, Ontario specificallyProfitable operating performance / consistently stable combined

ratios

Escalating discussion of the need for auto reforms Ongoing advancement in underwriting technology

Market competition despite rate increases Economic growth

Continued investment pressures – places pressure on

underwriting

Sustained top line premium growth - DPW up 3.5%, NPW down

1.1%

High quality investment holdings

Strong reinsurance programs

Favorable reserve development patterns

Solid capitalization has been achieved through retained earnings, while underwriting performance has remained

profitable over the long term despite the challenges associated with an increased frequency of natural catastrophe

losses. Many carriers are increasingly utilizing technology to enhance underwriting platforms. Maintain stable market

outlook.

Emerging Issues and Potential Opportunities

15

Cyber Insurance

Flood

Sharing Economy

Cannabis

InsurTech

US Tax Reforms/Tariffs

Canadian Life Ins - Insurance Market Briefing Canada September 6, 201716

Global Views on Reinsurance

Global Reinsurance Market Trends

17

Overall in 2017 – most significant year for losses since 2011 -catastrophes amounted to earnings events, as rated balance

sheets emerged flat for the year.

Hurricane Harvey, Irma, Maria combined with EQ in Mexico and Wildfire in California produced industry losses in the range of

USD 80 to 100 billion.

Alternative capital investors were NOT hindered by the losses and brought additional capacity to the market for the renewals.


18

55.9% 56.2% 56.2% 60.6%

76.5%

61.1%

31.9%33.5%

34.2% 34.7%

33.6%

33.6%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0%

20%

40%

60%

80%

100%

120%

2013 2014 2015 2016 2017 5yr Avg

Expense Ratio Loss Ratio Loss Reserve DevelopmentSource: A.M. Best data and research

Combined Ratio (2013 to present) and Five-Year Average


19

13.0%

11.6%

9.5%

8.3%

-0.3%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2013 2014 2015 2016 2017

Return on Equity Five-Year Average

Return on Equity (2013 to present) and Five-Year Average


Global Reinsurance Market Capacity

20


Ranked by unaffiliated gross premium written in 2017

Top 10 Global Reinsurance Groups: Non Life

Munich Reinsurance Group

Swiss Re Ltd.

Berkshire Hathaway Inc.

Lloyd’s

Hannover Ruck SE

SCOR S.E.

Everest Re Group Ltd.

CL Group plc

Transatlantic Holdings, Inc.

PartnerRe Ltd.

Top 10 Global Reinsurance Groups: Life

Munich Reinsurance Group

Swiss Re Ltd.

Reinsurance Group of America Inc.

SCOR S.E.

Hannover Ruck SE

Great West Lifeco

Berkshire Hathaway Inc.

Pacific LifeCorp

PartnerRe Ltd

Assicurazioni Generali SpA

Global Reinsurance Market Capacity

21

292 320 340 332 345 345 362

19

48 60 68

75 87 100

2012 2013 2014 2015 2016 2017 2018E

ConvergenceCapacity

TraditionalCapacity

Estimate for Total Dedicated Reinsurance Capacity (USD billions)

Source: Guy Carpenter and A.M. Best

Market Landscape ~10 Years In Time

22

Fidelis

Greenlight Re

Hamilton

Harrington Re

Third Point Re

Watford Re

Ariel Re

Flagstone

Harbor Point / Max (Alterra)

IPC Re

Montpellier

New Castle Re

Paris Re

Platinum Re

Allied World

Endurance(Sompo Intl)

General Re

MS Amlin

Odyssey Re

National Indemnity

Partner Re

Tokio Millennium Re

TransRe

Validus

XL Catlin

Arch

Aspen

AXIS

Everest

Hannover Re

Lloyd’s

Munich Re

RenaissanceRe

SCOR Re

Swiss Re

Surviving Franchises of

Today

Sheltered Franchises

Franchises That Are Gone

What Does The Future Hold?

The Case for M&A

23

Broader product capability

Broader geographic reach

Greater influence

Greater attractiveness to alternative capital

Opportunity for growth

Alternatively…

M&A is the

result of a

strategic

opportunity

Alternative Capital

24

Market is still largely

influenced by global leaders

M&A will continue

Alternative capital is driving change

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

Segment Outlook – Global Reinsurance

25

Headwinds Tailwinds

Intense competition Cession rates increasing

Increasing interest from third party capital Cat losses temporarily stabilize rates

Earnings stabilize but remain under pressure Favorable reserve development, but waning

Excess capacity hinders further improvement Strong risk-adjusted capital

Potential for increased inflation Increase in interest rates

M&A

Although capitalization remains strong and rate deterioration temporarily halted, pressure on margins continues. Over

the intermediate term, returns for some reinsurers will fall short on a risk-adjusted basis. Maintain negative market

outlook.

Canadian Life Ins - Insurance Market Briefing Canada September 6, 201726

Q&A


27

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