Canada’s commercial lines market is starting to become more competitive in certain segments after a few years of a hard market during the post-COVID period, Aviva Canada’s CEO observes.
But future economic uncertainty suggests insurers aren’t yet ready to plunge into widespread soft market conditions.
Jason Storah talked to Canadian Underwriter Wednesday about Aviva Canada’s 2023 half-year results, which saw the company report 17% growth in commercial premiums.
Storah attributed a significant amount of that commercial lines growth to rate increases, which followed a decade-long period of a soft market in commercial lines.
Soft markets are characterized by rate decreases, surplus capacity, and more relaxed terms and conditions. Just before the COVID-19 pandemic started in 2020, Canada’s P&C insurers began to increase rates in commercial lines to make up for a decade of unprofitable underwriting results in many of those segments.
But now in some segments, notably cyber and D&O, the amount of rate taken has started to slow, signalling the hard market in commercial lines may have reached the peak of its cycle. Still, Storah stressed, the comparatively softer rates are dependent on lines and individual risks.
“There’s always noise that, ‘Rates are going to come down, rates are going to soften,’ but we just haven’t seen that overall,” Storah said in a call to discuss the company’s earnings. “But we are seeing some segments — attractive segments in which everybody wants to write business — where there has been increased competition and rates have definitely softened.”
However, there is a long history behind the most recent market cycle in commercial lines, which is partly why hard market conditions in many lines persist.
“You have to remember this is on the back of almost 10 years of rate reductions in commercial lines,” Storah told CU. “The last few years, we’ve seen significant rate increases.
“Some of it was needed from an underlying [underwriting technical] perspective and some of it was exacerbated because of COVID. I think we’re now starting to see the commercial market stabilized. What that means is, the best segments and the best risks [are seeing lower rates].”
Related: Aviva Canada’s first-half experience in personal lines
Aviva Canada in particular said it’s gained traction in its core and mid-market business sections, which have benefitted from rate increases.
Aviva’s Global Corporate & Specialty (GCS) writes enterprise business insurance, cyber, commercial auto, corporate property and liability, and cross-border and global insurance.
“The GCS business is writing more multinational business and some really large, interesting programs and corporate accounts,” Storah reported. “The team is doing a great job in terms of making a mark in that space and really becoming a meaningful player in that part of the commercial market.”
But the uncertainty over COVID-19 claims, which caused underwriters to adopt the worst-case scenario when setting rates, is now transforming into uncertainty about the economic future, various P&C industry sources have told CU. Which is why Storah doesn’t see commercial insurers rushing into a soft market cycle anytime soon.
“There’s definitely been a shift in uncertainty,” Storah said. “If you go back a few years, it was obviously the uncertainty around COVID and the impact that it was going to create [on insurers’ claims experience]….
“And now, look what’s happened in the broader global economy. Canada’s economy, interest rates, the housing market, the pressure on public services — [what] the government is having to deal with and what that means. I think that’s creating a general economic uncertainty for people.
“We know the property and casualty insurance industry is robust in the face of recession, typically. But we [also] know that, particularly in the commercial lines side of the business, when businesses are facing cost crunches and they’re looking to cut costs, that does at some point play through to a slight uptick in attritional losses [i.e., business opting to shed particular insurance coverages to save money].
“We’ve seen that in previous recessions and economic downturns, and that’s one of the reasons why we’re very, very sensitive to the headwinds that are very, very real on the horizon.”
Feature photo courtesy of iStock.com/Anthony Harvie