Although results have improved somewhat, earnings are still very weak for the country’s property and casualty insurers, according to data contained in the latest edition of Perspective – the Insurance Bureau of Canada’s quarterly analysis of the financial performance of the P&C insurance industry.

The IBC notes that insurers across Canada are working to re-establish healthy earnings, and there have been price increases and tighter underwriting terms.

New data contained in the paper show that higher prices brought some improvement for the first quarter of 2002, but industry return on equity remains alarmingly weak near 3%. At this pace 2002 will be the second worst year on record.

“Financially sound insurers can best serve drivers, homeowners and businesses,” says Paul Kovacs, IBC’s chief economist. “Last year, unfortunately, Canada’s insurers experienced their lowest earnings on record. It is an immediate priority to re-establish healthy earnings, but this journey will take time.”

Claims continued to grow faster than general prices, increasing by 4.4% over the past four quarters. The largest increases have been in auto insurance costs in Ontario, Atlantic Canada and Alberta. Favourable weather conditions during the early part of this year did, fortunately, slow the growth in claims costs.

Over the same period, earned premiums increased by 7.4% — marking the first time in five years that growth in industry revenues exceeded growth in claims costs. Despite this improvement, the combined ratio shows industry costs were an alarming 108.9% of premiums during the first three months of 2002.

The IBC analysis found extraordinary regional variations in insurance results. The high cost of providing auto insurance coverage in Ontario, the Atlantic provinces and Alberta, for example, is out of sync with current pricing. In sharp contrast, the insurance markets in Quebec are sound.

“Over the past three decades, P&C insurers earned an average return on equity of 10%,” Kovacs says. “Currently, however, there are few companies with healthy earnings. Most of these are specialty insurers, including those focused on one provincial market. Every insurer that is operating all across Canada is experiencing depressed earnings or losses.”