Industry results in 2022 won’t be as good as 2021, Definity CEO predicts

Definity Financial Corporation President and CEO Rowan Saunders does not expect the Canadian P&C insurance industry’s return on equity to remain as strong as it was last year latest.

In 2021, the industry’s ROE reached 17%. The industry also recorded the lowest combined ratio ever (85.2%), making it the third most profitable year since 1975. Only in 2003 and 2004 did the industry post a higher ROE than the 17% recorded last year, the Multi-Risk Insurance Compensation Company (PACICC) reported in April in its quarterly report. Credit issues report.

But SIMA President and CEO Alister Campbell also warned that “every time insurers have reported such above-average earnings, competitive forces have moved quickly to halve the industry’s return on equity – to an average of 7.4% – in two years”.

Saunders said on a Definity first quarter 2022 earnings conference call on Friday that he “expects market conditions to remain conducive to strong industry results, but we don’t believe the industry will be able to deliver the ROE outperformance it achieved in 2021.

“We expect firm market conditions in the property lines to persist over the next 12 months, while conditions in the automotive lines should begin to firm up as claims frequency normalizes and/or that inflationary pressures persist,” Saunders said. “We expect the combination of normalizing auto claims frequency and increased severity driven by inflation to bring the industry’s return on equity closer to its long-term average.”

For Definity, the parent company of Economical Mutual Insurance Company, which demutualized late last year, Saunders expects its “operating outlook to support higher single-digit operating ROE lower than that of adolescence.

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“We continue to expect these results to be driven by double-digit revenue growth and underwriting profitability in the mid-1990s,” Saunders said on the earnings call. “Our current capital structure, with high levels of excess capital and no debt, reflects our operating history as a mutual company.

“As a still relatively new public company, we are putting in place the necessary tools to enable future balance sheet optimization which should result in a capital structure more aligned with our listed peers over time, enabling us to target an operational ROE in lower-teens.

Overall, Saunders says he continues to expect “revenues to continue to grow about 10% over the next two years.”

Definity reported a combined ratio of 92.2% in the first quarter of 2022, up 0.9 points from 91.3% in the first quarter of 2021, “driven by strong personal property profitability and the strength of our businesses business, supported by favorable industry conditions and weak large claims and cat activity,” Saunders said.

In personal auto, the combined ratio for the first quarter of 2022 increased by six points to 96.2%, compared to 90.2% in the same quarter last year. “As expected, personal auto results have normalized somewhat from last year’s performance, with claims frequency hitting pandemic-related lows and inflation continuing to have a negative impact. impact on the severity of claims.”

Saunders also highlighted innovation initiatives in the first quarter of 2022, when he announced a strategic partnership with digital insurance broker and MGA Apollo Insurance Solutions and a new relationship with Google Cloud. “These concrete examples illustrate that we are not content to rely solely on past investments but rather that we will continue to seek avenues to innovate.”

The Apollo partnership will help strengthen Definity’s commercial distribution reach and grow its small business portfolio, Saunders said, while the relationship with Google Cloud will allow the insurer to collaborate and leverage advanced data, l analytics, artificial intelligence and machine learning technology from Google. Definity also maintains over $1 billion in financial capacity to fund strategic growth initiatives for years to come.

Growth in its Sonnet digital direct business also remained robust, with premiums up nearly 23% in the first quarter. “The company now exceeds $300 million in annual premiums for the first time and benefit from continued efficiencies of scale,” says Saunders. “As we continue to improve our segmentation, pricing and fraud prevention capabilities, I am confident the business can grow to contribute to overall company profitability over the next two years.

“I am convinced that we are positioned for long-term success. I have already spoken about our belief that the significant investments made in our platforms for growth and to enhance talent across the company will position us to be a leader in the industry for years to come.

Featured image by iStock.com/Sezeryadigar

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