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Uncertainty remains, but insurers begin to reposition for growth: Aon's 2021 Canadian Insurance Market Report

TORONTO, July 8, 2021 /PRNewswire/ -- Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has released its 2021 Canadian Insurance Market Report. Published in support of Aon's ongoing commitment to drive success for its Canadian insurance clients, the report finds that while the path beyond the COVID-19 environment is anything but certain, there are signs of market stabilization, and insurers are beginning to position themselves for growth and profitability.

Many of the challenges of 2020 continued into 2021 – notably, poor underwriting performance and the still-unclear impact of COVID-19 on the industry – while the risks of social unrest and social inflation may be on the rise. However, the Aon Canadian Insurance Market Report also highlights several positive signs that a market transition is under way. The rollout of the COVID-19 vaccine should lead to the return of relative economic stability. New capacity is likely to enter the market in the second half of 2021 through insurer start-ups, reinsurance capacity and shifting insurer appetite. In addition, the COVID-19 environment has sharpened a trend Aon has noted for several years now: insurers are taking a more rigorous approach to underwriting, which has helped them manage through a period of unprecedented uncertainty, even while they are investing in innovation to strengthen – and in some cases reinvent – their businesses for the long term.

"Looking forward, as the world emerges from the impact of the pandemic, it is crucial that industry players take a proactive stance to address the opportunities and challenges that the next few years will bring," said Russell Quilley, Chief Broking Officer for Canada at Aon. "Starting early on the renewal process, positioning programs with a focus on the long term and being ready to make strategic changes are vital steps insurers can take now towards preparing for when the market turns. With our suite of industry expertise, data and analytics and risk finance solutions, Aon is here to help them do that."

Other key findings include:

  • The Canadian insurance industry showed remarkable resilience in 2020 and continued to operate profitably, with a 94.6% cumulative net combined ratio (compared with 97.6% in the previous year). It remains an attractive location for capital deployment, due to profitability and political stability, and many reinsurers entered 2021 positioned to grow.
  • Many carriers reported an operating loss in 2020, however, and it might take several renewal cycles before the full impacts of COVID-19 are clear. Underwriters remain cautious as they continue to tighten some terms and conditions and/or offer less capacity. With a high volume of submission activity industry-wide, some are overwhelmed.
  • On a global basis, insured catastrophe losses ended 2020 at US$86 billion – near average levels. Regionally, however, losses were higher. In the United States, insured losses hit US$66 billion, compared to a previous 10-year average of US$46 billion, owing to a record number of hurricane landfalls, storms and wildfires.
  • The reinsurance market operated well into 2021. Globally, it saw a capital raise of more than US$23 billion in 2020, with traditional capital reaching a new peak of US$533 billion in Q3 2020; alternative capital, however, remained below 2019 levels.
  • While new capacity will likely enter the reinsurance market in 2021, particularly in the second half, risk-taking strategies will evolve as the impact of COVID-19 becomes clearer and the potential return of social inflation looms.
  • In underwriting, the industry's focus on controls and driving efficiencies through the distribution chain will continue. Going forward, Aon expects traditional data and analytics to be integrated with alternative-sourced data and artificial intelligence (AI) to enhance underwriting and claims handling. Faced with loss-driven market changes and low interest rates, some insurers are de-risking and retooling, and many are seeking more at-risk aggregation across multiple lines of coverage.
  • More insurers are embracing innovation, looking to bolster core systems, add capability and enhance customer experience through AI, digitization, new sales platforms, alternative product development and other strategies. The Aon report notes a trend away from investing in "business as usual" and toward financing innovation that may drive more fundamental business model changes in future.

About Aon

Aon plc (NYSE: AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

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