So what are the real factors pushing damages and premiums higher? CityFloodMap.Com explores many factors that increase damages and add cost pressures in our letter the the Minister of the Environment and Climate Change. But there are factors beyond the physically obvious watershed hydrology and infrastructure hydraulics.
Macro economic factors affecting insurance industry investments are the unspoken factor that puts upward pressure on premiums for property and casualty insurers in Canada. Details are in Facts of the Property and Casualty Insurance Industry in Canada 2015 is published by Insurance Bureau of Canada (IBC).Previously, insurance company investments earned double digit returns that subsidized underwriting losses. Today, those same investments earn low single digit returns and so now underwriting has to carry its own weight - this means that premiums from underwriting have to increase to compensate for lagging investment returns. This is an excerpt from the report (page 13) to explain the impact of low interest rates on return on investment:
"Return on equity comes from two revenue streams –
underwriting and investment earnings.
In 2013, underwriting posted gains for the 11th consecutive
year. The 2013 net underwriting revenue was $648 million.
Before 2003, underwriting posted losses for 24 years in a row.
On investment, 2013 was a year of relatively low returns of 3.1%.
Return on investment moves in lockstep with the yields for
3- and 5-year Government of Canada bonds, which have fallen
for the last two decades."
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| Sliding investment returns means underwriting has to carry its own weight on insurance company balance sheets. |
