Why a ‘perfectly average’ P&C industry first-half result doesn’t bode well

Canada’s property and casualty (P&C) industry had a ‘perfectly average’ financial result in the first six months of 2025, the Property and Casualty Insurance Compensation Corporation (PACICC) reports in its latest edition of Solvency Matters.

But there’s an old adage about the statistician who drowned in an average river, because ‘average’ is four feet deep.

Lurking below the industry’s average are ‘unsustainable’ troughs in personal auto and property lines profitability.

Plus, the soft market in commercial lines suggests “current trends are headed in the wrong direction,” cautions Grant Kelly, PACICC’s chief economist and vice president of financial analysis and regulatory affairs.

“Canada’s property and casualty insurers reported satisfactory profitability over the first six months of 2025,” Kelly reports in the September 2025 edition. “The industry’s return on equity (ROE) was 10.7%. While this is certainly lower than the 13.0% reported in the same period in 2024, it is in fact exactly equal to the industry’s 50-year long-run average ROE.

“The decline in average returns was due to worsening underwriting results. Insurance Expenses (up by 9.8%) grew materially faster than Insurance Revenues (up by 6.4%). This resulted in a $730-million decline in the industry’s Net Insurance Result.”

Auto insurance is the lodestone on the industry’s financial results.

“The underwriting results in Canada’s auto insurance markets were particularly gruesome,” Kelly writes.

In particular, PACICC has a close eye on a post-IFRS 17 metric called the Net Comprehensive Combined Ratio (NCCR). This measure of underwriting profitability includes the impact of insurance service expenses, reinsurance expenses, general and operating expenses, and net insurance finance expenses, all relative to net insurance revenue.

An NCCR ratio above 100% indicates a line of coverage is eroding the industry’s capital base.

“The NCCR for private passenger auto insurance exceeded this [100%] threshold in eight provinces and all three territories (Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Manitoba, Saskatchewan, Alberta, British Columbia, Yukon, the Northwest Territories and Nunavut),” Kelly says. “These results are unsustainable.

“The only auto insurance markets that reported an NCCR below 100% were Ontario and Quebec.”

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Personal property results also had issues, Kelly adds.

“The early start to wildfire season contributed to a deterioration of personal property insurance results in Newfoundland and Labrador, Ontario, Manitoba and Saskatchewan,” he writes. “Insurance written in these jurisdictions also generated NCCRs greater than 100%.”

So it’s not surprising that, despite P&C industry’s average financial results, insurers focused on personal lines reported lower profitability than insurers focused on commercial lines.

Overall, 26 out of PACICC’s 163 member insurers posted a loss during the first six months of the year.

PACICC is also watching what’s happening in Canada’s commercial lines.

Brokers have told CU for months they are seeing signs of market softening in commercial lines, characterized by lower premiums and more expansive terms and conditions. The softness is segmented, they say, varying by industry. Also, companies without a loss are more likely to get better deals from their insurers than companies that have reported a claim.

Cyber, directors’ and officers’ (D&O), and construction are all singled out as business lines seeing significant market softening.  

“It is important to note that commercial property and liability insurance remain profitable across Canada’s P&C insurers and across Canada’s regions,” Kelly writes. “However, there is growing industry buzz about softening terms and conditions in these markets, so it will be important to watch the next few quarter’s results closely in these sectors.”