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The North America Insurance Sectors : A Company and Industry Analysis (December 2007)
Mergent, Dec 2007, Pages: 28
This report updates the previous North American insurance report, focusing on the markets in Canada and the United States
Current Environment - Key Points
- Many US insurers capitalized on the healthy environment this year and started to reduce rates, marking a more competitive US market
- The US subprime loan crisis hit insurance stocks hard. The ten largest stocks tracked by Mergent from April to September saw losers outperform gainers to four. - The US insurance industry is increasingly concentrated in the hands of a few large companies. The past six months saw a very strong M&A market, with AIG stealing the show with the completion of its acquisition of 21 st Century Insurance Group in September. - The insurance industry in Canada is facing a time of slowing sales growth. The country-s largest insurers are upgrading their distribution networks for group and individual retirement products to attract baby boomers before they exit the workforce. - The Canadian insurance industry increased its direct premiums written to C$7.7 billion (US$7.5 billion) in the first quarter of 2007, despite a 66% fall in its underwriting income. - The Canadian M&A market is robust. Big companies such as Manulife and Great-West have accumulated high levels of liquidity and are expected to make buyouts very soon. However, the focus of M&As is likely to be in Asia-s expanding markets
Industry Profile - Key Points
- The US insurance industry for years has been subjected to rapid change and increasing complexity and competitive forces across all insurance segments. The market, however, remains resilient due to improvements in underwriting, risk management and expense structure in the past few years. - Figures from Swiss Re show that the US insurance industry accounted for around US$1.17 trillion, or 32% of total global insurance premiums of US$3.7trillion as of 2006. US life and non-life insurance segments have around US$5.77 trillion worth of financial assets. - The largest business segment measured by premiums written in the US life/health sector is annuities. Meanwhile, auto insurance represents the largest piece of business in the P&C sector. - The Canadian insurance industry is among the key GDP contributors to nation-s economy. Last year, the Ministry of Foreign Affairs and International Trade reported that the finance and insurance industry rose 5.1% in terms of real gross domestic product
- The Federal Government last year proposed legislation to amend the law of financial institutions. One of the objectives of the proposed bill is to clarify the application of Part XIII (Foreign Companies) of the ICA
- A capital adequacy model similar to Europe-s Solvency II will soon be implemented in Quebec and the rest of Canada to improve corporate governance in the financial sector
Market Trends and Outlook - Key Points
- The commercial insurance sector is experiencing an overall decline in total cost of risk, despite property premium hikes
- The number of Americans without health insurance is continuing to rise, with higher costs now affecting millions of Americans in the middle class demographic
- US consumer awareness of insurance products and services is falling, with fewer Americans understanding the range of insurance options available
- Automotive insurance is getting cheaper in Canada, following the introduction of reforms several years ago
- There is rising concern among Canadians about the adequacy of their personal savings to meet their long-term healthcare expenses
- The wealth management industry, which has been operating in Canada for the past three decades, is becoming more attractive to life insurers because of the narrowing scope in traditional life insurance business
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