The insurance industry experiences cycles of expansion and contraction, just like many other industries. With more frequent and severe environmental events and disasters over the past few years, a period of "contraction" occurred in the industry. This is also known as a "hard market." A hard market is marked by higher premiums, rigorous underwriting, reduced capacity and less competition. In contrast, a soft market has lower premiums, more relaxed underwriting, more competition and increased capacity.

Even catastrophes like floods and wildfires and financial downturns in other countries have a direct impact and cause fluctuations on the overall insurance industry, caused by a dramatic increase of claims paid by insurers. The past few years have seen some of the largest insured losses in history (US Billions):

• California Wildfires: $2.0
• Flooding and Typhoon in Japan: $11.1
• Hurricane Michael: $10.0
• Hurricane Florence: $5.3
• Fort McMurray Wildfires: $3.8
• Calgary floods: $2.0

Combined Ratio

A key measure of profitability is what is known as the "Combined Ratio"- the portion of annual premiums paid out in claims and expenses. The comfort level is a ratio of 90. In a recent insurance Market Security Report, 35 major Canadian insurers were analyzed. The current Combined Ratios for many were between 100-120, which means these insurers were operating at a loss. As a result, premiums increased and these insurers became more selective in what they would insure.