By Jeff Sanford
Toronto, Ontario -- April 10, 2018 -- In this week's Tuesday Ticker, volatility to continue, possible new insurance regulations, GM scales back its reporting and much, much more.
Stock markets are extremely choppy these days. Get used to it. This is going to last for some time, say the big brains on Wall Street.
Stock analysts at Citigroup expect the volatility to continue. According to a report to clients a potential trade war and possible new regulations for tech giants Amazon (which has been a huge performer in terms of stock price) put downward pressure on stocks. The Citigroup analysts do expect markets to be higher at the end of the year than at the beginning, but expect more dips yet.
With earnings season just ended the flow of news from publicly-traded companies is relatively light this week. What is worth noting are the stats in Mitchell's first quarter industry trends report.
The company breaks out Canadian numbers in its quarterly reviews. According to the latest issue, “the overall average severity value of collision repair estimates across the industry were $4,184, up $43 from Q4 2016. Mitchell calculates that number from the data uploaded from shops using the Canadian system.”
Insurance industry consultancy Oliver Wyman has just completed a report that finds Newfoundland and Labrador’s private passenger auto insurance market isn’t profitable for insurers and hasn’t been since 2011. The report looked at overall profit and loss trends in the provincial insurance industry. According to the authors, “on average, the premiums charged over years 2007 to 2011, in aggregate, were more than adequate to provide for claim costs, expenses, and the Board [of Commissioners of Public Utilities’] guideline profit provision.” But from 2012 to 2016, the premiums charged didn’t cover costs, even though Newfoundland and Labrador’s drivers pay the highest premium rates out of all the Atlantic provinces at $1,090 a year. A press release quotes an industry executive as saying, “Bodily injury claims are higher than they are in other provinces, and there’s been an escalation in physical damage claims as well. The Maritime provinces introduced a cap at varying times beginning in 2004 and have revisited the cap in each of the three provinces since that period of time. Newfoundland and Labrador put in the $2,500 deductible back in 2004 and never made any other changes. There have been no substantial reforms to the product in that province and there’s no work being done to control costs. Without any kind of really meaningful actions, premiums will just continue to rise.” Overall, the Oliver Wyman report finds that, “industry profitability, as measured by percent of premium before taxes, fell from 8 percent in 2007 to -6 percent in 2016.”
Another interesting bit of news from the insurance industry is the recent announcement of a possible new regulator for the Ontario insurance industry. Overlooked in the recent Ontario budget was confirmation that a new regulatory body will be introduced that will be able to write regulations around insurance. The new body, the Financial Services Regulatory Authority (FSRA) will begin operating in April 2019. Apparently, there is additional proposed legislation coming that will allow FSRA to, “make rules requiring insurers to provide claims and vehicle repair history information to persons to be prescribed in regulation, most likely used car dealers,” (according to a report from the Insurance Bureau of Canada). The report goes on to note that, “As part of the budget, the government also announced changes to the Insurance Act to give FSRA prudential oversight of certain insurance companies incorporated in Ontario.”
Also in Ontario this past week: William Young, chairman of the board of Aurora, Ontario-based auto parts maker Magna International, is up for election to the board of Intact Financial Corporation. Toronto-based Intac, announced in a management information circular released March 29 that Young is being nominated by the company to join the board of directors. Management nominees are nearly always appointed. Shareholders vote on the new slate of directors at Intact’s annual general meeting, May 9 at the Art Gallery of Ontario in Toronto. Young has been chairman of Magna since 2011. Magna, of course, recently announced it will invest $200 million in ride share service, Lyft. The plan is for the two companies to work on manufacturing self-driving cars. Intact was the first insurance company in Canada to offer a policy for drivers involved in ride-sharing.
General Motors last week announced it changing the schedule around its release of sales numbers. GM announced it will now release those key stats on a quarterly basis rather than monthly. Some wonder if an expected peak in auto sales this year (following record sales in 2017) may have influenced the company to spend less time compiling and releasing sales stats. GM execs argue that reporting those key stats less often could work to lessen the volatility in the price of GM shares. Investors follow the sales numbers of the OEMs closely, and shifts in the number of vehicles sold lead to advances or declines in the stock price. Executives at the auto companies claim there is a lot of “inconsequential volatility in month-to-month sales stats.” The auto companies began reporting those stats on a monthly basis in the 1990s. At that time it was a good way to generate coverage and press. The attention was welcome, as the industry was surging in terms of profits and growth. Gasoline prices were low or falling and the boom in highly profitable SUVs was taking off. Things are a bit different today. According to a GM vice-president, “Thirty days is not enough time to separate real sales trends from short-term fluctuations in a very dynamic, highly competitive market.” GM stopped holding a monthly conference call with analysts and media in 2014. The month of March was the last time GM reported monthly sales numbers. GM stock is currently trading at about $38 a share, off of recent highs of about $45. Other automakers are thought to be following the lead of GM.