1. ^aProperty & Casualty Insurance Compensation Corporation (PACICC), Research, 20 Richmond St. East, Suite 210, Toronto, ON, Canada M5C 2R9. E-mail: dleadbetter@pacicc.ca
2. ^bInsurance Bureau of Canada, Policy, 777 Bay Street, Suite 2400, PO Box 121, Toronto, ON, Canada M5G 2C8. E-mail: sdibra@ibc.ca

Abstract

We analyze the involuntary exit of 35 property and casualty insurance companies from the Canadian insurance market over the 1960–2005 period, and consistent with other jurisdictions, find evidence that inadequate pricing and deficient loss reserves are the leading cause of insurer insolvency. Overall, we find that the operating environment generally provides the catalyst for insolvency, either through turbulent financial markets or reduced profitability in the industry, but most causes of involuntary exit can however be linked back to three sources within an institution: the quality and experience of governance/management, internal operational processes and risk appetite. Further, other than inadequate pricing, our results, when compared with the few studies in various jurisdictions, indicate there are few universal causes of involuntary exit across jurisdictions, and hence supervisory approaches to insurer insolvency should be flexible and adaptable to the environment.