Record Cat year: Does Canada need more reinsurance capacity?

Canada needs to attract more reinsurance companies and capacity to its market, especially considering the record-breaking NatCat year, an industry professional says.

Canadian property and casualty insurers have already paid out $7.7 billion in insured damage in 2024, $7.1 billion of which was from four large Cats this summer — the Calgary hailstorm ($2.8 billion), flooding in Quebec ($2.5 billion), Toronto flooding ($940 million) and the Jasper, Alta. wildfire ($880 million).

In addition to the record Cat year, the frequency and severity of these extreme weather events has increased dramatically over the years, notes Klaus Navarrete, managing director and chief agent with HDI Global SE Canada.

A recent study from insurtech MyChoice Financial finds annual average insurable losses in the last decade have shot up 379% in Canada compared to the prior 30-year average.

“When you look at the reinsurance market now, they need to also adapt to the new realities,” Navarrete says in an interview with Canadian Underwriter. “From my point of view, there needs to be a new orientation for us to prepare for more frequent, large losses in the Canadian market.”

Reinsurance is expected to cover about half the cost of the four summer Cats, Peter Askew, president and CEO of Guy Carpenter (Canada), told the National Insurance Conference of Canada in September.

Although Canada is a large country by land mass, it’s relatively small when it comes to overall premium income from reinsurance, Navarrete says. So what happens if the Big One hits British Columbia, for example, and that earthquake costs $100 billion?

“Then you ask yourself, ‘Who’s going to cover this loss?” Navarrete says. “I think there is…always a dependency on international capacity.

“So, we need to attract reinsurance companies to the Canadian market and then make sure that those companies can cover the cost of capital plus margins.”

Impact on Jan. 1 renewals

The need for reinsurance is apparent given 2024 has been the worst year on record for Cats in Canada. And Navarrete thinks this reality will be reflected in reinsurance negotiations that are ongoing for Jan. 1 renewals.

Just how does the Canadian P&C industry attract more reinsurance capacity into Canada?

One consideration is the ease of doing business, given how heavily regulated the insurance industry is in Canada.

“With the additional regulations that are coming at us, that might not be attractive to some foreign capacity,” Navarrete says. “Because…if you want to enter the Canadian market, you obviously have to have a business plan in place, you need to look at costs, there’s the administration servicing aspect of it.

“So, I think by taking a more pragmatic approach from a regulatory and compliance perspective, that could be one way in attracting more reinsurance capacity into the Canadian market.”

That said, the reinsurance market serving Canada is fairly stable from a capacity standpoint, Navarrete adds.

“It’s very important that we in Canada…create an attractive environment for foreign capacity to come into our market because…we want to ensure that the policyholders are being served fairly and reasonably,” he says. “By having choices overall, that goes a long way.”

Feature image by iStock.com/ssuni