Canadian primary P&C insurers have weathered almost $9-billion worth of storms caused by natural catastrophes this year, but not without higher reinsurance prices, increased risk retention, smaller investment income contributions, and increasing property rates in 2025, says a new commentary by Morningstar DBRS.
But expect the pricing environment to continue to diverge for personal and insurance segments in 2025, the rating agency said in its Canadian P&C Insurance Outlook 2025. Specifically, unlike in personal lines, pricing in commercial lines will continue to decelerate.
P&C insurers in Canada showed “stability and resilience” despite experiencing the highest natural catastrophe insured losses ever recorded in 2024— $8.3 billion and counting, according to previous Canadian Underwriter reporting. More than $7.1 billion of that came from four summer storms alone.
Although this is an unprecedented loss amount (the previous record loss year was $6 billion in 2016), preparation and previous performance helped insurers weather the storm.
Premium increases during the pandemic and in 2023 helped insurers “mitigate some of the severity of losses,” says DBRS, as well as favourable results in the first half of 2024 and “the boost from improved investment returns on the back of higher interest rates.”
Companies less concentrated in property insurance lines found benefit in their diversification, spreading their losses wider across multiple portfolios, the ratings agency says. For example, in 2024, auto and commercial business lines performed much better than personal property insurance for the most part, which helped to counteract losses.
“Overall, we expect our Canadian P&C’s credit ratings to remain stable in 2025, absent another record insured loss year,” DBRS authors Nadja Dreff and Marco Alvarez write.
Commercial lines, unlike property lines, will see price moderation in 2025.
Meanwhile, reinsurance rates in Canada — which hit a historic high in 2023, but stabilized in 2024 — could once again increase in 2025. However, the type of reinsurance market correction seen in 2023 is not likely to repeat in 2025, sources tell Canadian Underwriter.
DBRS refers to a results report by Munich Re (the largest global reinsurer) that says the company experienced “approximately the same amount of loss arising from the natural catastrophes in Canada in Q3 2024 as it did in losses caused by a major hurricane in the U.S. (Hurricane Helene).”
That means Canada is no longer off the map when it comes to drivers of reinsurance premiums.
As a response, Canadian insurers will likely have to increase their risk retention levels. This would reduce their reinsurance expense but also likely increase capital requirements “and potentially higher volatility in their profitability.”
Feature image by iStock.com/NongAsimo
