What to expect from Canada’s 2025 reinsurance renewals

Despite Canadian P&C insurers paying out more than $8 billion in natural catastrophe losses this year, the country’s primary insurers are not likely to see the same drastic reinsurance market correction they saw in 2023, CU webinar panellists predicted last Thursday.

That said, reinsurance pricing and risk selection are still very much on the table in 2025, they added on Canadian Underwriter’s panel, Canada in a de-globalized world.

“I don’t think we’ll see the same kind of severe correction, or sharp correction that we’ve seen previously, from conversations I’ve had with colleagues who are more directly involved in the renewals,” New York-based James Finucane, chief economist as Swiss Re, commented in the webinar. “Though…differentiation is really sort of a term that comes up quite a bit in these renewals.

“If we think about the more than $8 billion of catastrophes from this year, it’s really affected primary insurers very differently. Some have actually not been affected, while many have seen a fair number of losses, and others were severely affected. Reinsurers will continue to look at each case on an individual basis.”

Uncertainty is still a factor in the 2025 renewal season, because not all 2024 claims data are reported yet, Finucane said.

“Everyone is really still in the process of updating their view on what happened this year and figuring out what that means for the for the view on risk going forward. And, of course, that’ll all have some effect on the on the renewals in January.”

In 2023, the reinsurance market in Canada saw reinsurers withdraw some capacity for risks in Canada that they had previously underwritten, particularly for secondary perils such as floods and wildfires. That market correction saw a redistribution of Cat risk, resulting in Canada’s primary insures retaining 50% of the risk on their own books instead of the traditional 40%.

That same market correction saw higher prices for reinsurance, as well as tighter terms and conditions, with reinsurers assuming risk at higher attachment points.

Related: Will reinsurance capacity be stable in Canada after record-breaking NatCat losses?

The 2023 reinsurance market correction felt abrupt, said Matthew Campbell, vice president of finance, claims and strategy at Sovereign Insurance.

“I think, with the [2023] renewals, the correction that did happen came partially as a surprise,” he said. “But, as we were looking at the global reinsurance market, you could kind of see it starting to happen, because the Canadian market is very tied to what happens globally.”

After that 2023 market correction, P&C insurers started to look closely at their reinsurance programs under a different lens, Campbell said, because of the increase in Cat frequency and severity over the past decade.

“The [reinsurance] program people had in place five to 10 years ago isn’t the same program that you may have today or going forward. So that’s something to look at. How much do we retain versus not, and what are the reinsurers willing to accept versus not?

“And when you’re trying to plan into 2025…reinsurance is a big piece of the puzzle to understand, [as well as] the impact of that on the profit and loss statement.”

Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction, differentiated between a market ‘correction’ and reinsurance pricing. The correction of 2023 shifted the allocation of Cat risk between the primary insurers and the reinsurers, so that primary insurers were on the hook for about 10% more of the loss payments, as he and Finucane noted.

“I don’t think there’s a correction on the table,” Kovacs said of what to expect during 2025 reinsurance renewal season. “I think the reinsurers made a statement in 2023 and it’s now part of the market. I don’t see that coming back again.

“But what’s the right price? I think that’s now back on the table, because we had another big year. Yes, it was a big number for us [Cat losses in 2024], whether it’s $8 billion or $9 billion, but for the Americans, that’s still a rounding error and global market. So, what that means for us [in terms of reinsurance pricing] is back on the table. We’ll see with this renewal.”

Feature image courtesy of iStock.com/FG Trade