As Canada heads into reinsurance renewal season with a record $7.7 billion of NatCat losses in the books, rating agency A.M. Best expects reinsurance rates to be more orderly on Jan. 1, 2025, than in 2023, after a significant market correction.
Unless, of course, you are a regional carrier with large exposures in areas at risk of flooding, hail or wildfires.
“Despite catastrophe losses in Canada reaching Cdn$3.1 billion in 2023, the 2024 reinsurance renewal season was much more orderly, as the changes implemented the prior year proved effective,” A.M. Best notes in its latest Market Segment Report for Canada.
“Nonetheless, with the unprecedented wildfire season throughout the year and the increase in flooding events, concentrated regional carriers have been disproportionately impacted by additional reinsurance rate increases.”
Overall, however, the harder 2023 reinsurance market in Canada did what it was supposed to do, lowering reinsurers’ exposure to escalating secondary peril climate risks in Canada.
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“The Canadian P&C market made extensive changes in the terms, conditions, and structures of reinsurance programs during the 2023 reinsurance renewal season, leading to significant price increases for primary insurers,” as A.M. Best observes.
“The results of the Canadian reinsurers rated by AM Best were positive, benefitting from a favourable underwriting environment and improved pricing conditions. In 2023, the industry reported combined ratios of 65.6% (net/net) and 77.8% (net/gross) versus 75.3% (net/net) and 83.6% (net/gross) in 2022. Additionally, market demand remains elevated, as insurance revenue rose to $Cdn 4.2 billion, highlighting the continued attractiveness of the segment.”
That reinsurance market correction in 2023 led to primary P&C insurers in Canada retaining about 10% more of the NatCat claims in 2024—a record year that saw the wildfire destruction of one-third of Jasper, a record hailstorm in Calgary, and extensive flooding in Quebec and Ontario.
“We can observe that about 50% of the losses coming out those four main events will be going into the reinsurance market — quite a substantial component,” Peter Askew, president and CEO at Guy Carpenter (Canada), commented at the National Insurance Conference in Canada (NICC) in Vancouver. “But interestingly, because there was a substantial step change in reinsurance structures in 2023, retentions went up considerably.
“[Before Canadian reinsurance renewals in 2023 and 2024], we would observe that that split would have been roughly 60-40 — so, 40% retained by cedents and 60% going into the reinsurance market, a fair bit more retained by those insurance companies.”
As a result of the reinsurance market restructuring in Canada in 2023, A.M. Best’s reinsurance market outlook has changed from ‘Stable’ to ‘Positive.’
“The upgrade reflected the industry’s strong profit margins, higher attachment points, and tighter terms and conditions,” A.M. Best says in its report.
“For 2025, AM Best expects reinsurance renewals to follow the orderly transition seen in 2024.
“However, rising catastrophe risks, as well as macroeconomic and geopolitical risks, remain a key consideration that may impact the segment. Additionally, the rise of secondary perils will also have an impact on pricing and terms/conditions.”
Feature image courtesy of iStock.com/peterschreiber.media