Canada’s property and casualty (P&C) sector is poised to continue benefiting from favourable pricing conditions that will foster top-line growth as severe weather events ramp up demand for coverage, according to DBRS Morningstar.
A new commentary published by the credit rating agency identified several factors supporting premium rate increases in 2024, including elevated reinsurance prices, inflation volatility, hard market dynamics, and the growing severity of weather events.
The country’s encounter with intensified and more frequent natural catastrophes took a particularly harsh toll on insurers during the third quarter of the year.
Intact, for instance, saw its combined ratio increase by 11.7 percentage points due to catastrophe losses. Definity had similarly high values in its Q3 financials, reporting 13.5 points of catastrophe losses.
According to Nadja Dreff, senior vice president and head of Canadian insurance, insurers will respond to these trends in the short term by increasing premiums to “protect their underwriting profitability, satisfy solvency capital requirements, and maintain credit ratings.”
However, raising premiums “may prove to be more and more difficult to executive over time,” she said.
Complicating matters is the rising prices of goods and services, with many facing increased difficulty absorbing additional costs, including insurance.
In the face of these insurability, affordability, and solvency concerns, DBRS Morningstar suggested reducing risk exposures through adaptation and resiliency measures.
“In the absence of such a reduction, and in light of growing climate-related risks, we may have an insurance availability problem that carries broader negative economic and credit assessment implications,” the report stated further.
It also noted that improved investment income could reduce the magnitude of premium rate increases but added that this would not be enough to fully offset them.
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