The Insurance Institute of Canada’s CIP Society has released Catastrophe Financing: Implications for the Insurance Industry in Canada, which explores the financial pressures of catastrophic events and their impact on the industry over the next decade.
The report found that catastrophe losses in Canada have increased in both frequency and severity. Since 2013, the country has recorded nine catastrophe events and five catastrophic years, including the past three consecutively.
The report identified key drivers of rising losses, including climate change, population growth, inflation, and soaring construction costs, particularly in Toronto, Vancouver, and remote areas. The consistent growth in catastrophe claims over the past 40 years suggests these pressures are deeply entrenched.
The report highlighted lessons from the 2023 reinsurance renewal season, which saw unexpected cost increases and restructuring that forced insurers to take on higher retentions. Industry veterans described it as one of the toughest renewal seasons in memory.
The study also examined proposals such as an earthquake liquidity backstop and a government-backed reinsurance program for high-risk residential flooding.
Insured losses exceeded $8.5 billion in 2024, compared to an annual inflation-adjusted average of $150 million in the early 1980s—a 50-fold increase over four decades.
Canadian insurers rely on multiple financing mechanisms, including capital reserves, reinsurance, and catastrophe bonds. However, the 2023 renewal season shifted more risk from wildfires and severe storms onto insurers as reinsurers reduced coverage for frequent events.
Solvency remains a critical concern. More than 500 insurers worldwide have become insolvent since 2000, some due to extreme events. While systemic risk in Canada’s insurance industry is low, a mega catastrophe with claims exceeding $35 billion could overwhelm the sector, requiring government intervention.
Meanwhile, regulators are increasing scrutiny of catastrophe risk management. The Office of the Superintendent of Financial Institutions, along with provincial regulators, requires insurers to conduct annual stress tests and demonstrate financial preparedness for events such as earthquakes and severe weather.
The Canadian Council of Insurance Regulators is also calling for improved communication on coverage options and policyholder risk exposure. Meanwhile, government disaster relief programs continue to assist property owners lacking insurance for high-risk flooding.
As catastrophic events become more frequent and costly, the industry faces mounting pressure to adapt. The report underscored the need for proactive financing strategies and regulatory coordination to ensure long-term resilience in Canada’s insurance sector.
