Credit ratings agency Morningstar DBRS has called the wildfire incidents in Western Canada a “raging inferno,” which might prove to be a problem for property and casualty insurers if such extreme weather events persist with increased regularity.
In a commentary, Morningstar DBRS said: “It is still too early to predict whether the 2024 wildfire season will be comparable with 2023, which marked the most active and destructive wildfire season on record.
“The total area that has been scorched so far in 2024 is approximately 2.4 million hectares, which is slightly above the historical average of 2.1 million hectares but still significantly below the 16.5 million hectares for full-year 2023.
“We expect the ongoing 2024 wildfire season to be manageable for Canada’s property and Casualty insurers, resulting in an earnings event that will not directly negatively affect capital or credit ratings, assuming no major urban areas are materially affected.”
Morningstar DBRS said that damage from wildfires highly depends on geographic and demographic factors in the affected area, such as population density and property value, as well as business interruption losses.
“Given that the Jasper Wildfire Complex will likely remain an earnings event, we anticipate that there will be no material credit rating implications for Canadian P&C insurers,” Morningstar DBRS said.
“The Canadian P&C insurance industry remains well capitalized with enough product and geographic diversification, mitigating the severity of losses from catastrophic events. Insurers also mitigate their exposure to large losses through risk transfer using reinsurance.”
However, it was noted that increased frequency might pose a problem.
“Overall, the potential insured damage caused by the 2024 wildfire season should be manageable for Canadian insurers, but if extreme weather events continue to happen more frequently in 2024, Canadian P&C insurers may start facing earnings pressure,” Morningstar DBRS concluded.
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