The above average wildfire season will undoubtedly impact Canadian property and casualty (P&C) insurers, but industry experts have predicted that insured losses will remain manageable for most companies, provided no other major catastrophes occur during this period.
According to DBRS Morningstar, aggregate insured losses resulting from ongoing wildfires in Alberta, Quebec, and Atlantic Canada are expected to be smaller than the record-breaking $4.3 billion in losses incurred during the Fort McMurray wildfires in 2016.
Still, analysts at the credit rating business voiced concerns that the increase in extreme weather events and natural catastrophe losses, combined with a hard reinsurance market globally and high inflation levels, will exert further pressure on home insurance prices.
“Canadian P&C insurers have been exposed to larger and more frequent weather-related losses, which are driven not only by climate change but also by the rise of property values over time as well as changes in demographics and accumulation of insurable value in risk-prone zones,” said DBRS Morningstar’s Marcos Alvarez, global head of insurance, and Michael Driscoll, head of North American FIG.
In their analysis, the duo pointed to Canada’s total insured weather-related losses over the past 40 years, stating losses have “increased significantly” since 2009.
Alvarez and Driscoll warned that certain regions of the country may become prohibitively expensive to insure as Canada witnesses more frequent and intense extreme weather events.
They said most Canadian P&C insurers have increasingly relied on treaty and facultative reinsurance markets to mitigate their exposure to catastrophe risks.
Global reinsurers have also been grappling with significant natural catastrophe losses, which reportedly reached US$125 billion in 2022.
Alvarez and Driscoll highlighted the need for comprehensive risk mitigation measures, including the development of more resilient infrastructure, stringent construction zoning and building codes, and stricter criteria for determining suitable areas for construction.
They cited the recent announcement by the Canadian federal government regarding its flood management strategy, suggesting that a similar framework should be established to address the increasing impact of wildfires in Canada.
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