AM Best’s outlook on Canada’s P&C segment remains stable despite C$3.1bn cat losses in 2023

Global credit ratings agency AM Best is maintaining its stable outlook on Canada’s property & casualty (P&C) industry, amid significant challenges from catastrophic events in 2023 and this year.

The rating agency noted that the stable outlook was driven by a number of factors, including the sector’s solid risk-adjusted capitalisation levels, supported by very strong operating results, favorable combined ratios and growth in insurance service revenue, and improving investment return.

In spite of a manageable level of catastrophe activity seen during the first half of 2024, Canada’s property & casualty (P&C) insurers faced four major events in this year’s third quarter, which according to AM Best, should lead to another record year for losses.

Looking back at 2023, losses due to catastrophe events throughout the year are estimated to have reached CAD 3.1 billion, making it one of the five worst catastrophe years on record, trailing only inflation-adjusted catastrophe losses in 2013 and 2016.

Rosemarie Mirabella, director, AM Best, commented: “Canada’s P/C insurance industry managed to achieve favorable financial results, with net income up an astounding 77.5%, from CAD 4.0 billion in 2022 to CAD 7.1 billion in 2023.

“Profitability was driven by growth in underwriting income and a resurgence in investment income, partly counterbalanced by rising finance expenses from insurance contracts, as well as general and operating expenses.”

Moreover, the rating agency noted that Canada’s P&C segment will continue to face challenges stemming from the growing frequency and severity of extreme catastrophe weather events, as well as continued increases in reinsurance coverage costs and ongoing pressures in the personal auto lines business.

AM Best explained that Canada’s P&C reinsurance sector plays a “pivotal role” towards providing financial stability to primary insurers given the increase in weather-related events impacting the country.

“The market is dominated by large international players, providing a broad range of reinsurance products. The increase in cat events has been a headwind for direct writers in recent years but has resulted in a hard market for reinsurers, and Canada remains an attractive market for participants,” AM Best said.

It’s worth highlighting that AM Best, earlier this year, upgraded its market segment outlook for the global non-life reinsurance industry to positive from stable, which the agency said reflected the industry’s strong profit margins, higher attachment points, and tighter terms and conditions following a period of significant repricing.

Mirabella, added: “Canada’s P/C market made extensive changes in the terms, conditions, and structures of reinsurance programs during the 2023 reinsurance renewal season, leading to significant premium increases for primary insurers. 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.”

In a recent report, AM Best also highlighted how Canada’s economy continues to see notable growth supported by a still favorable labor market, rising asset prices and falling inflation.

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