Four of Canada’s largest publicly traded property and casualty insurers remain well capitalized to withstand the increased losses caused by more frequent severe weather occurrences, according to a new report, despite a record-breaking wildfire season.
In a review of quarterly results, ended June 30, Intact Financial Corp, Fairfax Financial Holdings Corp. FFH-T, Definity Financial Corp. DFY-T and Trisura Group Ltd. TSU-T all reported positive earnings for the first half of 2023. The group of insurers continues to benefit from price increases, less volatile financial markets and higher interest rates, DBRS Morningstar’s head of Canadian insurance, Nadja Dreff, says in a report released this week.
However, based on the frequency of weather-related events reported this year, along with inflation, Ms. Dreff expects insurers will continue to be under pressure to increase the cost of personal and commercial property insurance premiums in the “short to medium term.”
The Canadian insurance industry has seen the number of natural-disaster claims more than quadruple since 2008 because of weather events such as hurricanes, floods, hailstorms and wildfires. Last year, such events accounted for $3.1-billion of insured losses – up from just $40-million in 2008.
Fire insurance is a standard feature of every home and business insurance policy and typically includes coverage for living expenses – food, clothing, hotel stays – when people cannot return home after a fire. Commercial policies tend to be more complex and can include payments related to business interruption.
Over the past three years, the Insurance Bureau of Canada has seen house insurance prices increase about 14 per cent – with a 5-per-cent spike in premiums in just the past 12 months, Craig Stewart, vice-president of climate change and federal issues at IBC, told The Globe and Mail earlier this year.
Ms. Dreff estimates the total wildfire-related losses incurred in the third quarter of the year, which ends on Sept. 30, to be between $700-million and $1.5-billion – an amount still deemed “manageable” for insurers.
“We do not anticipate any direct credit rating implications arising from the existing wildfires,” Ms. Dreff said in the report. “However, the wildfire season is not yet over and there is a potential for any of the fires to intensify and further pressure third quarter results, especially if the fires affect densely populated regions, economic hubs, or key infrastructure.”
More than 100,000 square kilometres have burned in Canada owing to wildfires so far this year, breaking the country’s record set in 1989, when 76,000 square kilometres were burned. Most recently, wildfires have spread to the urban centres of Yellowknife and Kelowna, B.C., forcing thousands of residents to evacuate.
While current fires are still much smaller in damages than the 2016 blaze in Fort McMurray, Alta. – the costliest natural disaster in Canadian history, with $9.9-billion in damages (of which $3.6-billion was insured) – Ms. Dreff says it is the “larger and more frequent weather-related losses” that will drive home insurance prices higher for consumers.
Canadian homebuyers are increasingly scared about climate-related weather events affecting the home they are considering purchasing. Almost 25 per cent of potential homebuyers asked their insurance company about flood risk zones, while another third of younger Canadians asked a climate-related question before making a home purchase, according to a recent study by insurer Aviva Canada.
In addition to the increase in weather-related events when looking at pricing, insurers are also affected by the rising real estate values when looking at rebuilding structures and higher concentrations of high-value properties in risk-prone areas.
“While wildfires are not frequently the cause of large catastrophic losses, they have the potential to lead to high claims related to damage/total loss of property and equipment, smoke related damage and other clean-up, cost of living expenses following mandated evacuations, and potentially for loss of income for insured businesses in the affected area,” Ms. Dreff said.