Commercial insurance brokers expect market conditions to remain highly favourable for clients for quite some time, the Insurance Portal has learned.
Indeed, most market participants will enter 2027 in a strong position, according to Aon’s fall update on the Canadian commercial property and casualty insurance market. Insurers have abundant capacity and generally strong balance sheets. This is good news for clients.
But will the current soft market continue? “Although no one has a crystal ball, I would say the next two years will be similar to what we’ve experienced in recent years,” says McArthur Jean, Senior Vice-President and Director of Broking for Quebec at Aon. “There is plenty of capacity in the market, insurers and reinsurers are reporting positive financial results, and things are relatively stable on the natural catastrophe front.”
Could exceptional catastrophic events, such as hurricanes Debby and Katrina, change the picture? Jean doesn’t think so. “It would take several Katrinas in a row to make a difference,” he adds.
Insurers have increased capacity and are still reporting excellent underwriting results. Jean says Canadian insurers’ combined ratios are generally in the 85% to 88% range, with some exceptions. A few insurers are showing signs of strain, with their combined ratios climbing to 100% or even 104%.
“To understand the current situation, we have to go back to the last hard market cycle,” he emphasizes. “Insurers and reinsurers hadn’t been making money for years. Several major natural catastrophes had occurred in succession. There was a fairly severe correction, even though it was expected. The market wanted to return to profitability quickly. Rates increased sharply for two years.”
Jean continues: “Once insurers returned to profitability, they shifted into growth mode, particularly since economic conditions are now favourable to them, with rising interest rates benefiting their investments. They identified the most attractive markets, including Canada. We saw extremely aggressive growth targets, in the range of 10% to 12% annually. Everyone had the same idea at the same time, and a lot of capital has come from London, Bermuda and even Asia.”
Rate reductions of 40%
Some brokers are reporting rate reductions of 30% to 40% for certain clients at renewal. McArthur Jean considers reductions of this magnitude to be occasional. The average is more likely around 10% to 15%, which is still significant.
“There is a lot of competition and there are new players in the Canadian market,” he says. “Insurers remain aggressive in pursuing their growth targets.”
Some lines of business are less favourable for clients, including cyber risks, particularly those involving artificial intelligence (AI). In this area, clients are still learning how to integrate the new technology into their operations. More importantly, they need to understand that AI introduces unforeseen risks and that it must be used responsibly.
Conditions are also less favourable for some clients with U.S. exposures, particularly in liability insurance.
“The United States remains a complicated market because of recent nuclear verdicts, sometimes amounting to several hundred million dollars,” he explains. “Their legal environment is very different from ours.”
Another challenging area is marine cargo insurance. “We have clients facing steep increases because they have operations in the Middle East. Some can no longer obtain insurance at all.”
Of course, if your fleet operates on the Great Lakes, that’s another story…
Sharp reductions at renewal
For the past three years, Josiane Bérubé, Quebec Director at Wynward, has observed renewals resulting in rate reductions of 30% to 40%.
“It’s becoming increasingly rare to see reductions of just 2% or 3%,” she notes. “Right now, it’s impossible to propose increases.”
She attributes this situation to extremely fierce competition among insurers, who are lowering their rates, imposing very few additional underwriting restrictions and showing a high tolerance for risk.
“Insurers have been profitable for four years, and the scarcity of major natural catastrophes has had little impact on their underwriting results,” she says. “In addition, insurers are having difficulty meeting their market share targets.”
Small and medium-sized enterprises (SMEs) dominate our economy. Are they benefiting as much as large companies? Absolutely, she believes. SMEs now routinely expect rate reductions.
“They ask brokers to shop around, and if they don’t, they switch brokers! Clients are keeping a close eye on what’s happening in the market and asking brokers to shop around more. Some brokers refuse because their own revenues have been declining for three years.”
She maintains that all accounts with premiums exceeding $50,000 are automatically seeing reductions, regardless of the type of business. The most challenging classes, however, include wood-related operations, from forestry to manufacturing, which is a relatively limited market, as well as plastics. Roofing contractors are also an exception, with only modest rate reductions because few insurers cover this type of activity, she believes.
“But generally, insurers have so much capacity that they remain creative and are relaxing their underwriting standards,” adds Josiane Bérubé. “We’re seeing insurers enter areas where they previously had no presence.”
She says clients who are not benefiting from rate reductions are those whose financial statements show losses.
“It’s a taboo subject in the industry. Nobody talks about it,” she says. “Despite that, some insurers accept these accounts without taking it into consideration. Some of these accounts are seeing increases of 5% to 7%, though, not 30%. And even then, profitability would have to be severely compromised, with a series of claims, before we would see more substantial increases.”
Softer than ever
“The market is softer than ever, mainly in property insurance, but less so in cyber, directors and officers’ insurance, and liability,” says Jean-François Beaulieu, President of Hub International Quebec.
He confirms that rates began declining in late 2023 and that the final quarter of this year, which has just begun, is characterized by exceptionally favourable market conditions for clients.
“Protected and semi-protected risks, which have historically been difficult to insure, particularly for premiums of $100,000 or more, are now finding insurers willing to cover them,” he says.
Beaulieu reveals that some HUB clients are now seeing their third consecutive renewal with rate reductions. Over the past three years, reductions have often been around 15% in the first year and 20% in subsequent years.
“Some clients have returned to pre-2018 pricing, when the hard market was beginning to take hold,” he observes.
He says several very large accounts are securing highly favourable terms during the October renewal period.
“This is largely explained by reinsurance treaties negotiated on favourable terms in recent years, and by insurers passing those savings on to their clients or taking on more risk,” he observes. “Underwriting profits have been evident for quite some time, and most insurers are still profitable.”
Some insurers had budgeted for catastrophe losses of 10% to 12% but have recorded no losses this year, boosting their profitability. Some are taking advantage of the situation to increase their capacity in the hope of capturing more market share.
Will this situation last? Jean-François Beaulieu notes that the underwriting results of some insurers are beginning to deteriorate, a normal phenomenon after several years of a soft market. Their financial position has not been affected, given the absence of major catastrophic events in recent quarters. However, the climate crisis will continue and is inherently unpredictable.
Nevertheless, given the enormous capacity currently available from highly aggressive insurers, he does not foresee an end to the soft market before the second or third quarter of 2027.
“We’ll have a better idea of how much room insurers really have to manoeuvre over the coming quarters when they release their financial results in the next few weeks,” he concludes.
