Credit ratings unchanged in the face of record wildfire destruction

With the 2025 wildfire season in Canada shaping up to become one of the most destructive on record, a new report from Morningstar DBRS says insurers remain well capitalized and supported by regulation. That said, they add that the increasing frequency and severity of wildfires are testing the limits of underwriting models and reinsurance strategies. 

“Canada’s 2025 wildfire season has rapidly escalated, with over 2.8 million hectares already burned, adding pressure to an industry still absorbing 2024’s record catastrophe losses,” they write in the commentary report, Navigating a New Normal: 2025 Wildfires Renew Volatility of Natural Catastrophe Losses for Canadian Insurers. “The current trajectory suggests that wildfire-related losses may surpass previous records, prompting a re-evaluation of risk management and pricing strategies.” 

Despite the threat, however, the ratings agency says they continue to view the credit fundamentals of Canadian property and casualty (P&C) insurers as stable. They anticipate earnings pressure but not a material capital event or threat to credit ratings, as long as the season does not significantly worsen or affect urban centres.

“We expect further upward pressure on premiums in 2025 and 2026, especially in wildfire prone regions,” they write. “Commercial lines, however, are experiencing moderation in pricing pressure, partly due to greater competition and improved claims experience outside property segments. Specialty lines like cyber and directors & officers have seen prices decline, reducing overall earnings buffers for multiline insurers,” they warn, adding that reinsurers are also likely to reevaluate their Canadian exposure. 

“While underwriting results are likely to remain volatile in 2025, we view the industry’s capital base, prudent reserving and regulatory oversight as sufficient to support credit quality through another challenging catastrophe year,” they conclude. “We anticipate the industry to be able to absorb this latest wave of losses without a material impact on credit profiles.”