A recent commentary published by Morningstar DBRS notes that wildfires have burned an area in Canada that is slightly above the recorded 10-year average but adds that fires have remained concentrated in remote areas of Northwestern Ontario and Northern Quebec.
They add that Canadian property and casualty (P&C) insurers are well positioned to absorb moderate wildfire losses, thanks to strong underwriting, profitability, capital buffers, pricing and improving reinsurance conditions.
“While the situation warrants close monitoring, we do not believe the current wildfire activity is translating into a severe loss event for the Canadian insurance industry,” say authors of the recent commentary, As Smoke Sweeps Across Canada, Insurers Remain Relatively Unscathed. “Conditions could change quickly through August. The ultimate impact on insurers will depend less on total area burned and more on whether fires threaten major population centres and areas with significant concentrations of insured property.”
Year-to-date, the area burned in Canada has reached approximately 2.95 million hectares. The comparable 10-year average is roughly 2.55 million hectares. Fires in British Columbia and Alberta, provinces historically most exposed to wildfire costs, have burned 43,000 hectares and 18,000 hectares, respectively. This is well below their comparable year-to-date averages of 373,000 and 380,000 hectares.
The paper notes that Canada lacks a dedicated public-private insurance backstop for sharing extreme wildfire losses. Although policy discussions related to federally supported catastrophe reinsurance have advanced, they also note that the focus of these discussions has been on earthquake risk, rather than wildfire. “Consequently, wildfire-related losses continue to be absorbed primarily through private-sector insurance solutions,” they write.
The paper concludes saying a material, industry-wide loss remains unlikely unless fires reach major population centres or several major loss events occur in quick succession. “The existing Northwestern Ontario fires are unlikely to spread directly into Southern Ontario; the greater risk is that continued weather conditions ignite new fires closer to populated areas,” they write. “A more severe outcome would entail significant losses across several provinces occurring simultaneously.”
