A new special report from AM Best credits robust capital buffers, disciplined pricing and effective risk management for offsetting the impact of Canada’s costliest catastrophe year on record in 2024.
“AM Best is also maintaining its stable market segment outlook for the Canada P/C sector, driven in part by its strong profitability, resilient underwriting results and favourable investment returns,” they write. “Additional supporting factors include Canada’s comprehensive and continuously improving regulatory framework, adequate levels of reinsurance capacity and easing inflationary pressures.”
They say challenges for companies include persistent climate-related risks and challenges in the personal auto sector. “These pressures are testing the industry’s resilience and demand continual refinement of underwriting strategies and risk management practices to sustain profitability,” AM Best’s director, Alan Murray added in a statement. “Canada’s P/C insurers delivered another strong year of financial performance in 2024, generating total net income of $6.3-billion, reflecting a moderate decline from $7.1-billion in 2023.”
The report continues saying underwriting performance was particularly resilient, and investment income was strong, thanks to higher bond yields reflecting higher interest rates.
Record catastrophe losses
It goes on to look at the record catastrophe losses reported in 2024, in some detail. “When adjusted for inflation, the cumulative cost of these events since 2000 has reached $50.6-billion. Approximately 18 per cent of these total costs were incurred in the record-setting year of 2024 alone,” they write. “As climate change amplifies the frequency and intensity of these events, the need grows for insurers, governments and communities to collaborate on proactive mitigation measures. Investments in infrastructure resilience, updated building codes and advanced early-warning systems can play a vital role in reducing future exposure.”
Entitled Best’s Market Segment Report: Credit Fundamentals in Canada’s Property/Casualty Sector Remained Stable in 2024, Despite Record Catastrophe Year, the report also looks at surging secondary perils, portfolio valuations, emerging geopolitical risks, artificial intelligence usage, environmental risks, regulatory developments, cyber risks and distribution.
Heightened concern about earthquake risk
Interestingly, it also notes the discovery of a fault line located primarily in the Yukon, saying this adds significantly to existing concerns about earthquake risk. “Long dormant, a rupture along the Tintina fault line is believed to have the potential to exceed magnitude 7.5 on the Richter scale,” they write. “The impact on the industry could also be substantial, particularly as AM Best believes the availability and affordability of reinsurance coverage in Canada may be strained by such a scenario.”
Reinsurers in 2024, meanwhile, despite deteriorating underwriting results, maintained strong capital positions during the year. They also note that pricing remained firm across most lines of business. “Canadian reinsurers fared worse in 2024 than in 2023. The combined ratio increased sharply from 65.6 per cent in 2023 to 92.6 per cent in 2024, driven by a drastic rise in the loss ratio while the expense ratio remained relatively stable year-over-year.”
