How wildfires are affecting some of Canada’s largest P&C insurers

Despite facing a heavy loss year and an unusually active wildfire season, four of Canada’s publicly traded P&C companies — Intact Financial Corporation, Fairfax Financial Holdings, Definity Financial Corporation and Trisura Group Ltd. — reported positive underwriting profits thus far, according to commentary from DBRS Morningstar. 

Overall, the insurance companies reported positive net earnings for the first half — and second quarter — of 2023, thanks to consistent premium rate increases, less-volatile financial markets and higher interest rates, DBRS said. 

However, of the four companies, Intact’s results were negatively affected by higher-than-expected NatCat claims. 

Earlier this summer, Intact reported an estimated $335 million in catastrophe losses in Canada for the second quarter of 2023. Nearly half of the losses were due to wildfires, Intact reported, with the greatest financial impact coming from Atlantic Canada, where a fire encroached on a Halifax suburb.  

Intact’s Canadian personal lines portfolio saw $252 million in losses, while its commercial lines portfolio saw $83 million for the second quarter of 2023. All figures are on a pre-tax basis, the company said.  

Yet all four companies reported top-line growth, and positive underwriting and investment income, driven in part by steady premium rate increases, inflation and improving economic activity, DBRS said. 

The four companies reported resilient underwriting performance in the first half of 2023 with combined ratios below 100%.

In this year’s second quarter, Intact reported a 96.3% combined ratio, Definity reported a 95.3% combined ratio, and Trisura reported an 82.9% combined ratio (per its unconsolidated results).  

Fairfax Financial Holdings (which owns 26 P&C companies globally, including Northbridge General Insurance) posted a 93.9% combined ratio.  

“The results were also positively affected by favourable prior-year claims reserve developments,” the report read. “Intact reported the highest combined ratio amongst the companies as a result of higher-than-expected weather-related property insurance claims expenses.” 

Based on inflation and the frequency of weather-related events reported so far this year, DBRS predicted personal and commercial property insurance premium rates to continue rising in the short-to-medium term.

These findings reflect a previous DBRS report, which predicted wildfire losses would remain within the financial absorption capacity of most Canadian P&C insurers. 

“Although Canadian P&C insurers’ results are likely to come under pressure during Q2 and Q3 2023, as they bear the weight of an above-average wildfire season, we expect that insured losses will remain manageable for most companies,” said Marcos Alvarez, DBRS’s global head of insurance.

“However, we anticipate that the increase in extreme weather and natural catastrophe losses, together with a hard reinsurance market globally and relatively high inflation levels, will continue to pressure home insurance prices up in the near term.” 

A helicopter carrying water flies over heavy smoke from an out-of-control fire in a suburban community outside of Halifax that spread quickly, engulfing multiple homes and forcing the evacuation of local residents on Sunday May 28, 2023. THE CANADIAN PRESS/Darren Calabrese