What’s the future for Canada’s reinsurance rates?

New risks emerging in Canada are leading reinsurers to increase premiums, industry experts have told Canadian Underwriter.

Although U.S. damage losses last year far outweighed Canada’s, contributing significantly to escalating reinsurance prices, insured NatCat damage in Canada in 2022 was one of the highest years on record.

Canadian NatCats are no longer just a blip on the map, sources said.

“I think there was maybe a bit of a complacency in the reinsurance markets for a long time in Canada,” said David Mamane, financial services senior analyst at RSM Canada.

“In the last 10 years or so, we’ve seen a variety of things emerge in the Canadian market that, frankly, were not there historically.”

For example, the Toronto floods of 2013 caused almost $1 billion in insured damage and the Fort McMurray wildfires in 2016 set insurers back more than $4 billion in insured losses, according to the Insurance Bureau of Canada.

Predictability problems

More recently, Hurricane Fiona sent shockwaves (or torrential downpour) through Canada’s P&C insurance industry, accounting for eastern Canada’s largest-ever NatCat at more than $800 million.

“Hurricane models typically didn’t [predict] hurricanes to venture up into the Atlantic provinces that severely,” Mamane said. “Every time we see events in the Canadian market that were not predicted by past models, it leads the reinsurers to think, ‘Well, I need to get ahead of this, because there’s unmodelled risk here that that we can’t quite quantify.’”

Historically, Canada has not ebbed and flowed alongside the global market, and that was absolutely different this year, Monica Ningen, CEO Property & Casualty Reinsurance, US at Swiss Re noted in a press interview.

“In historical market cycles, even if cycles were high or low, the Canadian cycle is more moderate,” she added during a media briefing at Swiss Re’s annual Canadian Insurance Outlook Breakfast.

“Some of that is because of the regulation we have here, the type of reinsurance [insurers] buy, and how much they buy, but it hasn’t ebbed and flowed at the same rate as market cycles around the world, and that changed this year.”

2023 renewals

This year’s renewal saw reinsurers needing to make significant changes to be able to secure their balance sheets, Ningen explained.

“The global reinsurance market impacted Canada pretty significantly,” she said. “I think it goes back to the fact that we’re linked with the global economic landscape; we’re not isolated from it. So that in itself really came through this year.”

Will reinsurance pricing momentum continue into 2023 and beyond? It’s possible rates will continue to rise, albeit at a slower pace, predicted Mamane.

“There was a bit of a slingshot in the industry, where reinsurance rates had not hardened for many, many years. Prior to that, bad loss experience was coming through the industry. [Since then]…a lot of the post-pandemic inflationary effects — whether that be in the supply chain, cost of materials, cost of labour and other aspects of claims — have really started to flow through.

“A lot of those headwinds are still going to be in place in 2023.”

This article is excerpted from one that appeared in the June-July print edition of Canadian Underwriter. Feature image courtesy of iStock.com/Eoneren