Canada’s property and casualty (P&C) industry is pressing Ottawa to move quickly on a federal backstop for catastrophic earthquake risk, warning that a major event in the Montreal or Vancouver regions could test the resilience of the country’s entire financial system.
In April 2026, the Insurance Bureau of Canada (IBC) submitted a detailed proposal to Finance Canada as part of the federal consultation on extreme earthquake risk launched in the 2025 budget.
Canada’s Pacific coast sits on the Cascadia Subduction Zone, a fault line capable of producing magnitude 8–9 earthquakes. Geological records indicated that at least 13 “megathrust” events over the past 6,000 years, with the most recent major rupture, in January 1700, estimated at magnitude 8.7–9.2. Federal scientists typically place the probability of a magnitude 8 or greater Cascadia earthquake in the next 50 years at around 30%.
Montreal, meanwhile, lies in Quebec’s most active seismic zone and has a recorded history of damaging earthquakes, including a magnitude 5.8 event in 1732.
IBC analysis suggested that a severe earthquake affecting either region could produce insured losses more than 11 times higher than Canada’s current costliest disaster, with broader economic losses running into the hundreds of billions of dollars. Recent modeling exercises for British Columbia alone have pointed to potential economic losses well above $100 billion from a magnitude 9 Cascadia event.
Against that backdrop, IBC argued that earthquake risk is systemic rather than theoretical and that a single event could simultaneously strain insurers, reinsurers, capital markets and public finances.
Canada’s prudential regime already requires P&C carriers to measure and hold capital against earthquake exposure.
Guidance from the Office of the Superintendent of Financial Institutions (OSFI), including Guideline B‑9 and the Minimum Capital Test (MCT), expects insurers to quantify probable maximum losses, report them to senior management and demonstrate that capital, reinsurance and reserves are sufficient for at least a 1‑in‑250‑year event.
OSFI has reiterated those expectations in recent years and is updating earthquake data and capital requirements as part of a broader review of P&C solvency standards.
However, there still remains a sizeable protection gap. While earthquake cover is widely available, take‑up is low. Industry data suggest that only a small minority of homeowners in Quebec and roughly half to two‑thirds of those in British Columbia purchase earthquake insurance, despite those provinces being among the most exposed. High deductibles and affordability concerns have been cited as key reasons.
IBC’s position is that, without a national mechanism to handle extreme tail risk, both insurers and governments face uncertainty over who ultimately bears the cost of a “Big One”‑scale event, and policyholders face the prospect of capacity withdrawal or sharp post‑event premium shocks.
To address that gap, IBC has proposed the Canadian Earthquake Risk Protection Act (CERPA), a federal backstop modeled on the structural principles of the US Terrorism Risk Insurance Act (TRIA).
TRIA, first enacted in 2002 and renewed several times since, requires participating US insurers to make terrorism coverage available and provides a federal backstop above defined insurer retentions, with a recoupment mechanism to recover any federal outlay over time. It is widely credited with stabilizing the terrorism insurance market by clarifying how extreme losses would be shared between industry and government.
CERPA would apply a similar type of rules‑based, pre‑agreed cost‑sharing formula to extreme Canadian earthquake losses. Under the proposal, federal support would be triggered only in clearly defined, severe scenarios, once insurers and their reinsurers have absorbed contractually agreed layers of loss.
The framework is designed to cap the federal government’s exposure, support long‑term fiscal planning and operate on a cost‑neutral basis. Any federal payments after a qualifying event would be repaid over time through a temporary premium surcharge collected from participating insurers, rather than through upfront public spending.
IBC also suggested an opt‑in or “equivalency” model for provinces and territories so that provincially regulated insurers can access the federal backstop while provincial regulators retain authority over product design, pricing and market conduct.
IBC noted that all other G7 countries facing similar natural catastrophe threats already operate some form of public–private cost‑sharing mechanism for major perils.
Japan’s Earthquake Insurance scheme, for example, uses a government‑backed pool to reinsure residential earthquake policies, subject to aggregate limits, while New Zealand’s Earthquake Commission (EQC) provides state‑backed residential cover supported by a government guarantee and commercial reinsurance. International bodies including the OECD and IAIS have highlighted such schemes as tools to narrow protection gaps and enhance financial resilience to large natural catastrophes.
A number of academic studies comparing earthquake systems in California, Japan and New Zealand have reached a similar conclusion: in high‑risk, high‑income countries, large‑scale earthquake insurance is generally only sustainable with some level of public sector involvement.
IBC’s CERPA proposal would effectively align Canada with that pattern, while tailoring the design to domestic legal and regulatory structures. However, CERPA would not remove the need for robust primary underwriting or reinsurance.
Canadian carriers would still be expected to manage accumulation, maintain adequate capital buffers and encourage take‑up of earthquake coverage to avoid large protection gaps, IBC said.
The federal government’s decision to consult formally on systemic earthquake risk has been welcomed by IBC and market participants as a significant shift after decades of discussion.
With submissions now in, Finance Canada must decide whether to pursue a TRIA‑style backstop along the lines of CERPA or an alternative model, and how any framework would interact with existing provincial initiatives, private reinsurance and capital markets.
The outcome will help determine how they model extreme Canadian quake scenarios, structure reinsurance and communicate long‑term capacity and pricing to clients in exposed regions. A transparent, pre‑event agreement on who pays what in a worst‑case earthquake would not eliminate the risk, but it could go a long way toward ensuring that when a major event does occur, the financial system and insurance market are able to support recovery rather than amplify the shock.
