Canada’s property and casualty insurance industry is strong enough to absorb catastrophe losses on the scale of 2024 or worse without threatening its stable outlook, according to AM Best.
“We would say that the stable outlook is not a fragile one. It’s quite a robust one,” Alan Murray (pictured left), director at AM Best, told Insurance Business. “It reflects the capital strength of the industry and its ability to absorb very significant levels of cat risk and other underwriting volatility.”
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Murray said the outlook doesn’t depend on lower catastrophe activity in 2025, and that catastrophe losses so far in 2026 had already run ahead of last year.
“We’d see even the ability to absorb 2024-like or potentially even more cat losses,” he said. “Capital is still very robust and strong on a risk-adjusted and total basis.”
AM Best applies the same framework to the industry that it uses to rate individual companies, Murray said, looking at balance sheet strength, operating performance, business profile and risk management.
“I think we also see that companies use the 2024 experience in 2025 to recalibrate their pricing to some extent,” he said.
Insurers have benefited from a more competitive reinsurance market following the sharp rate increases and tighter terms of the 2023 renewals, Murray said, though that relief won’t last forever.
Claims discipline has strengthened, helped in part by analytical tools including AI, and higher rates and steady investment income have added further support.
Ravi Mittal (pictured right), financial analyst at AM Best, said the high-catastrophe years forced the industry to adjust.
“Because of the years of high catastrophe activity in 2023 and 2024, we see that the industry has adapted to that,” Mittal said. Insurers have tightened underwriting, pulled back in catastrophe-prone areas and improved rate adequacy, he said.
“Even if the catastrophe activity was very high, say this year or next year, we believe it would not wipe out profits altogether. It would just soften because the fundamentals are good in the industry,” Mittal added.
Murray said catastrophe frequency and severity remain front of mind heading into 2027, along with the effect of auto insurance reforms in Ontario and Alberta, which he said remains to be seen as the frameworks emerge.
On tariffs, Murray said cost pressures from parts, supplies and labour have largely fed through to claims since the pandemic, and are already reflected in pricing, give or take a few percent.
“I guess at the margin, probably a little extra volatility in the industry’s results just because of what can and can’t be predicted,” he said.
Mittal said tariffs are partly incorporated into pricing, but that their full effect is yet to be seen.
Casualty lines are a bigger concern. Murray said pricing for D&O, professional E&O and employment practices liability has come under heavy pressure, particularly in the US, where litigation financing is pouring money into claims.
“Here, also a sense that the competition has been very significant and some companies may be pulling back a little bit from that market just due to the deterioration,” Murray said. “But the heat spectrum of the litigation here does not seem to be at the level of what we have in the [United] States.”
Litigants in Canada are also becoming more sophisticated, he said.
“There’s certainly more science and art being applied to that trade,” Murray said.
He said that defence costs on casualty claims in Quebec are effectively unlimited, which creates risk for newcomers to the province.
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Insurers have to be very careful how they underwrite that, and especially if they are coming from outside the country or outside the market and don’t know the inner dynamics, Murray said.
Construction is another pressure point. Long building booms, as in Toronto, can draw in contractors working beyond their experience, he said.
“Sometimes the demands on construction are such that they bring people into the business who may not have so much experience,” Murray said. “Some people start to go outside of their core competence.”
Mittal pointed to claims inflation from rising repair and replacement costs, and to climate risk, as other areas AM Best is watching.
The stable outlook doesn’t mean the picture can’t change, Murray said.
“It doesn’t mean it can’t change if CAT activity became very severe,” he said.
The key question after any major loss is whether it hits earnings or capital.
“We’re often asked whether we see something as an earnings event or a capital event,” he said. “If it’s an earnings event and it can be absorbed into the sort of normal ebb and flow of the underwriting cycle, then it can sort of self-correct.”
The 2023 reinsurance renewals showed what a shock looks like, Murray said. In the US, some insurers exited entire business segments because they couldn’t raise primary rates enough to cover higher reinsurance costs.
He said the impact of any event also varies between companies.
“Depending on where and when it happens and what line it affects, it’s a very different impact on individual companies and can be disproportionate on some, higher or lower,” Murray said.
