Canadian property and casualty insurers are unlikely to face a severe loss event from the current wildfire season, despite the country's year-to-date area burned running above its 10-year average, according to a new commentary from Morningstar DBRS.
The rating agency said Canadian insurers have entered the 2026 wildfire season better capitalized to absorb potential losses than in recent years, though it cautioned that conditions could shift quickly through August.
Canada's year-to-date area burned has reached approximately 2.95 million hectares as of July 19, surpassing the comparable 10-year average of roughly 2.55 million hectares. Nearly 900 wildfires are currently burning across the country, with the most significant 2026 fires concentrated in remote areas of Northwestern Ontario and Northern Quebec. Those fires have prompted evacuation orders, disrupted transportation and generated widespread smoke and air-quality issues across several provinces and parts of the United States.
DBRS said insurance penetration, property values, population density and commercial activity are all relatively low in the affected regions, meaning direct property claims are likely to remain contained, and that claims tied to evacuation orders, additional living expenses and business interruption should also be manageable.
British Columbia and Alberta, the provinces historically most exposed to costly wildfires, have experienced comparatively little activity in 2026.
Approximately 43,000 hectares have burned in British Columbia and 18,000 hectares in Alberta, both well below their 10-year year-to-date averages of roughly 373,000 and 380,000 hectares, respectively.
DBRS noted that insurance risk is typically greater in these provinces because communities such as Fort McMurray, Jasper and several cities in Interior British Columbia sit in wildfire-prone areas with substantial concentrations of insured property.
Most of Canada's costliest wildfires over the past decade, including the 2016 Fort McMurray wildfire, which caused an estimated $4.4 billion in insured damage, and the 2024 Jasper wildfire, at roughly $1.3 billion, occurred in one of these two provinces.
Governments and insurers have moved toward a more coordinated approach to wildfire mitigation in recent years.
Following the record 2023 wildfire season, the federal government expanded pre-loss mitigation through the FireSmart program, and in 2025, federal and provincial governments together with the Canadian Interagency Forest Fire Centre announced a combined investment of approximately $104 million to expand FireSmart programming and community-based mitigation. Insurers have complemented that work by promoting FireSmart practices and investing in property-level loss prevention.
DBRS noted, however, that Canada still lacks a dedicated public-private insurance backstop for sharing extreme wildfire losses, unlike catastrophe risk-sharing mechanisms in some high-risk US and European jurisdictions.
Policy discussions on federally supported catastrophe reinsurance have advanced in 2026, but the initial focus has been on earthquake risk rather than wildfire, according to the note.
That earthquake-focused work is further along than it may appear. Finance Canada launched a formal consultation on a federal earthquake cost-sharing arrangement in February 2026, following a desktop simulation of the country's earthquake exposure in British Columbia and Quebec, and the Insurance Bureau of Canada submitted a detailed proposal in April 2026 for a framework it has called the Canadian Earthquake Risk Protection Act, modeled on the US Terrorism Risk Insurance Act.
Under that proposal, federal support would only be triggered in clearly defined, severe scenarios once insurers and reinsurers have absorbed contractually agreed loss layers, with any federal payments recovered over time through a premium surcharge on participating insurers rather than upfront public spending.
Canada's only current federal disaster-response mechanism is the Disaster Financial Assistance Arrangements program, which funds provincial and territorial governments after major catastrophes but does not compensate individual policyholders directly. Should a federal earthquake backstop advance, it could establish a policy template that insurers may later look to extend to wildfire risk.
DBRS said Canadian insurers enter the 2026 wildfire season from a position of financial strength, supported by generally adequate pricing, disciplined underwriting and strong capitalization.
The 2025 and first-quarter 2026 results of major publicly traded Canadian P&C insurers, including Intact Financial Corporation, Definity Financial Corporation and Fairfax Financial Holdings Limited, showed combined ratios below 95%, with strong earnings enabling insurers to build capital buffers and increase their capacity to absorb catastrophe losses.
Reinsurance conditions have also become more favorable, DBRS said, as abundant global reinsurance capacity has led to lower reinsurance prices in 2026, giving primary insurers more flexibility to reduce earnings volatility and improve program terms. Commercial insurers remain under pressure from increased pricing competition, though DBRS does not expect them to face elevated commercial claims tied to the current wildfire season.
DBRS said a material industry-wide loss remains unlikely unless fires reach major population centres or several major loss events occur in quick succession.
The existing Northwestern Ontario fires are unlikely to spread directly into Southern Ontario, the agency said, though the greater risk is that continued weather conditions ignite new fires closer to populated areas.
A more severe scenario, involving significant losses across several provinces occurring simultaneously, could exhaust insurers' annual catastrophe budgets, trigger reinsurance coverage and increase reinstatement costs.
DBRS characterized a capital event for the sector as a remote tail risk.
