By Chris Munro

April 8 - (The Insurer) - There is now a greater equilibrium between Canadian insurers and reinsurers following widespread changes in the property catastrophe market in recent years, while there is growing concern that rising secondary peril losses represent a new normal.

While much of the focus of the great property catastrophe reinsurance reset that began in 2023 was on those carriers operating in peak peril zones such as the Southeast U.S., primary insurers in Canada were also affected.

According to one senior reinsurance broking executive, risk-adjusted property catastrophe rates for Canadian cedants increased by 20% in 2023, while attachment points were raised.

Speaking during Swiss Re’s 39th annual Canadian Insurance Outlook Breakfast in Toronto last Thursday, Jolee Crosby, CEO of reinsurance for Canada and the English Caribbean, said there is now a better balance between reinsurers and cedants.

“Our reinsurance perspective is that we are there for those shock losses – those capital events, not earnings events,” Crosby said.

“We're not closest to the risk in the market for some of these more frequency-driven events. It's not as easy for us to model with lack of data.”

As such, Crosby said Swiss Re has “continued to push for more of an equilibrium” between what insurers can retain on their balance sheets, and what should be passed on to reinsurers.

The backdrop to these changes is the mounting cost of natural catastrophe losses borne by (re)insurers operating in Canada.

SECONDARY PERILS

As Urs Baertschi, CEO of P&C reinsurance at Swiss Re, noted during the event in Toronto, natural catastrophe “is a big topic”.

Over the last five years, average annual natural catastrophe insured losses have been exceeded $120 billion a year.

During the past 30 years, secondary peril losses have accounted for just over half of the total annual natural catastrophe total. In more recent years, Baertschi noted that the trend has been for secondary perils to represent more than 60% of the annual natural catastrophe insured loss total, “and it keeps going up”.

Baertschi highlighted some of the major secondary peril events that affected the property catastrophe market in 2024, including floods in Dubai, Eastern Europe and Italy.

“It happened here (in Canada) too,” said Baertschi, referencing the hailstorm in Calgary, the remnants of Hurricane Debby in Quebec, a wildfire in Jasper and severe flooding in southern Ontario.

According to risk modeller CatIQ, that quartet of secondary peril events cost the market well in excess of C$8 billion ($5.6 billion), with the country hit by more than C$9 billion of total natural catastrophe losses in 2024.

“Four (major) events in one year – is that the new normal? We don’t know, but could it happen again? Absolutely,” stated Baertschi.

“The fact that Hurricane Debby came up here and came into Quebec wasn’t in a lot of loss models probably, but it absolutely happened, and these more extreme and little bit less known weather events are going to impact our industry.”

Each of the four major secondary peril losses that hit Canada last year have cost (re)insurers north of C$1 billion, with the Calgary hailstorm the costliest event at almost C$3.3 billion, followed by Hurricane Debby at C$2.8 billion, the Jasper wildfire at C$1.2 billion and the Ontario flooding at C$1.0 billion.

As Baertschi noted during the Swiss Re event, 2022, 2023 and 2024 were each among Canada’s five largest insured natural catastrophe loss years .

Those heavy losses have focused the mind on the role that insurance plays in society, with the market helping customers get back on their feet post event.

Crosby said Canadian insurers “continue see good persistency” from consumers, who once they have bought coverage keep on taking out the protection.

That is even as insurers have imposed rate rises in the face of the heavy losses suffered in recent years.

Crosby said one of the reasons for the continued purchases is the strong insurance ecosystem that exists in Canada.

“You have good partnership with the primary carriers. You have good reinsurers. You also have good discussion with the government, and you have a strong regulator. So it's a strong ecosystem, and that's important.”

Sharing data is of vital importance in maintaining that ecosystem, especially in light of the recent uptick in natural catastrophe losses in Canada, Crosby said.

“What's important is that collaboration, and so that's where the need for data continues to be paramount, because the more data we have to understand the risks, to understand the exposures, also to understand the pricing and the mitigation in place, that's what helps keep that ecosystem strong,” she said.