Rating agency DBRS Morningstar has estimated that the ongoing wildfires in Canada will drive insurance market losses of up to $1.5 billion in the third-quarter of the year.
However, it notes that this will only be an earnings event for insurers, with wildfire-related insured losses in Q3 estimated at between $700 million and $1.5 billion, which it says will remain manageable for the sector.
With the wildfires ongoing though, DBRS Morningstar feels that the ongoing event has the potential to further pressure the Q3 2023 results of P&C insurers operating in Canada, especially if the fires moved into densely populated regions, economic hubs, or affected key infrastructure.
“While wildfires are not frequently the cause of large catastrophic losses, they have a potential to lead to high claims related to damage/total loss of property and equipment, smoke-related damage and other clean-up, cost of living expenses following mandated evacuations, and potentially for loss of income for insured businesses in the affected area,” explained Nadja Dreff, Head of Canadian Insurance. “Larger and more frequent weather-related losses will continue to pressure property insurance prices higher in the near term.”
It’s worth noting here that Canadian property and casualty insurer, Intact Financial Corporation, reported pre-tax catastrophe losses estimated at CA $421 million, net of reinsurance, for the second quarter of 2023, which it said at the time were driven by the record-setting series of wildfires in the country.
Which provides a glimpse of how severe the wildfires were in Q2 and of course the outbreak has worsened into the third-quarter and continues to develop.
Some 14 million hectares of land have been burned by wildfires in 2023 so far, far exceeding any other year.
As in the case of Intact, elevated losses have affected Canada’s insurers during the first-half of the year and it seems more of the same is likely for H2 with the wildfires still raging.
DBRS Morningstar notes that as there are numerous fires burning, which in the majority of cases will constitute separate events under the terms of reinsurance that is in-force, recoverables will tend to be lower as insurer retain the first portion of each catastrophe loss event.
As ever, aggregate contracts may be exposed, but for the reinsurance industry this is unlikely to be significant.