Canadian cedants facing hefty rate rises in wake of record cat year

Reinsurers are expected to push for substantial rate increases and higher retentions on Canadian business at the 1 January 2025 property renewals as the country reels from what is already its worst ever year for insured catastrophe losses.

In the space of less than 30 days this summer, four major cat events generated insured losses of C$7.12bn ($5.27bn), as per estimates from Catastrophe Indices and Quantification Inc (CatIQ).

When added to various smaller cat events this year, Canada’s insurers have suffered an estimated C$7.6bn of losses.

For some, those losses have triggered reinsurance programs.

Intact faced a C$1.1bn pre-tax hit, net of reinsurance, from the four events, while Definity said the summer catastrophes will impact its Q3 operating income by C$150mn, net of reinsurance. Definity added that the full C$25mn of coverage under its cat aggregate treaty had been exhausted.

Given the scale of the losses, senior market figures told this publication that Canadian property reinsurance rates will go up at the 1 January renewals, with changes to structures, terms and conditions expected too.

As one source noted, 2024 is just the latest in a series of heavy cat loss years. As figures from CatIQ show, 2022, 2023 and 2024 all rank among Canada’s top five costliest years for insured cat losses.

And while there have been increases in Canadian property reinsurance rates in recent years, sources said they have not been to the same extent seen elsewhere around the world, notably those in the US.

The heavy losses of recent years mean that will soon change. While still early in negotiations, market contacts said those cedants that have passed losses to reinsurers could face significant rate increases at renewal.

The extent of those increases will differ from client to client, sources said, as the recent cat losses have impacted each cedant differently. For some, the cat losses have only tagged the lower layers of reinsurance programs. Others, sources said, have losses that have reached the fourth or fifth layers.

Because of the repeated heavy cat losses of recent years, sources said there was an expectation cedants would now look to retain more at the lower end of their programs.

That is in part because they know the cost of that lower-layer protection is set to increase substantially, while reinsurers are also expected to push for retentions to rise.

The high inflation of recent years, along with growth ambitions, means Canadian carriers have already been buying more limit at the top of their programs to reflect the exposure change.

That is expected to become even more prominent in the new year as cedants look to manage the increasing cost of Canadian cat events.

At the same time, there is a mandatory requirement for Canadian insurers to have coverage in place to meet a 1-in-500-year return period for earthquake losses, so with any additional exposure assumed, they would need to grow their reinsurances.