The Canadian property and casualty (P&C) insurance sector is facing an era of heightened volatility, defined by billion-dollar weather disasters, economic uncertainty, and the growing cost of technology risk. Yet despite mounting headwinds, the industry continues to demonstrate resilience. According to AM Best, strong capitalization, disciplined underwriting, and cautious risk management have allowed insurers to absorb shocks without losing their footing.
At AM Best’s recent market briefing, Alan Murray (pictured left), director at the credit rating agency, said the firm is maintaining its stable outlook on the Canadian P&C industry. The assessment, he explained, reflects a sector that remains well-capitalized and well-regulated, even as it contends with unpredictable claims patterns and emerging systemic risks. “Overall, we’re maintaining a stable outlook reflecting continued financial strength, disciplined underwriting, and resilience amid ongoing economic and environmental challenges,” Murray said.
Few challenges loom as large as climate volatility. Catastrophic weather has become an annual reality for insurers, reshaping pricing models and testing loss reserves across both personal and commercial lines.
In 2024, insured losses in Canada surged to around $9 billion, the highest on record, driven by floods, wildfires, and convective storms. While 2025 has not yet matched that total, the pattern of more frequent and severe events shows no sign of abating. As Murray put it, “severe weather events are becoming more common and more costly.”
These escalating losses are prompting carriers to revisit their underwriting appetites and exposure management frameworks. Insurers have begun introducing higher deductibles, revising sublimits for specific perils, and recalibrating coverage for high-risk geographies. Many have also tightened guidelines for new business in areas prone to repeat weather events, shifting capacity away from catastrophe-exposed regions.
Although reinsurance has absorbed a significant share of the burden, the knock-on effect of global hardening has raised costs for primary carriers. Reinsurers are demanding higher retentions and more granular data on portfolio composition, forcing cedants to strengthen their internal models and catastrophe analytics.
Still, AM Best said the overall capital strength of Canadian carriers provides a buffer. Many companies have reinforced reserves in recent years, adopting more conservative investment and hedging strategies to offset volatility in claims. The sector’s risk-adjusted capitalization remains solidly in the “very strong” range across AM Best’s rated population – a key factor behind its stable outlook.
Beyond natural catastrophes, auto insurance remains a persistent pressure point for Canadian P&C carriers. Claims costs have risen sharply as a result of inflation, supply-chain disruptions, and a surge in vehicle theft.
Cristian Sieira (pictured centre), senior financial analyst at AM Best, said that the auto liability loss ratio rose to about 70 percent in 2024, compared with just over 50 percent two years earlier. The personal accident loss ratio also jumped, reflecting more expensive parts, longer repair times, and higher legal costs. “The increase we’ve seen over the last three years reflects the rising claim severity tied to elevated repair costs, increased legal expenses, and overall inflationary pressure on bodily injury claims,” Sieira said.
While theft remains elevated, recent data suggest that countermeasures – including enhanced law enforcement cooperation and consumer education – are starting to help. Insurers have also been pressing manufacturers to address vulnerabilities in certain vehicle models, an effort that has begun to yield measurable results in early 2025.
The regulatory environment, however, remains complex. Alberta’s shift toward a no-fault model marks a significant structural change in Canada’s auto insurance landscape. The move could eventually reduce claims volatility and legal costs, but AM Best cautioned that the transition period may bring pricing uncertainty as insurers rework their assumptions. Other provinces, meanwhile, continue to balance rate pressure with affordability concerns, limiting insurers’ ability to fully pass rising costs to consumers.
Economic uncertainty is another key challenge, AM Best’s experts explained. Persistent inflation, fluctuating interest rates, and slower GDP growth have complicated balance sheet management for Canadian insurers.
Higher claim costs and the rising price of materials have driven up the expense side of the equation, while market volatility has created headwinds on the investment side. After several years of strong yields on fixed income, the Bank of Canada’s recent rate cuts have begun to reverse some of those gains.
Murray acknowledged that investment performance has become a crucial stabilizer, particularly in 2023 and 2024, when higher reinvestment yields helped offset elevated claims. But with rates now easing, he said, insurers will need to rely more heavily on underwriting discipline to sustain profitability.
AM Best analysts said that even with these macroeconomic pressures, the Canadian P&C market remains more stable than many of its international peers.
At the same time, digitalization and cyber threats are reshaping insurers’ risk profiles. Murray said that as P&C insurers digitize their operations, they face a dual exposure: internal operational risk and external underwriting risk.
Insurers are now both vulnerable to cyber attacks themselves and responsible for underwriting the growing demand for cyber insurance coverage across the economy. That combination, Murray said, requires “careful underwriting discipline and strong data governance.”
Canadian insurers have been ramping up investment in cybersecurity infrastructure, data protection, and AI governance, but the exposure remains dynamic. The line has also become one of the fastest-growing segments in commercial coverage, driven by rising demand among businesses facing ransomware and data breach risks.
AM Best expects the complexity of cyber underwriting to increase further as carriers expand coverage and refine pricing models. Analysts cautioned that while the segment presents growth opportunities, it also introduces volatility if underwriting standards lag behind evolving threats.
