The insurance markets continue to see its share of challenges with all signs pointing to continued tightening of rates and terms heading into 2023. Global catastrophe losses as of September have reached $100b with the projection for the end of 2022 to close out circa $110b. This marks the fifth consecutive year in a row that global catastrophes have exceeded $100b in insurance losses and many investors providing capital into these reinsurance programs are tired of losing money.
As a result, a number of investors have chosen to vacate the reinsurance marketplace at a time when there is increased demand for capacity due to inflation from rising construction costs. With lack of capacity and profitability comes adjustments to these reinsurance programs, with many reinsurers seeking a 50% increase to rate while doubling the retention levels to insurance companies purchasing reinsurance.
These changes in the reinsurance market have had a significant impact on insurers, whom rely on reinsurance to balance out the risk in their portfolios. The primary catastrophe risks for Canadian insurers range from wildfires, earthquake, hail, windstorms and flooding events. With investment income down and their underwriting results only marginally improving over the past year, this rate and deductible pressure will end up being passed down to the consumer.
One of the hardest hit regions in Canada from these changes will be Southern Vancouver Island due to its exposure to earthquake. At the reinsurance level, earthquake continues to model poorly for this area which in turn creates strain on reinsurance rates. Canada’s largest property and casualty insurer, Intact Insurance, has led the market by increasing earthquake deductibles to 20% for most of Greater Victoria, while also imposing rate increases to earthquake insurance for most of Coastal BC. Several other domestic and international insurers are also showing signs of mirroring this trend, which is a direct result of their reinsurance costs going up along with their retention levels (deductibles on catastrophe events).
It’s important to note that while earthquake is a big focus at the moment, reinsurance rates have increased across the board so there will be changes coming for most of Canada. Over the course of 2023, consumers should anticipate increased rates and deductibles, larger than average increases to insured property replacement values and a continued focus on selective risk underwriting as insurance companies deploy their limited capacity.
As a SeaFirst client, we continue to work behind the scenes to ensure our clients are prepared for these changes as they arise and provide them with the best options available for their insurance needs. Thank you for your continued support and please feel free to contact us with any questions that you may have.
