How real estate lines develop

While capacity and appetite are recovering, Canadian insurers remain picky when it comes to selecting risks, especially in the often-contested real estate sectors, Aon’s report said. Canada 2024 Spring Insurance Market Update report.

“Overall, there has been an expansion in capacity and appetite, indicating the market is transitioning to a more competitive space. However, the focus on risk selection continues to prevail as insurers look to maintain profitability,” said Russell Quilley, head of commercial risk and chief broking officer of Aon Canada, on the overall market trends.

“The underwriting process remains disciplined and risk differentiation remains a top priority as underwriters increasingly rely on data, insights and analytical tools such as modeling to support decision making,” Quilley said in the report.

In 2023, Canadian non-life insurers ended with a combined ratio of 92.72% (according to IFRS-17 reporting, which allows discounting). Although the new IFRS-17 results cannot be sufficiently compared Compared to previous years’ reports, any ratio below 100% means that companies are making underwriting profits.

Capacity in real estate has become stable. But customers with high-value risk positions – accounts that have been hit by losses or are in disaster areas – may find capacity reduced.

Real estate interest rate increases continue at a moderate pace, driven by inflation, reinsurance costs and weather-related events. For this reason, insurers insist on updated valuations from their customers, to ensure that exposure values ​​reflect actual replacement costs.

In 2023, Canada experienced a “record-breaking” 23 natural disasters, resulting in a total of $3.5 billion in losses.

“While total insured losses were not record-breaking, the number of events certainly was,” the report said. “July and August alone were responsible for more events than Canada had previously experienced in an entire year.”

Because of this jump in NatCat risk, insurers are revising their models to determine adequate real estate rates.

“There is increasing scrutiny on wildfire prevention measures and the implementation of separate wildfire deductibles,” the report said. “Increasing the deductible associated with catastrophe exposure will impact those with exposure in those areas (i.e. the BC earthquake).”

Globally, NatCat losses totaled $380 billion in 2023, up from $355 billion in 2022. The year was also the hottest on record, contributing to increased scrutiny by carriers and reinsurers.

And although reinsurance costs have risen dramatically in recent years, conditions are stabilizing and capital is returning to the market, Aon reports.

Global reinsurer capital rose by $45 billion to $635 billion in the first nine months of 2023, the brokers estimate – driven mainly by retained earnings, recovering asset values ​​and new inflows into the catastrophic bond market.

“For real estate catastrophes in particular, reinsurers continue to impose higher retentions, leading primary insurers to retain more Cat losses, stretching their catastrophe budgets. This is then expected to influence behavior over the course of 2024.”

The good news is that property catastrophe capacity is “readily available” to meet demand, but lower tiers of reinsurance are still under pressure as reinsurers hesitate to participate.

“Buyers who took a holistic approach to program placement had greater success in securing reinsurer support for these tiers, but nevertheless, most reinsurance buyers can now secure as much protection for their earnings as they want,” it said report.

Destroyed homes and charred forests are pictured among spared properties following a wildfire earlier this month in the suburb of Hammonds Plains, NS, outside Halifax, on Thursday, June 22, 2023. THE CANADIAN PRESS/Darren Calabrese