An increase in extreme weather events may threaten the availability of property insurance in Canada, warns DBRS Morningstar in a new report.
The rating agency said that Canadian property and casualty (P&C) insurers have, so far, proven resilient in the face of rising weather-related losses.
“However, as climate risk increases and severe weather events become more correlated around the world, insurance and reinsurance companies may opt to withdraw property insurance coverage in regions they deem too costly to insure, or they may avoid insuring certain risks altogether,” the report warned.
The report noted that average annual weather-related losses are rising more quickly in Canada than in the rest of the world.
“This is consistent with the notion that the warming of Canada’s climate is happening at about twice the rate of the global average, according to scientific evidence provided by the Canadian government,” DBRS Morningstar said.
“With the increase in temperature comes climate change — changes in rainfall patterns and increased frequency and intensity of extreme weather-related events such as floods, droughts, heat waves, wildfires, and storms and the resulting higher insured losses,” the report noted.
Ultimately, these events may make acquiring insurance tougher.
“Under an extreme scenario, global reinsurance companies may reduce their appetite for insuring some property risks in Canada, creating additional challenges for primary insurance companies that rely on reinsurance as a risk management strategy,” said Nadja Dreff, senior vice-president, insurance, with DBRS Morningstar, in a release.
“As such, we are closely monitoring the consequences of climate change and the P&C insurance industry’s response as part of our credit rating analysis,” she added.