DBRS Morningstar Maintains Neutral Outlook for Canada P&C Insurance in 2026

DBRS Morningstar has maintained a neutral outlook for the Canadian property and casualty (P&C) insurance market in 2026, highlighting a balance between strong capital positions, disciplined underwriting, and cautious reserving against pressures from higher claims inflation and climate-related risks. The credit rating agency anticipates that earnings will support internal capital formation over the next 12 to 18 months, although quarterly results may exhibit more volatility due to increased weather-related loss events such as wildfires, windstorms, hail, and flooding.\n\nUnderwriting profitability remains critical to credit performance, with combined ratios expected to stay profitable albeit less favorable compared to recent peak market conditions. DBRS Morningstar identifies intensified competition in commercial insurance pricing, especially among large corporate accounts where rate reductions are most evident, projecting continued price softness across many commercial lines.\n\nUpcoming regulatory reforms in auto insurance within Ontario and Alberta are poised to lower premiums and introduce uncertainty in long-term earnings. Alberta’s premium cap adjustments and Ontario’s 2026 reforms allowing opting out of certain coverages are expected to affect premium income and claims dynamics without immediate earnings improvements.\n\nDespite sector challenges, global reinsurance pricing is easing due to abundant capital, which is likely to benefit Canadian insurers by reducing protection costs or enabling broader coverage. However, commercial lines revenue growth remains constrained, particularly in larger accounts, as insurers prioritize growth aligned with underwriting discipline.\n\nCatastrophe losses continue to be a key credit risk factor, with 2024 setting record high losses and fluctuating trends into 2025 underscoring the unpredictability of climate-driven claims exposure. Insurers are adjusting underwriting terms, including pricing and deductibles, to address expanding wildfire risks, especially in regions like Québec, Alberta, and British Columbia, although competition limits full cost pass-through.\n\nDBRS Morningstar emphasizes reinsurance’s role in mitigating severe event exposure, noting recent and anticipated reductions in reinsurance costs could enhance insurers’ financial resilience or coverage scope. While the overall sector outlook remains neutral due to persistent headwinds, some Canadian insurers—including Fairfax Financial Holdings, Definity Financial Corporation, and Trisura Group—exhibit positive rating trends within the DBRS Morningstar portfolio.