DBRS Morningstar Predicts Neutral Outlook for Canadian P&C Insurance in 2026

DBRS Morningstar maintains a neutral outlook for Canada’s property and casualty (P&C) insurance market in 2026, citing strong capital reserves and disciplined underwriting despite challenges like climate-related risks and claims inflation. The agency highlights that underwriting will remain the critical factor influencing credit performance, expecting combined ratios to stay in profitable territory albeit less favorable than in the recent previous cycle. Competitive pressures are intensifying, especially in commercial insurance sectors targeting large corporate accounts, where significant premium reductions are occurring. Regulatory changes in Ontario and Alberta auto insurance markets introduce uncertainty, with anticipated premium reductions and impacts on long-term earnings. Alberta's regulatory environment, including a premium cap increase and upcoming no-fault model, continues to constrain insurers, while Ontario’s reforms allowing opt-out of certain coverages are projected to reduce premium income without clear claims cost offset. These factors collectively contribute to cautious insurer positioning. Climate-driven catastrophe losses, particularly from wildfires, flooding, and severe storms, remain elevated, contributing to quarterly earnings volatility. Although 2024 marked the highest loss year on record, 2025 experienced lighter losses, underscoring the unpredictability of such events. Insurers are adjusting pricing strategies to reflect increasing wildfire exposures in regions like northern Québec, Alberta, and British Columbia, but competitive market forces restrain full cost pass-through. Reinsurance pricing globally is easing due to abundant capital, with continued declines expected through 2026. This trend offers Canadian insurers opportunities to reduce protection costs or enhance coverage without additional spending. Despite restrained commercial lines growth, personal property lines showed stronger revenue expansion through early 2025, reflecting selective growth strategies aligned with underwriting discipline. DBRS Morningstar anticipates continued softening in commercial pricing given industry-wide capital strength and typical prolonged insurance pricing cycles. The agency points out that its sector outlook reflects broad market conditions rather than individual issuer ratings. Some companies, including Fairfax Financial Holdings Limited, Definity Financial Corporation, and Trisura Group Ltd., exhibit positive rating trends amid overall market challenges. DBRS Morningstar emphasizes ongoing risks from climate volatility and pricing pressures as key factors maintaining a neutral sector view for 2026.