When I was given the opportunity to write on this topic, the suggestion was to anchor the discussion on “climatic” events” instead of “weather events.” I had concerns with the wording of the former as it gives the perception that these catastrophic events originate directly from climate change. Of course, I’m not disputing the global-warming phenomenon and its impact on insured losses, but climate change, by definition, manifests over a long period of time and is usually a marginal contributor to the increased frequency and severity of catastrophic losses when considering a short time horizon.
Furthermore, while climate change is affecting weather in Canada, the degree of its impact varies significantly by weather perils and by region, with ranging degrees of confidence by the scientific community in the attribution. For example, there is a higher confidence that climate change increases extreme temperature occurrences, but its clear impact on the potential increase of frequency and/or severity of severe convective storms has yet to be established.
Two years of unprecedented losses
Years 2023 and 2024 were record setting for the Canadian P&C insurance industry, each in their respective ways.
2023 had a record number of over 25 weather events in Canada, each with insured losses surpassing $30 million.
On the other hand, total catastrophe insured losses for the industry in 2024 were the highest on record. These losses were mainly attributable to four catastrophic events that all occurred in less than a month during the summer. With over $9 billion of insured losses, 2024 far exceeded losses in 2016, which held the previous record at about $5.5 billion.
Shifting reinsurance dynamics
The impact of these weather events on the insurance vs the reinsurance industry is markedly different. To appreciate the full implications, we need to go further back in time. At the January 1, 2023, reinsurance renewals, insurers in Canada and elsewhere were forced to significantly increase their catastrophe program retention as reinsurance capacity for low-return period layers (e.g., reinsurance protection with higher probability of attachment) became scarce in the market.
As a result in 2023, a year marked by record frequency but absent of a single major weather event, few losses were recovered from reinsurers. This created significant strain on profitability for various carriers and a (re)focus from insurers to seek frequency reinsurance solutions to reduce the volatility of their results.
Alas, capacity in the reinsurance market remained quite limited at the time for these products, with prices at a prohibitive level for insurers.
Wildfires and the reassessment of risk
Throughout 2023, wildfire activity was at a record high in terms of hectares burned in Canada. Despite the unprecedented area burned, insured losses were not as extreme but remained significant, with wildfires in Nova Scotia, British Columbia and Northwest Territories collectively accounting for close to $1 billion of insured losses.
This increased wildfire activity prompted discussion among reinsurers on how insurers are managing their exposure across the country, and a thorough review of other potential higher wildfire risk areas. Many insurers had implemented exposure management practices following the devastating Fort McMurray fires in 2016, in Alberta, and this was an opportunity to demonstrate their efficacy and the lessons learned.
A summer of shocks: Ontario floods and the Jasper wildfire
In 2024, after six months of benign weather across the country, two major catastrophe events occurred in July. Torrential rainfall in south-central Ontario was similar to an event in the same area 11 years prior and generated a similar quantum of loss, at around $1 billion. This time, reinsurers were mostly unaffected, which served as a demonstration of the effectiveness of the retention elevation on catastrophe programs that reinsurers had advocated for two years prior.
The Jasper wildfire occurred shortly thereafter. It may seem tempting to consider that wildfire event as a continuation of the 2023 wildfire season referenced above. However, when we compare the weather conditions between the two years, we see that temperatures were far more extreme in 2023 across Alberta, while Jasper experienced typical precipitation levels at the time, whereas 2024 had been much dryer in Jasper. The Jasper losses are estimated at about $1.2 billion, a level of industry loss at which the reinsurers’ participation remains relatively low.
Unfortunately, these two weather events were only an amuse-bouche of what was to come.
The Calgary hailstorm and an expensive lesson in exposure creep
On August 5, 2024, a weather system near Calgary brought significant hail and strong winds. The hailstorm that resulted proved to be the largest on record, with over $3.25 billion in industry losses, more than double the hail event that had impacted a similar area in 2020. At first, the hail sizes appeared to be similar, but high winds played a role in aggravating damage to homes, vehicles and infrastructure, meaningfully increasing the severity of the average claim. With the second-largest Canadian catastrophe, after Fort McMurray, reinsurers were on the hook for about 60% of the loss.
A factor is Calgary’s rapid expansion since the mid-1980s; the population has more than doubled in the past 20 years. As a result, the city has expanded into what is known as “hail alley,” an area that runs from High River in the south to Red Deer in the north and that includes the east part of Calgary. This is another unfortunate instance where property development is happening in higher-hazard areas. Insurance industry practitioners that have been working in the crop business long enough will remember that hailstorms were generating significant hail losses in those locations when the northeast of Calgary was just fields!
“Exposure creep”, or the development and expansion of suburbs around large city centres, has been one of the main drivers of increased hailstorm-related losses in North America in the past several years.
With population sprawling further from the city centre, even with a constant hail swath, these weather events have more potential to impact exposure, amplifying insured losses.
What’s worse is that those recent Calgary-area housing developments were built with materials not resilient to hail. To promote the resiliency of communities, increasingly more “build back better” solutions are being offered by insurers, by which an incentive or a subsidy is provided to the insured to rebuild in a more resilient fashion. Unfortunately, as the insured is also required to contribute money from their own pocket, the percentage of insureds that elect to build back better remains quite low.
The insurance industry continues making representations to public authorities to encourage more resilient initiatives. To fix the problem at its root, building codes need to be reassessed and amendments made to have construction standards meet resiliency targets whenever the cost benefits have been demonstrated.
With catastrophic hail losses of this magnitude, and a peril that frequently manifests in Alberta, insurers will need to adjust to ensure that the property product remains sustainable and affordable for customers in the long run.
Montreal’s historic flood and the need for adaptation
Not even a week after the 2024 Calgary hailstorm, on August 9 the greater Montreal area was struck with torrential rains, a result of the remnants of extratropical storm Debby. Record rainfall over a 24-hour period exceeded 150mm in the Dorval area, shattering the previous precipitation record of 94mm. The single-day rainfall was 50% more than the average August precipitation for Montreal. Most of the insured losses stemmed from the personal-property sector, with sewer backup and water infiltration accounting for the majority of the claims. These water coverages being offered on an endorsement basis and typically sub-limited, allowed the insurance sector to respond quickly and fast-track the claims handling. As the majority of losses exceeded the sub-limit, this allowed the insurer to proceed with cash settlements in a high proportion of cases. In total, the industry had to cope with over 85,000 claims and managed to settle around 85% of those claims within a three-month period, an unprecedentedly quick payout pattern for an event of this size.
With close to $3 billion in insured losses, the August 2024 Montreal rainstorm is now the most significant weather event the Quebec market has sustained, surpassing the 1998 ice storm in nominal terms.
The reinsurance market was surprised by the size of the loss as flood events post 2013 in Canada had been relatively modest in terms of severity. Given the refinement in the insurance product offering by the industry and the sophisticated segmentation implemented since, most industry practitioners considered a loss of this size stemming from this peril to be quite improbable.
Models for flood and water-related losses are still at the infancy stage in Canada, and reinsurers typically rely on experience to price for this exposure. Following the Montreal rainstorm several reinsurers re-shaped their view of risk for this peril, though they also recognized the extreme nature of the event. Going forward, reinsurers expect carriers to provide more information around exposure management for flood risk and will continue to advocate for better models to quantify aggregation risk for this peril.
The shared responsibility of building resilience
With global warming and the capacity of the atmosphere to hold more moisture as air temperatures rise, extreme precipitation becomes more likely in the future. Furthermore, as ocean surface temperatures increase, hurricanes have the potential to make their way further north and into Canada.
However, once tropical cyclones make landfall, they typically lose intensity quite quickly. Since densely populated areas in Canada remain relatively far from coastlines, the potential for large catastrophic losses for a similar event is expected to remain low.
Following the Montreal torrential rain event, there are various focus areas for the insurance industry, municipalities and government to consider.
While it is not reasonable to expect municipal infrastructures to cope with historic volumes of water in short periods of time, new housing developments need to be designed to allow for areas where rainwater can runoff without causing damage.
In urban areas, sponge parks are good examples of spaces designed to absorb and pool rainwater, removing pressure on sewer systems. With basements increasingly becoming living spaces in residential homes, they contain significant exposure values. However, sub-limits currently in place are unlikely to increase to meet customer needs, as insurers will be hesitant to augment coverage following the 2024 storm in Montreal. Therefore, insureds need to play a role in making their basements more resilient by installing backwater valve systems and/or having a sump pump with a backup generator for power outages.
In some areas, entrepreneurs are building houses without basements. The idea isn’t only to eliminate concerns around flooding, but it’s also a way to build in a more economical fashion, enhancing affordability.
Market reactions and 2025 reinsurance renewals
The extraordinary loss activity during 2024, when some carriers had their reinsurance programs impacted several times, led to significant price corrections during 2025 reinsurance renewals. Thankfully, reinsurance market dynamics outside Canada have begun to soften, which mitigates somewhat the rate-pressure environment here.
Despite the unprecedented year of losses, reinsurer’s appetite to deploy capacity in the country remained strong.
Conclusion: Staying ahead of the risk curve
Reinsurance is expected to continue to play a major role for insurers in managing the severity of weather events. However, insurers have the responsibility to make sure the property product remains affordable, which means creating the proper incentives for insureds to undertake prevention and property resilience.
Government and municipalities also need to promote resilient design in developing new communities and, more importantly, they need to forbid or discourage housing development within high-risk areas unless appropriate building codes are administered.
Guillaume Chaput is a seasoned professional with extensive experience in the actuarial field. With close to 15 years of experience in the reinsurance industry, Guillaume currently holds the position of Managing Director at Guy Carpenter. Prior to this role, Guillaume served as a Senior Actuarial Analyst at Intact Financial Corporation from January 2007 to March 2011. Guillaume holds a bachelor’s degree in mathematics and actuarial science from Université de Montréal.
This article reflects the opinion of the author and does not represent an official statement of the CIA.