Morningstar DBRS, a global credit rating agency that provides independent credit analysis and ratings in financial markets, has assessed the potential impact of Canada’s 2026 wildfire season on the country’s property and casualty (P&C) insurance industry.
While massive wildfires in northwestern Ontario have led to evacuation orders, transportation disruptions and smoke-related air quality issues in parts of Canada and the United States, the current situation is not expected to cause significant losses to Canadian insurers, the company said.
According to Morningstar DBRS, the area burned so far this year in Canada has reached about 2.95 million hectares, exceeding the 10-year average of about 2.55 million hectares. However, the company said the insurer is entering the 2026 wildfire season in a stronger financial position than in recent years, supported by improved underwriting performance, stronger capital reserves and more favorable reinsurance conditions.
The impact of wildfire activity on the insurance industry will depend less on the total area burned and more on whether fires spread to major population centers or areas with high concentrations of insured homes, businesses and infrastructure.
The company said that while nearly 900 wildfires are currently active across Canada, the worst fires of the 2026 season are concentrated in remote areas of northwestern Ontario and northern Quebec. Morningstar DBRS notes that these areas generally have lower population densities, fewer insured properties, and less commercial activity, reducing the potential for significant direct property and commercial insured losses.
The company expects claims related to evacuation orders, temporary accommodation costs and business interruption to remain manageable. Morningstar added that insurance risk profiles differ in provinces such as British Columbia and Alberta, where wildfire exposure has historically resulted in some of Canada’s largest insured losses, as many communities have properties concentrated in wildfire-prone areas.
Morningstar reports that wildfire activity in these high-risk provinces remains relatively limited so far in 2026. Fires in British Columbia and Alberta are about 43,000 hectares and 18,000 hectares, respectively, compared with the 10-year averages of about 373,000 hectares and 380,000 hectares, respectively.
The company noted that many of Canada’s most expensive wildfire events over the past decade have occurred in Alberta or British Columbia, including the Fort McMurray wildfire in 2016, the Jasper wildfire in 2024 and several major wildfires in British Columbia between 2017 and 2023.
Morningstar said that in recent years, governments and insurance companies have continued to strengthen wildfire prevention measures to deal with increasing losses. Following a severe wildfire season in 2023, the federal government expanded pre-loss mitigation efforts through the FireSmart program to support vegetation management, property protection and wildfire preparedness.
The company noted that Canada’s federal and provincial governments and the Canadian Inter-Agency Forest Fire Center (CIFFC) have announced a joint investment of approximately $104 million through 2025 to expand the FireSmart program and support community-based wildfire mitigation.
Insurers are also contributing by encouraging FireSmart practices and investing in property-level measures designed to reduce potential losses, Morningstar said. The company stated:
However, Morningstar stresses that Canada still has no dedicated public or private insurance support for extreme wildfire losses. The company said that unlike some high-risk jurisdictions in the United States and Europe, Canada’s insurance market still relies primarily on private sector solutions to manage wildfire-related claims.
The company said discussions around federally backed catastrophe reinsurance in 2026 have progressed, although the current focus is on earthquake risk rather than wildfire risk. As a result, wildfire losses continue to be absorbed primarily through private insurance arrangements available to Canadian policyholders.
Morningstar says Canadian property and casualty insurers enter the current wildfire season with financial strength despite a continued increase in disaster-related losses over the past decade.
The company believes appropriate pricing, disciplined underwriting and strong capital are important factors supporting an insurer’s ability to manage potential wildfire claims. Morningstar notes that years of increases in personal property premiums have helped insurers cope with rising repair costs, inflation and a greater frequency of disasters.
The company added that financial results for Canada’s major publicly traded property and casualty insurance companies in 2025 and the first quarter of 2026 demonstrate continued strong underwriting discipline, with combined ratios below 95 per cent. Morningstar said strong earnings allowed insurers to increase capital buffers and improve their ability to absorb disaster-related losses.
The company also said that reinsurance market conditions have improved, with increased global capacity and availability helping to lower reinsurance pricing in 2026. Morningstar said this provides insurers with greater flexibility to manage earnings fluctuations and improve their reinsurance arrangements.
Although commercial insurers continue to face competitive pressures, Morningstar DBRS does not expect the current wildfire season to result in significant commercial insurance claims.
Looking ahead, Morningstar said Canadian insurance companies appear to be well-positioned to absorb modest wildfire losses due to their strong financial resources and capital positions. The company said significant industry-wide losses were unlikely unless the fires spread to important population centers or several serious incidents occurred within a short period of time.
Current wildfires in northwestern Ontario are unlikely to spread directly into southern Ontario, but changing weather conditions could increase the risk of new fires developing closer to populated areas and result in higher insured losses.
The company warned that a more severe scenario in which multiple major wildfires occur simultaneously in multiple provinces could put greater pressure on insurers’ catastrophe budgets, triggering reinsurance underwriting and increasing recovery costs.
“Given how the current wildfire season is progressing, Canadian insurers remain well-positioned to withstand moderate wildfire losses,” added Steve Liu, assistant vice president, Global Insurance and Pension Ratings. “Major wildfires and other severe weather-related losses may require a more severe accumulation to deplete an insurer’s annual catastrophe budget, trigger reinsurance protection, and increase reinsurance recovery costs.”
