DBRS Morningstar, a credit rating agency known for independent financial analysis and industry research, said the outlook for the Canadian property and casualty (P&C) insurance market remains neutral in 2026.
DBRS Morningstar said the industry continues to benefit from strong capital positions, resolute underwriting practices and prudent provisioning, all of which are helping to balance pressures from increased exposure to climate-related risks, ongoing claims cost inflation and soft commercial pricing.
DBRS Morningstar expects earnings over the next 12 to 18 months to remain sufficient to support internal capital formation, although results may be more volatile due to increased weather-related loss activity.
The agency stressed that underwriting will remain the most important driver of credit performance. The agency expects the combined ratio to remain profitable but not as favorable as it was during the most stressful phases of the recent market cycle.
DBRS Morningstar also reported increasing competition in the commercial insurance space, particularly among large corporate accounts, where price cuts have been most pronounced. The agency expects continued decline in many commercial product lines through 2026.
Meanwhile, DBRS Morningstar expects upcoming auto insurance regulatory changes in Ontario and Alberta to lower premiums and create uncertainty about long-term earnings. Climate trends continue to increase loss volatility, with more frequent wildfires, storms, hail events and flooding challenging insurers and reinforcing DBRS Morningstar’s expectations for more volatile quarterly results.
Despite these pressures, DBRS Morningstar noted that global reinsurance pricing has been slowing and is expected to fall further in 2026 due to abundant global capital. The agency believes this should help Canadian insurers reduce overall coverage costs or obtain additional reinsurance without increasing expenses. While revenue growth across the commercial product line is likely to remain limited, DBRS Morningstar maintains that overall profitability in the industry should remain stable unless prolonged weakness in pricing becomes more widespread.
DBRS Morningstar observes that the current easing trend in commercial insurance began in mid-2024 and continues to be supported by strong capital availability across the industry. The agency explained that insurance pricing cycles typically last several years and do not necessarily change with changes in the wider economy, and the weak phase is expected to continue.
According to DBRS Morningstar, large commercial customers are feeling the most pricing pressure, while pricing for small and medium-sized businesses has been stable and even slightly up in some specialty areas. DBRS Morningstar reports that through the first nine months of 2025, commercial real estate income will grow only 3%, while personal real estate income will increase 11%. The agency expects the divergence to continue as insurers focus on not compromising growth in underwriting discipline.
DBRS Morningstar notes that there is significant uncertainty around auto insurance due to regulatory restrictions. Alberta’s premium cap for qualified drivers will increase to 7.5 per cent in 2025, which will continue to put pressure on profitability. DBRS Morningstar says many insurers remain cautious about the Alberta market until the province launches a no-fault model in 2027.
The agency noted that the change should reduce legal expenses and bring premiums closer to underlying risk levels, but it does not expect a meaningful improvement in revenue in 2026. In Ontario, changes to allow consumers to opt out of certain accident coverage in July 2026 will reduce premium income, and DBRS Morningstar said it was unsure whether the changes would result in a corresponding reduction in claims.
DBRS Morningstar continues to rank catastrophe losses as one of the key credit risks for Canadian property and casualty insurance companies. The agency noted that event frequency and severity remain elevated relative to long-term normals, driven by flooding, wildfires and severe storm systems. DBRS Morningstar highlighted that 2024 became the costliest year on record, with losses in 2025 being much lighter, underscoring how unpredictable climate-driven claims have become.
DBRS Morningstar specifically warned that wildfire exposure continues to expand in areas including northern Quebec, Alberta and British Columbia. Insurers are adjusting pricing, deductibles and policy terms to accommodate higher risk levels, but competitive pressures limit their ability to fully pass on cost increases, the agency explained. DBRS Morningstar believes annual catastrophe losses for most companies should remain manageable from a capital perspective given current regulatory capital buffers.
DBRS Morningstar highlights the role of reinsurance in controlling severe event risk. The agency reported that reinsurance costs have already declined in 2025 and may continue to decline in 2026, providing insurers with opportunities to lower fees or purchase broader protection at a similar cost.
Finally, DBRS Morningstar noted that the neutral sector view reflects expectations for the overall market, rather than the rating direction of individual companies. Within DBRS Morningstar’s ratings universe, there are more issuers with positive trends (such as Fairfax Financial Holdings Limited, Definity Financial Corporation and Trisura Group Ltd.) than stable trends.
Nonetheless, DBRS Morningstar explains that while some companies have outperformed, heightened climate-driven risks, rising claims costs and easing business prices have limited the broader industry view from shifting to a more favorable stance.