DBRS Morningstar, a credit ratings agency known for independent financial analysis and sector research, states that the outlook for Canada’s property and casualty (P&C) insurance market in 2026 remains neutral.
According to DBRS Morningstar, the sector continues to benefit from strong capital positions, firm underwriting practices, and cautious reserving, all of which help balance pressures stemming from higher climate-related exposures, ongoing claims cost inflation, and softening commercial pricing.
DBRS Morningstar expects that earnings over the coming 12 to 18 months should remain sufficient to support internal capital formation, though results may fluctuate more sharply because of elevated weather-related loss activity.
The agency emphasises that underwriting will remain the most important driver of credit performance. The agency expects combined ratios to stay profitable but not as favourable as they were during the tightest phase of the recent market cycle.
DBRS Morningstar also reports intensifying competition in commercial insurance, especially for large corporate accounts, where price reductions are most pronounced. The agency anticipates continued declines across many commercial lines in 2026.
At the same time, upcoming regulatory changes in auto insurance in Ontario and Alberta are expected by DBRS Morningstar to reduce premiums and introduce uncertainty regarding longer-term earnings. Climate trends continue to raise loss volatility, with more frequent wildfires, windstorms, hail events, and flooding posing challenges for insurers and reinforcing DBRS Morningstar’s expectation of wider swings in quarterly results.
Despite these pressures, DBRS Morningstar notes that global reinsurance pricing has been easing due to ample worldwide capital, with further reductions expected in 2026. The agency believes this should help Canadian insurers lower their overall protection costs or secure additional reinsurance without increasing spending. While revenue growth in commercial lines may stay limited, DBRS Morningstar maintains that overall profitability for the sector should remain steady unless prolonged softness 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 explains that insurance pricing cycles typically last several years and do not necessarily move with the broader economy, and it expects the softer phase to continue.
According to DBRS Morningstar, the strongest pricing pressure is being felt among large commercial accounts, while pricing for smaller and mid-sized businesses has been steady or even edging slightly higher in some specialty areas. Through the first nine months of 2025, DBRS Morningstar reports that commercial property revenue expanded only 3%, compared with 11% growth in personal property. The agency expects this divide to continue as insurers concentrate on growth that does not compromise underwriting discipline.
DBRS Morningstar points to significant uncertainty in auto insurance because of regulatory constraints. Alberta’s premium cap for good drivers, raised to 7.5% in 2025, continues to strain profitability. Many insurers, according to DBRS Morningstar, remain cautious in the Alberta market until the province introduces its no-fault model in 2027.
The agency notes that the change should reduce legal expenses and bring premiums closer to underlying risk levels, but it does not expect meaningful improvement in earnings in 2026. In Ontario, the July 2026 reforms allowing consumers to opt out of certain accident-benefit coverages will lower premium income, and DBRS Morningstar states that it is uncertain whether these adjustments will produce proportionate reductions in claims.
DBRS Morningstar continues to classify catastrophe losses as one of the main credit risks for P&C insurers in Canada. The agency notes that event frequency and severity remain elevated relative to long-term norms, driven by flooding, wildfires, and intense storm systems. DBRS Morningstar highlights that 2024 became the highest loss year ever recorded, while 2025 losses have been far lighter, underscoring how unpredictable climate-driven claims have become.
In particular, DBRS Morningstar warns that wildfire exposure continues to expand in regions such as northern Québec, Alberta, and British Columbia. The agency explains that insurers are adjusting pricing, deductibles, and policy terms to match higher exposure levels, but competitive pressures limit their ability to fully pass on the rising costs. DBRS Morningstar believes that annual catastrophe losses should remain manageable for most companies from a capital perspective, given current regulatory capital buffers.
DBRS Morningstar underscores the role of reinsurance in controlling exposure to severe events. The agency reports that reinsurance costs have already been declining in 2025 and are likely to continue falling in 2026, offering insurers an opportunity to lower expenses or purchase broader protection at similar cost.
Finally, DBRS Morningstar notes that the neutral sector view reflects expectations for the overall market rather than the rating direction of individual companies. Within DBRS Morningstar’s rated universe, more issuers hold Positive trends—such as Fairfax Financial Holdings Limited, Definity Financial Corporation, and Trisura Group Ltd.—than Stable trends.
Still, DBRS Morningstar explains that heightened climate-driven risk, rising claims costs, and easing commercial prices limit the broader sector view from shifting to a more favourable stance even as some companies outperform.
