A cyclist takes in a heavily damaged neighbourhood as some residents return to Jasper, Alta. on Aug. 19.AMBER BRACKEN/The Canadian Press
Canada’s largest property and casualty insurer is facing a spike in catastrophe losses that could cost it more than a billion dollars after a series of severe weather events this summer.
Toronto-based Intact Financial Corp. IFC-T announced this week that it estimates its total catastrophe losses so far in the third quarter, which ends Aug. 31, to be about $1.1-billion – a figure that is “well above expectations” the company forecasts for an average third quarter. Intact had set an annual guidance for catastrophe losses at about $900-million, according to quarterly financial reports.
However, four serious weather events that have hit Canada in July and early August are being tied to higher than estimated losses at Intact, Definity Financial Corp. and other insurers.
Torrential rains in Southern Ontario – predominantly in the city of Toronto – cost the industry $940-million in insured damages. Estimates for the Jasper wildfires are about $700-million, they are $1.2-billion for the hailstorms in Calgary and $1-billion in insured losses for Hurricane Debby hitting Montreal.
In addition to Intact, equity analysts say the severe weather events will also have a major effect on Definity, based in Waterloo, Ont., and cause “material negative impacts” to the third-quarter earnings of both companies.
“This is an exceptionally challenging and stressful time for thousands of Canadians and our top priority is to help customers get back on track as quickly as possible,” Intact chief executive Charles Brindamour said in a statement. “Our organization continues to show operational and financial resiliency in the face of these unusually severe weather events, with strong underlying performance.”
Intact said it will issue an update in early October if any other significant catastrophe losses occur or if the amount of losses materially differs from the $1.1-billion estimate. While Definity has yet to release an estimate of catastrophe losses for the third quarter, analysts expect “a challenging but somewhat less intense result.” Part of the reason, they say, is that Definity has less exposure in the Quebec market.
Both Intact and Definity reported stronger than expected second-quarter results, which saw a lower level of catastrophe claims compared with similar quarters in past years.
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Definity chief executive Rowan Saunders said during a quarterly call on Aug. 2 that the unusually low level of catastrophe losses in the second quarter was a key contributor to the strong underwriting performance for the company.
“That said, July was an active month, flooding in Ontario and wildfires in Western Canada,” he added. “Though the inherent volatility of [catastrophe] losses makes the timing of them difficult to predict, on a year-to-date basis to the end of July, we are in line with the expected level of losses companywide from weather-related catastrophes.”
Canadian insurers are faced with rising disaster claims that have more than quadrupled over the past 15 years, accounting for $3.1-billion of insured losses in 2023, up from just $400-million in 2008, according to the Insurance Bureau of Canada.
This year is already on track to be another record year for insured losses in the country, the IBC said, as insured losses related to severe weather in Canada now routinely exceed $2-billion annually. By comparison, Canadian insurers averaged $675-million a year in losses related to severe weather between 2001 and 2010.
On Thursday, in a research note, Scotiabank analyst Phil Hardie said the catastrophe losses for the third quarter quickly went from “bad to worse.” It caused him to roughly double loss estimates for both Intact and Definity to $1.25-billion and $200-million, respectively.
Both companies have had strong stock performance this year, he added, with Intact up 26 per cent and Definity rising by 33 per cent. Now, Mr. Hardie expects some “near-term” stock weakness and volatility – but he said the setback will only be temporary.
“We believe the catastrophe losses are ultimately manageable,” he added.
Jefferies equity analyst John Aiken said that while the increase in Intact’s estimate was “substantial” – and significantly above the $360-million Jefferies had previously estimated for the quarter – it is not a capital impairment and was “broadly expected by the market.”
“We do not believe that this impairs Intact’s earnings outlook,” Mr. Aiken said.