How Escalating Wildfire Losses Are Forcing Reinsurers to Rethink Their Canadian Risk in 2025
The smoke has barely cleared from Canada’s record-breaking 2024 wildfire season, yet 2025 is already shaping up to be even more destructive. Morningstar DBRS’s latest analysis warns that if current loss trends hold, global reinsurers will have little choice but to reassess how much Canadian exposure they can comfortably keep on their books. More than 1,800 blazes have charred 2.8 million hectares country-wide by early June—well ahead of last year’s pace and the 10-year average.
Below, we unpack why reinsurers are hitting the reset button, what this shift means for primary carriers and policyholders, and how the industry can navigate a future in which catastrophic wildfires are no longer outlier events but a permanent feature of the Canadian risk landscape.
Wildfire Metrics 2025: Blazes Already Surpass 2024 Benchmarks
1,800+ wildfires recorded by the first week of June
2.8 million hectares burned—larger than the island of Sicily
32,000+ residents displaced by evacuations
Four hardest-hit provinces: Manitoba, Saskatchewan, Alberta, and Ontario
National preparedness level: 5 (highest alert from the Canadian Interagency Forest Fire Centre)
For context, the Jasper fire alone caused more than CAD 1 billion in insured losses in 2024 and helped push that year’s weather-related insured losses to CAD 8.5 billion. With the 2025 burn rate already ahead of schedule, analysts fear a repeat of last year’s Q3 loss surge that punished personal-property combined ratios.
Wildfire Pressures on Reinsurance: Stable Credit, Tighter Market
Morningstar DBRS still rates the credit fundamentals of Canadian P&C carriers as “stable.” Strong capital buffers, cautious reserving, and proactive risk management enabled most insurers to absorb 2024’s hit with few downgrades. Yet reinsurers—still digesting those payouts—are signaling a more guarded posture:
| Pressure Point | Impact on Reinsurer Appetite |
|---|---|
| Climate change lengthens fire seasons and intensifies secondary-peril volatility | Models expand; required return periods lengthen |
| Higher attachment points set in 2024 renewals to curb treaty spend | Cedants keep more first-dollar loss; reinsurer margins shrink |
| Capital-market alternatives (cat bonds, collateralized re) remain selective | Limited capacity for Canada-specific wildfire risk keeps treaty pricing firm |
Why Wildfire Severity Is Forcing Reinsurers to Re-Evaluate Canadian Exposure
Severity Outpaces Historical Data – Past loss data no longer captures billion-dollar single-event potential, revealed by Fort McMurray 2016 and Jasper 2024.
Concentration Risk in Critical Provinces – Alberta and British Columbia contain energy infrastructure and fast-growing wildland-urban interfaces that magnify multi-line exposure.
Higher Retentions by Cedants – Canadian insurers raised retentions in 2024–25 renewals, smoothing reinsurer results but amplifying earnings volatility for cedants.
Finite Capital-Market Capacity – Wildfire-specific ILS structures remain niche, limiting diversification options and prompting reinsurers to tighten limits or demand higher rates.
Wildfire Consequences for Canadian P&C Insurers
Increased Retention = Higher Earnings Volatility
With a larger slice of each wildfire loss sitting on primary balance sheets, quarter-to-quarter net income could swing sharply if 2025 mirrors 2024’s third-quarter spike.
Pressure on Personal-Property Lines
Rising claim frequency plus inflation-driven repair costs threaten to push combined ratios toward—or past—100 percent, even when aggregate attachments remain intact.
Continued Re-Pricing Momentum
Policyholders in wildfire-prone postal codes should brace for additional rate hikes and larger deductibles as carriers pass along higher treaty costs and manage attritional losses.
Strategies to Preserve Insurability in a Wildfire-Driven Future
| Strategic Lever | Practical Steps for Insurers & Reinsurers |
|---|---|
| Advanced Cat Modeling | Fuse high-resolution satellite imagery, AI fuel-load maps, and real-time weather data for sharper underwriting selection. |
| Parametric Wildfire Covers | Offer policies that pay quickly when fire-perimeter size or air-quality indices breach set thresholds, ensuring liquidity for policyholders. |
| Community-Level Mitigation | Partner with municipalities on defensible-space programs, vegetation management, and controlled burns to lower ignition risk. |
| Multi-Year Reinsurance Treaties | Lock in capacity across several seasons, smoothing price cycles and securing limits before the market hardens further. |
| Diversified ILS Investment | Allocate per-occurrence wildfire layers to catastrophe bonds or collateralized re, freeing traditional capacity for other perils. |
Morningstar DBRS Wildfire Outlook: Resilience with Caveats
Despite heightened concern, Morningstar DBRS believes Canadian P&C insurers can withstand another costly season thanks to:
Robust capitalization
Disciplined underwriting
Diversified reinsurance programs
Watch-List Items
Earnings Volatility – Larger retentions could skew quarterly results if multiple events cluster.
Capital Shocks – A tail-risk event breaching excess-of-loss layers could test solvency margins.
Structural Climate Risk – Wildfire has moved from “secondary” to “structural” peril, demanding enterprise-risk overhauls.
Wildfire Action Points for Brokers, Policyholders, and Investors
Brokers: Engage early on renewals; set realistic expectations about capacity constraints.
Homeowners: Anticipate deductible changes; pursue mitigation upgrades (e.g., sprinkler systems, fire-resistant roofing) to access premium credits.
Investors: Track quarterly loss triangles for attritional-loss creep; capital-raising windows may open if 2025 losses rival or exceed 2024.
Wildfire Bottom Line: A Structural Market Force
The 2025 wildfire season is already rewriting the record books, compelling reinsurers to reassess their Canadian risk tolerance and prompting primary carriers to absorb more volatility. Morningstar DBRS keeps its stable outlook for now, but that stability depends on relentless repricing, sharper modeling, and aggressive mitigation. Canada’s wildfire threat has transformed from an occasional crisis into a permanent market-shaping force—and every stakeholder in the insurance value chain must adapt accordingly.
