What higher energy prices mean for Canadian P&C insurers

Spikes in oil and natural gas prices will have knock-on effects on a variety of areas touching Canadian property and casualty insurers — including the prospect of economic recession, positive investment returns, escalating claims costs, and supply chain disruption, a reinsurance exec told Swiss Re’s 40th annual Canadian Insurance Outlook Breakfast Tuesday.

“The knock-on effects of energy issues for inflationary impact — not just on energy, but lots of other things [as well] — is substantial,” John Dacey, former group chief financial officer of Swiss Re, said in his keynote address to the Canadian P&C leaders attending the breakfast. “Worst-case scenarios are worth thinking about…

“If the Strait of Hormuz does not open, and if there’s more material damage done to the infrastructure in the Gulf region over the coming months, the spike of oil prices and natural gas prices is going to be far in excess of what people have seen today. And the likelihood of that triggering a global recession cannot be ignored.”

Dacey qualified that he was not predicting this. He believed the warring parties would “muddle along” and come to some sort of resolution to the conflict, claiming “victory on both sides,” sooner rather than later.

Although higher energy costs contribute to inflation, that may prove to be a boon for insurers’ investment returns.

“Interest rates, as a result of the inflation impacts, are going to remain higher than people thought at the beginning of this year,” Dacey said, noting that U.S. interest rates would likely be between 4.2% and 4.5% between now and 2027. “It could go higher, because inflation could go higher.”

Since Mar. 18, 2026, the Bank of Canada’s interest rate has been 2.25%, unchanged since October 2025.

Neither the US Federal Reserve nor the Bank of Canada seem likely to lower interest rates in the current environment, Dacey said. “As a result, on a worldwide basis, the inflation is already hitting Europe thanks to energy cost. You’re going to continue to see interest rates relatively high to what we’ve seen in the last decade, ever since 2008.

“That’s not bad news for insurance companies. Your fixed income portfolios should be just fine.”

Also in the news: BrokerLink acquires three brokerages in different provinces

However, the increase in oil and gas prices could disrupt supply chains, which were just recovering from the pandemic shock between 2020 and 2023. That happened during a hard market in Canada, when insurance premiums rose to account for higher claims costs.

Due to the higher energy costs, “if you have to worry about paying claims and replacement values,” Dacey said, “you need to start thinking yesterday about, ‘Are we going to have a similar situation to 2022, where the cost is going to outstrip any premiums that we were able to get on board?’”

Canada, a supplier of oil and natural gas, may not be as hard-hit by inflationary energy prices as other countries, Dacey noted.

Tradition Meets Technology: Scaling a Family-Owned, Community-Driven Brokerage Image

Insights Paid Content

Tradition Meets Technology: Scaling a Family-Owned, Community-Driven Brokerage

How MIB is growing across Canada without losing the values, relationships, and local trust that built it.

By 

Sponsor Image

However, even though North America may not be as affected by spiking energy costs as Europe, and Europe would feel the shock less than in Asia, the energy prices would have a downstream effect on key suppliers in the global supply chain, Dacey said.

“There are economies today in the Philippines, Vietnam and Thailand, where the day-to-day activities are being constrained dramatically by the absence of natural gas and to a lesser degree oil,” Dacey said. “This is not going to fix itself in two weeks if the Strait of Hormuz were to open tomorrow. This is going to be longer-lasting.

“And these are exactly the countries which, thanks to…policies put in place a year ago, are more important for supply chains than they have been.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.