P&C industry’s growth opportunities emerging from tariff battles

Tariff wars can either kill an economy or spur the private and public sectors to find growth opportunities. Canada remains on a tightrope between those two outcomes.

Over the past month, cabinet-level initiatives to restore economic cooperation with India and cool tensions with China could be promising. But these long-term endeavours don’t offset nearer-term blows, like this week’s announcement that automaker Stellantis will shift some vehicle production from Brampton, Ont., to the U.S. – despite the company’s promises that no jobs will be lost.

Plus, efforts to restore some trade normalcy with China aimed at benefitting Canadian farmers comes with rumblings about allowing Chinese electric vehicles to enter the country. That’s not sitting well with auto sector unions and some provincial premiers.

More context around the coming direction for Canada’s economy, and where the government sees both opportunities and threats, will arrive when Prime Minister Mark Carney tables his first budget on Nov. 4.

Mergers and acquisitions (M&A) activity in Canada is spotty compared with recent years. One exception is brokerage M&A, for which a new report says deals continue apace.

Related: Canadian brokerage M&A is bucking the trend

Beyond the headlines, reports from ratings agencies flag developments in several business sectors that could have long-term implications for insurers and brokers working with insured companies.

Most concerning is an Oct. 8 Morningstar DBRS report finding U.S. tariffs on a variety of goods – including steel, aluminum and auto manufacturing, as well as Chinese tariffs on canola – are starting to soften the economy. The ratings agency calls the growth outlook ‘difficult’ and notes Canada’s unemployment rate touched 7.1%, its highest (excluding the pandemic) since 2016.

Rising jobless rates are pushing consumer loan delinquencies higher, although easing inflation and a slower rent and mortgage cost growth should ease cost-of-living pressures over time.

“Delinquencies have climbed across all personal lending products, with credit cards, auto loans and lines of credit now solidly above pre-pandemic levels,” Morningstar DBRS writes. “Although delinquency rates for real estate-secured lending…continue to tick up slowly, they remain below pre-pandemic levels…”

Lower mortgage costs are also easing housing payment pressures for homeowners. Overall, credit delinquency rates (which measure the percentage of delinquent loans in lenders’ portfolios) are lower for households holding mortgages (0.53%) than for households holding other types of consumer loans (2.38%). The shift suggests demand by banks and other lenders for insurance coverages that address non-payment of loans could see an uptick.

Energy options

Commercial insurers and brokers working with energy industries should note that, despite talk in of megaprojects like pipelines circulating in Ottawa and provincial capitals, a separate Oct. 8 Morningstar DBRS report showing capital expenditures by Canada’s oil and gas sectors will decrease in coming years. That’s largely because certain long-term projects have recently been completed and producers are now working to rebuild balance sheets following those large expenditures.

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However, concerns around meeting agreed-upon climate goals has many governments worldwide revisiting nuclear power. And Canada is poised to take advantage of this via its new small modular reactor (SMR) designs that create substantial operational cost reductions for utilities, notes another report from the ratings agency.

Related: Tariffs hit Canada’s GDP growth – can trade diversify fast enough?

“The export potential of this technology is significant,” Morningstar DBRS says. “Canada’s SMR Action Plan projects $5.3 billion in domestic value and $150 billion globally from 2025 to 2040, positioning Canada as a technology leader under the 2024 Memorandum of Cooperation among Canada, the U.K., and the U.S.”

Further, the report points out, Canada’s uranium supply is increasingly reliable, and as of last year it is the second-largest uranium producer globally.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.