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As Canada's Housing Market Slows, the Outlook for Mortgage Insurers Dims

After a period of particularly strong housing market conditions fueled by low interest rates and good consumer balance sheets during the Coronavirus Disease (COVID-19) pandemic, signs of weakness have emerged, led by lower home prices and reduced sales activity since March 2022. Canada's mortgage insurers have benefitted from favourable housing market conditions allowing them to achieve strong profitability ratios in 2021, in some cases the highest on record.

Key highlights include:

-- Since the start of the rapid monetary policy tightening in March 2022, housing prices and sales activity have declined on a month-over-month basis.

-- Mortgage insurers play an important role in housing market finance and have benefitted from the pandemic housing boom through strong earnings that were supported by low mortgage default rates.

-- DBRS Morningstar expects the housing market downturn to be manageable for mortgage insurers. Nonetheless, we expect to see lower premiums written compared with the elevated levels during the housing market boom, higher combined ratios and earnings that will remain strong but decline beyond 2023.

“Our expectation is that MIs’ [mortgage insurers’] combined ratios will deteriorate but be manageable from a credit quality perspective given insurers' strong capital buffers and conservative credit underwriting criteria,” said Nadja Dreff, Senior Vice President, Insurance.