CCIR Definitions

Question 1

List 4 Facility Organizations

Answer 1

1 - Facility
2 - Facility Association (FA)
3 - FA Risk Sharing Pool (FARSP)
4 - Plan de Répartition des Risques (PRR)

Question 2

How are treated the transactions related to Facility, FA and PRR

Answer 2

Premium, commissions, and losses transferred to the Facility and PRR treated as negative direct business

Premiums and losses transferred from the Facility, FA, and PRR treated as direct business

Question 3

What are the 4 adjustments that should be made in the books of each participating insurer regarding treatment of transactions ?

Answer 3

For policies transferred to the PRR, establish
1 - Provision for UEPR
2 - Provision for losses incurred in the last month of the statement year
3 - Receivable for paid losses

Facility, FA, and FARSP
Estimate WP and losses paid after the organization’s closing date

Question 4

Define Letters of Credit (LOC)

Answer 4

To a limited extent, regulators are prepared to recognize approved LOC as security maintained in Canada for purposes of reducing the capital otherwise required for unRe

Question 5

Letters of Credit General guidelines

Answer 5

Must be
1 - Canadian dollars and payable in Canada
2 - Fixed term, at least one year
3 - Stipulated dollar amount
4 - Irrevocable
5 - Issued or confirmed by Investment Grade Canadian banks (This bank must not have any claim on the assets of the Canadian insurance company as security for the LOC)

Question 6

Why Deposits of Reinsurers ?

Answer 6

Deposits provided by unRe may also be used to reduce the capital/margin otherwise required for unRe, provided that such deposits materially reduce the risk associated with the Re credit quality

Question 7

Under what condition is an SIR receivable admissible for statutory test purpose ?

Answer 7

Regulators need to be satisfied with its collectability

Question 8

How can the regulator ensure that the previous condition is met ?

Answer 8

Regulators can request acceptable collateral (ex. LOC)

Question 9

If insurer has to pay the entire claim to a 3rd party, what he has to do?

Answer 9

Amount of SIR portion of the unpaid claim must be reported in liability as “SIR portions of unpaid claims” (20.20) with the equivalent amount recoverable reported in asset as “other recoverable” (20.10)

Question 10

Structured Settlements

Answer 10

1 - Periodic payments usually funded by a life annuity
2 - Payments usually tax free to the claimant
3 - May require a liability and asset on BS
4 - Must disclose in Notes to the FS

Question 11

Characteristics of Type 1 structured settlements

Answer 11

1 - Insurer owns annuity with payments irrevocably directed to the claimant
2 - There are no current or future benefits to the insurer
3 - Insurer is released by the claimant
4 - Insurer is still liable if required payments are not made

Question 12

AR treatment of Type 1 structured settlements

Answer 12

Insurer need recognize neither the liability nor the annuity as an asset

In Notes to the FS, need to disclose info on credit risk, including any contingent gain

Contingent gain not recognized at the time of purchase

Question 13

Characteristics of Type 2 structured settlements

Differences from type 1

Answer 13

1 - Annuity is commutable, assignable or transferable

2 - Claimant does not necessarily provide a legal release.

Question 14

AR treatment of Type 2 structured settlements

Answer 14

Insurer must recognize

• Liability like other similar claim liabilities
• Annuity as an asset – initially at its cost

Notes to show terms, conditions, credit risk, and fair value of annuities