PACICC

Question 1

what is the purpose of PACICC? (Property and Casualty Insurance Compensation Corporation)

Answer 1

provide for reasonable level of policyholder recovery for claims & unearned premium AFTER an insurer becomes insolvent

Question 2

who administers this policyholder recovery ‘plan’

Answer 2

administered by the non-profit PACICC

Question 3

who are the members of PACICC?

Answer 3

• all licensed, participating insurers in a jurisdiction, with some exemptions (Ex: reinsurers)
• exclude: Auto in MB, SK & BC, Auto BI in QC

Question 4

what triggers PACICC involvement? (2)

Answer 4

• a formal winding up order must have been issued to insurer
• insurer must be a member of PACICC

Question 5

compare OSFI vs PACICC on their roles regarding insolvencies

Answer 5

OSFI: seeks to min PROBABILITY of insolvency
PACICC: provides reasonable recovery to policyholders AFTER insolvency

Question 6

PACICC funding methods (3)

Answer 6

[1] Assessment of participating (solvent) insurers
[2] Compensation fund – borrow money from this fund (pre-insolvency funding)
[3] 3rd party recovery

Question 7

which mechanisms increase capacity

Answer 7

(A,C): Assessment, Compensation fund (the compensation fund is funded by assessments)

Question 7

which mechanisms smooth costs

Answer 7

(C): Compensation fund can be drawn upon to smoothe annual assessments

Question 8

which mechanisms reduce insurer levies

Answer 8

(L,3): Liquidation and 3rd party recovery reduce insurer levies/assessments

Question 9

who does PACICC assess?

Answer 9

participating insurers in jurisdiction where the insolvent insurer was writing business

Question 10

limit on what PACICC may assess in aggregate

Answer 10

shortfall between:
→ (amounts advanced by PACICC to policy holders)
and..
→ (amounts PACICC received from insolvent insurer & 3rd parties)

Question 11

Assessment: formula for individual insurer

Answer 11

A = B x (C/D)
where
A = insurer assessment
B = total amount assessed by PACICC
C = DWP of insurer
D = total DWP of all assessed insurers

Question 12

assessment: limit on individual insurer

Answer 12

1.5% of DWP (Direct Written Premium)

Question 13

evaluate the performance of PACICC according to criteria for evaluating government programs

Answer 13

is it insurance or welfare:
→ it is insurance (sort of) because members pay assessment fees
is it necessary:
→ yes, otherwise policyholders may be unprotected if their insurer goes insolvent
is it efficient:
→ yes, costs are lower because there are no commissions or advertising costs

Question 14

identify the types of insurers under OSFI’s solvency regulations

Answer 14

• federally incorporated P&C insurers
• Canadian P&C branch operations of insurers incorporated outside Canada
  (these are called Federal P&C Insurers)

Question 15

identify the types of insurers under provincial solvency regulations

Answer 15

• P&C insurers incorporated in their own province
  (these are called Provincial P&C Insurers)

Question 16

what is CCIR

Answer 16

Canadian Council of Insurance Regulators:
- an association of insurance regulators from across Canada

Question 17

what does CCIR do

Answer 17

promote an efficient regulatory system to serve the public interest

Question 18

is the term ‘actuary’ defined at the provincial or federal level

Answer 18

provincial

Question 19

what is the most common definition of an ‘actuary’

Answer 19

someone with the FCIA designation is an actuary

Question 20

identify exceptions to the most common definition of an ‘actuary’

Answer 20

Alberta & British Columbia offer an exception:
- a non-FCIA can serve as an actuary if the Minister is satisfied they have the necessary training and experience
- the reason for the exception is to accommodate small provincial insurers without a FCIA on staff

Question 21

identify options for addressing the deficiency in provincial solvency regulation versus IAIS (3)

Answer 21

• province can restrict regulation to market conduct and rely on OSFI for solvency regulation
• province can upgrade its own solvency regulation
• province can transfer solvency regulation to on another province that has higher standards

Question 22

describe a disadvantage of having separate federal and provincial solvency regulation

Answer 22

• separate regulation could create 2 classes of insurers
• the PACICC guaranty fund may demand a higher risk premium from insurers with weak provincial regulation