PACICC Flashcards
what is the purpose of PACICC? (Property and Casualty Insurance Compensation Corporation)
provide for reasonable level of policyholder recovery for claims & unearned premium AFTER an insurer becomes insolvent
who administers this policyholder recovery ‘plan’
administered by the non-profit PACICC
who are the members of PACICC?
- all licensed, participating insurers in a jurisdiction, with some exemptions (Ex: reinsurers)
- exclude: Auto in MB, SK & BC, Auto BI in QC
what triggers PACICC involvement? (2)
- a formal winding up order must have been issued to insurer
- insurer must be a member of PACICC
compare OSFI vs PACICC on their roles regarding insolvencies
OSFI: seeks to min PROBABILITY of insolvency
PACICC: provides reasonable recovery to policyholders AFTER insolvency
PACICC funding methods (3)
[1] Assessment of participating (solvent) insurers
[2] Compensation fund – borrow money from this fund (pre-insolvency funding)
[3] 3rd party recovery
which mechanisms increase capacity
(A,C): Assessment, Compensation fund (the compensation fund is funded by assessments)
which mechanisms smooth costs
(C): Compensation fund can be drawn upon to smoothe annual assessments
which mechanisms reduce insurer levies
(L,3): Liquidation and 3rd party recovery reduce insurer levies/assessments
who does PACICC assess?
participating insurers in jurisdiction where the insolvent insurer was writing business
limit on what PACICC may assess in aggregate
shortfall between:
→ (amounts advanced by PACICC to policy holders)
and..
→ (amounts PACICC received from insolvent insurer & 3rd parties)
Assessment: formula for individual insurer
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
assessment: limit on individual insurer
1.5% of DWP (Direct Written Premium)
evaluate the performance of PACICC according to criteria for evaluating government programs
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
identify the types of insurers under OSFI’s solvency regulations
- federally incorporated P&C insurers
- Canadian P&C branch operations of insurers incorporated outside Canada
(these are called Federal P&C Insurers)
identify the types of insurers under provincial solvency regulations
- P&C insurers incorporated in their own province
(these are called Provincial P&C Insurers)
what is CCIR
Canadian Council of Insurance Regulators:
- an association of insurance regulators from across Canada
what does CCIR do
promote an efficient regulatory system to serve the public interest
is the term ‘actuary’ defined at the provincial or federal level
provincial
what is the most common definition of an ‘actuary’
someone with the FCIA designation is an actuary
identify exceptions to the most common definition of an ‘actuary’
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
identify options for addressing the deficiency in provincial solvency regulation versus IAIS (3)
- 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
describe a disadvantage of having separate federal and provincial solvency regulation
- separate regulation could create 2 classes of insurers
- the PACICC guaranty fund may demand a higher risk premium from insurers with weak provincial regulation
