PACICC - Actuary's Role in Solvency Flashcards

1
Q

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

A

To provide for a reasonable level of policyholder recovery for claims and unearned premium AFTER an insurer becomes insolvent.

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2
Q

Who administers this policyholder recovery ‘plan’?

A

It is administered by the non-profit PACICC.

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3
Q

Who are the members of the PACICC? (2)

A
  • all licensed, participating insurers in a jurisdiction, with some exceptions (E.g.: reinsurers).
  • excludes: Auto in MB and SK, Auto BI in QC.
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4
Q

What triggers PACICC involvement? (2)

A

1) The issuance of a formal winding up order to the insurer;

2) The recipient of the wind up order must be a member of PACICC.

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5
Q

Compare OSFI vs PACICC on their roles regarding insolvencies.

A

OSFI: seeks to minimize the PROBABILITY of insolvency.
PACICC: provides reasonable recovery to policyholders AFTER insolvency.

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6
Q

Funding mechanisms. (4)

A
  • Liquidation of insurer’s assets;
  • Assessment of participating insurers;
  • Compensation fund;
  • 3rd party recovery.
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7
Q

Which mechanisms increase capacity? (2)

A

Through assessments and the Compensation Fund.

- the compensation fund is funded through assessments.

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8
Q

Which mechanisms smooth costs?

A

The compensation fund can be drawn upon to smooth annual assessments.

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9
Q

Which mechanisms reduce insurer levies?

A

The liquidation and 3rd party recoveries reduce insurer levies/assessments.

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10
Q

Who does PACICC assess?

A

The participating insurers in the jurisdiction where the insolvent insurer was writing business.

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11
Q

Limit on what PACICC may assess in aggregate?

A

The shortfall between the amounts advanced by PACICC to policyholders and the amounts PACICC received from insolvent insurer and 3rd parties.

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12
Q

Assessment formula for an individual insurer.

A
A = B * (C/D)
where
A = insurer assessment
B = total amount assessed by PACICC
C = Direct WP of insurer
D = total Direct WP of all assessed insurers
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13
Q

Assessment limit on an individual insurer.

A

1.5% of the insurer’s Direct WP.

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14
Q

Is PACICC sound, given consolidation in insurance industry? (4)

A

Yes, because:

  • OSFI MCT regulations minimize insolvencies;
  • PACICC can asses solvent insurers;
  • a compensation fund already exists;
  • doesn’t have to provide FULL compensation.
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