PACICC - Actuary's Role in Solvency Flashcards
What is the purpose of the PACICC (Property and Casualty Insurance Compensation Corporation)?
To provide for a reasonable level of policyholder recovery for claims and unearned premium AFTER an insurer becomes insolvent.
Who administers this policyholder recovery ‘plan’?
It is administered by the non-profit PACICC.
Who are the members of the PACICC? (2)
- all licensed, participating insurers in a jurisdiction, with some exceptions (E.g.: reinsurers).
- excludes: Auto in MB and SK, Auto BI in QC.
What triggers PACICC involvement? (2)
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.
Compare OSFI vs PACICC on their roles regarding insolvencies.
OSFI: seeks to minimize the PROBABILITY of insolvency.
PACICC: provides reasonable recovery to policyholders AFTER insolvency.
Funding mechanisms. (4)
- Liquidation of insurer’s assets;
- Assessment of participating insurers;
- Compensation fund;
- 3rd party recovery.
Which mechanisms increase capacity? (2)
Through assessments and the Compensation Fund.
- the compensation fund is funded through assessments.
Which mechanisms smooth costs?
The compensation fund can be drawn upon to smooth annual assessments.
Which mechanisms reduce insurer levies?
The liquidation and 3rd party recoveries reduce insurer levies/assessments.
Who does PACICC assess?
The participating insurers in the jurisdiction where the insolvent insurer was writing business.
Limit on what PACICC may assess in aggregate?
The shortfall between the amounts advanced by PACICC to policyholders and the amounts PACICC received from insolvent insurer and 3rd parties.
Assessment formula for an individual insurer.
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
Assessment limit on an individual insurer.
1.5% of the insurer’s Direct WP.
Is PACICC sound, given consolidation in insurance industry? (4)
Yes, because:
- OSFI MCT regulations minimize insolvencies;
- PACICC can asses solvent insurers;
- a compensation fund already exists;
- doesn’t have to provide FULL compensation.