PACICC.Comp 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, 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 minimize PROBABILITY of insolvency
PACICC: provides reasonable recovery to policyholders AFTER insolvency
Calculate PACCIC compensation
- Unearned premium component = 70% x min(deductible, unearned premium)
- Indemnity component = min( loss - distribution - deductible, X)
X = 400,000 for auto
500,000 for pers prop - Recovery = (unearned premium component) + (indemnity component)
Identify PACICC 3 funding methods
- Assessment of participating (solvent) insurers
- Compensation fund – borrow money from this fund (pre-insolvency funding)
- 3rd party recovery
Which 2 funding methods increase capacity?
- Assessment of participating (solvent) insurers
- Compensation fund (the compensation fund is funded by assessments)
Which funding method smooths funding costs
Compensation fund can be drawn upon to smooth annual assessments
Which funding method reduces insurer levies?
3rd party recovery
Who does PACICC assess?
Participating insurers in jurisdiction where the insolvent insurer was writing business
What is the 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
Formula for individual insurer assessment
A = B x (C/D)
A = insurer assessment
B = total amount assessed by PACICC = Amount advanced - Recovery
C = DWP of insurer
D = total DWP of all assessed insurers
What is the limit on individual insurer assessment?
1.5% of DWP (Direct Written Premium)
Briefly explain whether PACICC is well positioned financially to handle insurer insolvencies in the future.
Yes, because:
- OSFI MCT regulations minimize insolvencies
- PACICC can assess solvent insurers
- a compensation fund already exists
- doesn’t have to provide FULL compensation
Evaluate the performance of PACICC according to criteria for evaluating government programs (3)
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 4 steps in the PACICC procedure under an insolvency
- PACICC discusses selection of liquidator with superintendent
- PACICC consults with court-appointed liquidator
- Collect assessments from solvent participating insurers
- Policyholders are compensated according to prescribed scheme
Identify the role of claimants of the insolvent insurer under PACICC
File claim with PACICC for unearned premium and outstanding claims net of other sources of recovery.
Identify the role of the solvent participating insurers under PACICC
Pay assessments to PACICC according to prescribed formula
