PACICC.Comp

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, Auto BI in QC

Question 4

What triggers PACICC involvement? (2)

Answer 4

1. A formal winding up order must have been issued to insurer
2. Insurer must be a member of PACICC

Question 5

Compare OSFI vs PACICC on their roles regarding insolvencies

Answer 5

OSFI: seeks to minimize PROBABILITY of insolvency

PACICC: provides reasonable recovery to policyholders AFTER insolvency

Question 6

Calculate PACCIC compensation

Answer 6

1. Unearned premium component = 70% x min(deductible, unearned premium)
2. Indemnity component = min( loss - distribution - deductible, X)
   X = 400,000 for auto
   500,000 for pers prop
3. Recovery = (unearned premium component) + (indemnity component)

Question 7

Identify PACICC 3 funding methods

Answer 7

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

Question 8

Which 2 funding methods increase capacity?

Answer 8

1. Assessment of participating (solvent) insurers
2. Compensation fund (the compensation fund is funded by assessments)

Question 9

Which funding method smooths funding costs

Answer 9

Compensation fund can be drawn upon to smooth annual assessments

Question 10

Which funding method reduces insurer levies?

Answer 10

3rd party recovery

Question 11

Who does PACICC assess?

Answer 11

Participating insurers in jurisdiction where the insolvent insurer was writing business

Question 12

What is the limit on what PACICC may assess in aggregate?

Answer 12

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

Question 13

Formula for individual insurer assessment

Answer 13

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

Question 14

What is the limit on individual insurer assessment?

Answer 14

1.5% of DWP (Direct Written Premium)

Question 15

Briefly explain whether PACICC is well positioned financially to handle insurer insolvencies in the future.

Answer 15

Yes, because:
- OSFI MCT regulations minimize insolvencies
- PACICC can assess solvent insurers
- a compensation fund already exists
- doesn’t have to provide FULL compensation

Question 16

Evaluate the performance of PACICC according to criteria for evaluating government programs (3)

Answer 16

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 17

Identify the 4 steps in the PACICC procedure under an insolvency

Answer 17

1. PACICC discusses selection of liquidator with superintendent
2. PACICC consults with court-appointed liquidator
3. Collect assessments from solvent participating insurers
4. Policyholders are compensated according to prescribed scheme

Question 18

Identify the role of claimants of the insolvent insurer under PACICC

Answer 18

File claim with PACICC for unearned premium and outstanding claims net of other sources of recovery.

Question 19

Identify the role of the solvent participating insurers under PACICC

Answer 19

Pay assessments to PACICC according to prescribed formula