Study 1 - Regulatory Influences Flashcards
Responsibilities of Government (Provincial & Territorial Regulators)
(MLRMLR)
- Monitoring the solvency and financial soundness of provincially incorporated insurers
- Licensing insurers
- Reviewing and interpreting contracts of insurance
- Monitoring each insurer’s compliance with the provincial insurance legislation
- Licensing and supervising adjusters, agents, and brokers
- Regulating insurance products and market conduct (underwriting, rating, claims, and marketing practices)
Reinsurers (RR)
- Regulated less closely than primary insurers because regulators emphasize protection of the consumer
- Reinsurers sell to primary insurers who are more knowledgeable buyers, better able to protect their own interests
Fronting
Refers to the practice of a primary insurer insuring a risk and then reinsuring 100 percent of the risk with another insurer
Provincial and territorial insurance legislation addresses such major issues as these:
- The minimum capital necessary to conduct business in the province or territory
- Transactional processes
- Processes for withdrawing from a province or territory
The legislation gives the regulator the authority to make rules about such matters as:
- Underwriting eligibility criteria
- Claim settlement practices
- the electronic marketing of insurance
- the ethical, operational, and trade practices of insurers
- reserving practices for claims and unearned premiums
- automobile insurance rate changes
The legislation also makes the regulator responsible for the following: (LARLAC)
- licensing insurers to operate in its jurisdiction
- approving classes of business
- reviewing some insurance contract wordings
- licensing producers and adjusters, depending on the jurisdiction
- approving some policy forms
- controlling an insurer’s advertising
Developments as a result of legislated reforms that could lead to the reforms not producing savings in the early phases (UCNMN)
- underwriting training is required
- computer systems need upgrading
- new rating software must be developed
- modifications for data capturing and reporting are required
- new policy forms or other documentation are required for any changes in benefits or coverage
OSFI activities (Inc, R+A)
- Incorporating new Canadian companies and issuing orders to Canadian and foreign companies to carry on business
- Reviewing and assessing applications involving corporate reorganization, changes of ownership, acquisitions of other financial institutions, changes in classes of insured risk, and withdrawals from the Canadian insurance market
OSFI is the “watchdog” of the insurance industry, identifying potential problems early and intervening to avoid a company failure. To accomplish this, OSFI will: (IPPCC)
- Issue advisories outlining its views of best practices or risk mgmt measures, as well as interpreting legislation, regulations, or guidelines
- Provide notices to inform the public of items of general interest and publish warnings for the financial sector
- Present internally and externally generated consultation papers of interest to its stakeholders
- Continually monitor insurers’ financial condition and operating performance and verify compliance with statutory and other regulatory requirements; and
- Conduct periodic on-site examinations as required by statute
Further actions OSFI takes when the financial viability or solvency of a company is at risk (RIDD)
- Restrict business operations (e.g. the amount of premium written)
- Increase the frequency and scope of on-site examinations
- Demand additional capital be invested in the company
- Discuss contingency plans with relevant compensation funds and provincial or territorial insurance regulators (such plans could involve taking control of the company)
To measure an insurer’s inherent risk, OSFI reviews: (IR, UR, LRC, CTRLS)
- The insurance risk: the actual product being sold and the requisite pricing
- The underwriting of risk: assess the insurer’s exposure to loss through risk selection and approval
- legal and regulatory compliance: checks the insurer’s conformity to ethical standards
- controls to detect dishonesty or errors in data or disaster recovery plans
OSFI requires the insurers it oversees to document their earthquake policies and procedures, including: (A+T, Data, AggEx, PML)
- their appetite and their tolerance for earthquake risk
- how they manage data related to their earthquake exposure
- their monitoring and reporting of aggregate earthquake exposure
- the factors they use the estimate their probable maximum losses (PML’s)
OSFI wants each outsourcing insurer to do the following:
- evaluate the risk of outsourcing
- carry out a due diligence study
- create a business continuity plan in case a third party cannot perform outsourced activities
- establish a process for monitoring and managing the outsourced activities
Undercapitalized insurers must restore an acceptable balance between their premium volume and the capital they have available to support it by:
- reducing their premium writings
- taking a different strategic direction on the the type of business they write
- ceding more to reinsurers
- reducing the capacity they provide in certain lines of business
- restructuring their balance sheet to free more capital
Own Risk and Solvency Assessment (ORSA) Requirements
- comprehensive identification and assessments of risks
- relating risk to capital
- oversight
- monitoring and reporting
- internal controls and objective review
3 notable working groups within the CCIR
- Climate Change, Natural Catastrophes and Consumer Awareness Working Group
- Fair Treatment of Customers Working Grou-
- Fintech Working Group
