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2013-01-01

REGULATION

OSFI seeks input on draft solvency guidelines

The Office of the Superintendent of Financial Institutions (OSFI) is currently seeking stakeholder input on two proposed guidelines.

On December 21, OSFI released its draft guideline for Own Risk and Solvency Assessments (ORSA) for federally regulated property and casualty, and life insurance firms, as well as proposed amendments to Guideline A-4, its current Internal Target Capital Ratio for Insured Companies. (If approved, the guideline would be renamed Regulatory and Internal Target Capital Ratios.)

In an impact analysis statement, OSFI notes that explicit guidance for ORSA around issues such as identifying material risks, as well as assessing the adequacy of risk management and “current and likely future solvency positions,” does not exist. “A new ORSA guideline will build on existing industry practice and OSFI guidance, while considering international practices,” the impact statement adds. “A guideline developed expressly for the insurance sector, but that adopts similar guidance, would facilitate the implementation process and avoid significant duplication effort.”

If the proposed guidelines receive the green light, the new ORSA and amended Guideline A-4 would take effect January 1, 2014. Comments must be submitted by April 12, 2013.

IBAO welcomes new AMP requirements

The Insurance Brokers Association of Ontario (IBAO) has congratulated the provincial government on new regulations under the Insurance Act that implement Administrative Monetary Penalties (AMPs), a move IBAO argues will support more timely and effective enforcement.

IBAO notes the AMPs, effective January 1, 2013, will allow the Financial Services Commission of Ontario (FSCO) to better enforce Insurance Act violations by permitting the regulator to levy appropriate penalties proportional to an offence.

Changes to the Insurance Act, Automobile Insurance Rate Stabilization Act (2003) and the Compulsory Automobile Insurance Act mean FSCO can implement penalties for infractions of those acts, as well as “breaches of orders, undertakings and licence conditions.”

FSCO reports that AMPs can apply in situations of its listed Unfair or Deceptive Acts or Practices “by any person or entity, including insurers, agents, brokers, adjusters and those involved in the provision of goods or services to insurance claimants.”

Says Randy Carroll, CEO of IBAO, “This represents one of the most significant advances in consumer protection in many years.” 

CLAIMS

Aviva Canada denied request to alter Pastore ruling

The Court of Appeal for Ontario has denied a request by Aviva Canada to “withdraw, alter or modify” its decision in Pastore v. Aviva Canada Inc. based on a Supreme Court of Canada (SCC) ruling from this past July.

In Pastore, the appeal court found in favour of a woman claiming catastrophic impairment from her insurer, Aviva Canada. The woman applied to Aviva in 2005 to have her injuries classified as “catastrophic impairment,” spurring a designated assessment centre (DAC) assessment to be done.

In the original decision, the appeal court ruled it was not necessary to have all four categories of the assessment considered marked impairments for a catastrophic impairment designation.

In its most recent ruling, the court notes new counsel for Aviva asked to bring to its attention the SCC ruling from July. The SCC applied the correctness standard of review to a Copyright Board ruling on the basis the legislative scheme gave concurrent, original jurisdiction to either the board or a court.

In Pastore, Aviva sought to rely on a provision of the legislative scheme in Ontario’s Insurance Act that gives concurrent jurisdiction to adjudicate following both assessment of the claimant and mediation, to an arbitrator or to the court.

Ontario’s appeal court disagreed. “[T]his is not the type of rare circumstance where it is in the interests of justice to withdraw the reasons of the court and rehear the case on its merits.”

RISK MANAGEMENT 

Ontario beefs up infrastructure funding 

The Ontario government is increasing support for critical road, bridge, water and wastewater projects under its Municipal Infrastructure Strategy, up substantially from $51 million announced in August to almost $90 million.

The funding, which will be made available over two years in 2013-2014 and 2014-2015, is meant to help more municipalities maintain and repair their critical infrastructure, notes a press release from Ontario’s Ministry of Infrastructure. Projects must be completed by December 31, 2014.

“The Canadian insurance industry has seen substantial increases in property claims costs, partly as a result of infrastructure that was never designed to cope with the weather trends we are seeing today, and we fully support sustained investments that help build resilient communities and a secure economy,” says Ralph Palumbo, the Insurance Bureau of Canada’s vice president for Ontario.

The ministry reports project funding will cover 90%, or $2 million, of total project costs — whichever is lower. Applications for funding were being accepted until January 9, 2013.

Last fall, the Federation of Canadian Municipalities called on Ottawa to create a 20-year plan and to raise municipal infrastructure investments from $3.25 billion to $5.75 billion annually to address aging infrastructure across the country.

REINSURANCE

Insured loss estimate at least US$65 billion

Preliminary estimates from Swiss Re indicate that total insured losses from natural catastrophes and man-made disasters will reach at least US$65 billion in 2012 while economic losses will be at least US$140 billion.

Natural catastrophes are expected to account for the lion’s share of insured losses, at about US$60 billion, Swiss Re notes in a report released in December. Weather events — mainly in the United States — will dominate insured losses for 2012, the report adds.

Citing Hurricane Sandy and the major drought in the U.S., Swiss Re notes loss estimates of US$20 billion to US$25 billion for the former, and US$11 billion, including payouts from federal assistance programs, for the latter.

“Severe weather events continue to affect many parts of the world,” says Kurt Karl, Swiss Re’s chief economist. “In large parts of the globe that are prone to severe weather events, people and businesses could increase risk-preparedness by eliminating underinsurance,” Karl adds.

The 2012 estimate for insured losses is above the average for the last decade, Swiss Re notes, but far less than in 2011, when these skyrocketed to more than US$120 billion. 

Reinsurance can expect ‘acceptable’ profit

A.M. Best Co. released a report in early January that predicts reinsurance firms will make an “acceptable profit” in 2012, but adds reinsurers will rely on underwriting profits due to low returns on investments.

“A.M. Best expects that even with consideration for the catastrophe loss that occurred recently in the fourth quarter, reinsurers are still well-positioned to put forward an acceptable level of underwriting and overall profit for the full year.”

A.M. Best reports reinsurance firms “rebounded quickly” after catastrophe losses in 2011, but adds there were “unprecedented levels of uncertainty and challenges” in the global economy in 2012. As well, reinsurance firms face low yields on their investments.

“The continuing low interest rate environment, however, appears to be reinforcing a focus on underwriting discipline, which should translate into a positive for the segment,” the rating agency adds.

Most 2012 global nat cat losses in the U.S.

Ninety per cent of all insured losses and 67% of overall losses worldwide from natural catastrophes in 2012 were attributed to the United States, Munich Re recently reported.

Natural catastrophes caused $160 billion in overall losses and $65 billion in insured losses worldwide, Swiss Re noted.

Chief among these costly weather events was an estimated $25 billion in insured losses as a result of Sandy.

“The heavy losses caused by weather-related natural catastrophes in the USA showed that greater loss-prevention efforts are needed,” says Torsten Jeworrek, a Munich Re board member.

“It would certainly be possible to protect conurbations like New York better from the effects of storm surges. Such action would make economic sense and insurers could also reflect the reduced exposure in their pricing,” Jeworrek adds.

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