MarketPlace (February 01, 2011)

Canadian Market

Canadian catastrophes in 1998, 2005, 2009 and 2010 cost industry $3.8 billion

Canadian catastrophes in 1998, 2005, 2009 and 2010 affected 850,000 insured properties and collectively cost the industry $3.8 billion, according to data from PCS-Canada.

These figures appeared in the article ‘Summary of Catastrophe Activity in 2010 and Earlier Years,’ published in the MSA/Baron Outlook Report Q3-2010.

PCS-Canada identified four catastrophes in 2010, including tornadoes in Ontario, storms and flooding in Saskatchewan, a hailstorm in Alberta and Hurricane Igor hitting Newfoundland and Labrador.

“In summary, the four catastrophes caused an estimated insured property loss of nearly $800 million, based on current estimates,” according to the summary. “These same events also produced over 85,000 claims to the insurance industry.”

PCS-Canada said reviewing past catastrophes was a difficult assignment, because many insurers did not have recoverable records and mergers and acquisitions made it difficult to capture some data. But a review of the 1998 Ice Storm shows it resulted in $1.5 billion of insured property damage to more than 660,000 properties.

The Toronto weather storm in 2005 caused about $600 million in insured losses, affecting more than 24,000 properties.

Nine individual events in 2009 caused about $1 billion in insured damage to more than 80,000 insured properties, including vehicles.

Soft commercial market in Canada to continue into 2011

Soft commercial insurance market conditions persisted throughout Canada in 2010 and are poised to continue into 2011, according to a comprehensive report published by Marsh Canada.

“Key commercial insurance market drivers from 2009 – including intense competition among insurers, abundant capacity and relatively few insured catastrophe losses -continued through 2010 and are forming market conditions for 2011,” Marsh said in its report, Approach Your Risk With Clear Direction: North American Insurance Market Report 2011.

The report found clients are seeing lower rates on average across all major coverage lines. For Marsh clients renewing in the fourth quarter of 2010: property rates typically declined 5% to 10%; primary liability rates declined 7.5% to 12.5% for clients with low-risk profiles and little U.S. exposure; and directors’ and officers’ (D&O) liability insurance rates for public companies not listed in the United States were flat to 15% down.

Market turn would require a $150-billion event: Guy Carpenter

It would take a $150-billion insured loss event to create a decided and sustained hard market in the global reinsurance market, Guy Carpenter reports.

A $50-billion insured loss event would slow the decline of property catastrophe reinsurance rates for at least one year in the current capital-rich environment, Guy Carpenter said in its GC Capital Ideas.

“At $100 billion, we believe ‘outlier’ reinsurance entity failures could occur, while a $150-billion insured loss event would create a decided and sustained market turn,” it says.

Regulation

New rule for B.C. brokers when placing coverage with unauthorized insurers

A new rule outlining procedures B.C. brokers must follow when placing coverage with an unauthorized insurer will take effect on Feb. 28, 2011.

Section 76(1)(c) of the Financial Institutions Act in British Columbia provides a limited exemption from a ban on placing insurance with an unauthorized insurer.

Rule 7(11.1), which takes effect in February, establishes how to conduct an insurance transaction when the exemption is in effect.

According to Rule 7(11.1), brokers must notify the Insurance Council of British Columbia in writing prior to conducting any insurance transactions with an unauthorized insurer. The written notification must include:
• the name of the individual broker or agency;
• the primary broker at the agency; and
• confirmation that the broker understands the disclosure and trust requirements contained in Rule 7(11.1).

Related to the last point, the broker must disclose to a client in writing the risks associated with an unauthorized insurer.

CCIR outlines issues to be addressed when foreign insurers withdraw from Canada

The Canadian Council of Insurance Regulators (CCIR) has posted a document on its Web site outlining a number of issues that must be addressed when foreign insurers wish either to withdraw from Canada or withdraw assets vested in trust in Canada.

The considerations are a result of recent amendments to Part XIII of the federal Insurance Companies Act, which effectively changed the federal regulatory focus from the location of risks to the location of an insurer’s business activities.

Thus, when foreign insurers withdraw, CCIR states: “each province must be satisfied that the foreign insurer: (1) is no longer carrying on business/transacting insurance or acting as an insurer in the province, and will not in the future do so; and (2) has adequately provided for the protection of existing policyholders in the province, before agreeing to revoke a foreign insurer’s provincial licence which must occur to complete the withdrawal process.”

To ensure a foreign insurer no longer carries on business in Canada, a few questions must be answered, the CCIR says in its document. A full list of questions is available on the CCIR Web site at: http://www.ccir-ccrra.org/en/

Alberta clarifies ‘voluntary disclosure’ rule related to paying tax on unlicenced insurance

The Insurance Brokers Association of Alberta (IBAA) and the Toronto Insurance Conference (TIC) have received some clarification about Alberta’s ‘voluntary disclosure’ rules, which relate to the payment of taxes on unlicensed insurance.

In Alberta, a client may lawfully arrange unlicensed insurance as long as:
• the insurer did not solicit the business; and
• the commercial client pays a tax equal to 50% of the premium it pays for the unlicensed insurance.

Under the province’s ‘voluntary disclosure’ rules, if a client realizes it has placed unlicensed insurance without paying the required tax, it can apply to the Alberta Superintendent of Insurance to have the unlicensed premium tax rate reduced from 50% to an unspecified amount not less than 10%.

In a Q&A with Alberta Superintendent of Insurance Arthur Hagan, posted on the TIC’s Web site, broker associations asked how many times a client may invoke the ‘voluntary disclosure’ application to reduce the 50% tax to 10%.

Brokers understood the application would be a “one-time only” event, but the wording of the legislation does not say this.

Hagan confirmed that in theory, a client could apply more than once under this provision and not be breaking any laws. He added, however, “that it was probably less likely for a client submitting repeated requests for the minister’s discretion to obtain a sympathetic hearing.”