IBC cautions Alberta rate board not to use cap-related reserve release to calculate 2010 premiums

The Insurance Bureau of Canada (IBC) has cautioned the Alberta Insurance Rate Board (AIRB) not to include the impact of a 2009 reserve release by insurers when the board calculates its 2010 industry-wide annual rate adjustment.
The AIRB held public hearings in June on its annual rate adjustment.
In its submission to the AIRB, IBC noted that the AIRB said it would explore the “estimate of ultimate bodily injury claims costs for past years in light of the confirmation of the Minor Injury Regulation cap on non-economic damages.”
The Supreme Court of Canada upheld the constitutionality of Alberta’s $4,000 cap on minor injuries in December 2009.
Not knowing which way the court was going to decide the case, insurers reserved money for a scenario in which the cap was found to be constitutional.
When the cap was upheld, insurers released these reserve funds in 2009, which caused the insurers’ auto loss ratios to plummet from 75% in 2008 down to just under 55% in 2009.
“Because this was a one-time ‘statistical’ event, it masks the true underlying trend in the loss ratio,” IBC said in its submission to the AIRB. “We do not agree that it is appropriate to incorporate a look-back at the extraordinary one-time 2009 reserve release in determining what the average premium for insurance should be for the 12-month period beginning Nov. 1, 2010.”