OSFI open to discussing innovative risk-transfer solutions related to property losess

Canada’s solvency regulator, the Office of the Superintendent of Financial Institutions (OSFI), is “open for business” when it comes to discussing new risk transfer solutions to weather-related losses, OSFI superintendent Julie Dickson told P&C insurance industry representatives at the National Insurance Conference of Canada (NICC) in Ottawa.
Dickson made her remarks while expressing concern about the “disproportionate level of losses” caused by catastrophic, weather-related events. She observed that there have been discussions in the industry about product innovation, including new forms of insurance for handling weather-related losses.
“OSFI has been asked if it would consider solutions to weather risks that might involve innovations such as transferring risks to the capital markets,” Dickson said. “OSFI is open to consider new approaches to risk mitigation, but if you have ideas, those ideas will need to pass certain tests, including risk transfer compatibility and capital [tests].
“I would encourage you that if you want to bring something to OSFI, make sure that it not only meets your needs, but it meets our needs, too.”
During a question and answer session after her speech, Dickson was asked why more Canadian (re)insurers hadn’t explored new risk transfer techniques. She turned the question back to her audience, at which point one person suggested the required “critical mass” had not yet been achieved.
Dickson also discussed OSFI’s concerns about the Ontario automobile product, where direct loss ratios have reached “an unsustainable 85%,” she said.
“The historical pattern of automobile results (claims ratios) for any province is a traditional ‘U’ shape: the worst performance taking place during the winter season, with significant improvement in the ‘good weather’ seasons,” Dickson said. “In Ontario, this relationship has disappeared.”
Dickson said 2009 Q2 did not appear “to bring any discernable relief” to auto insures in Ontario. She said it seemed likely that, overall, 2009 auto results would be materially worse than 2008, when loss ratios were already in the mid-80% range.
Dickson warned (re)insurers not to wait for imminent Ontario auto insurance reforms to solve their pricing problems for them.
“Each company must assess its capital resources to support losses,” she said. “If capital cannot support losses, then rating action must be taken or risk exposure must be reduced.”