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OSFI to study Ontario auto changes


September 23, 2013   by Greg Meckbach, Associate Editor


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NICC 2013 – The federal Office of the Superintendent of Financial Institutions (OSFI) plans to examine the impact, on property and casualty insurance carriers, of recent changes to private passenger auto regulations in Ontario, suggested Julie Dickson, OSFI’s Superintendent of Financial Institutions.

“As a prudential regulator, OSFI will be looking at how companies are affected by and manage these changes,” Dickson said Monday of the Ontario Ministry of Finance’s announcements in August, when the provincial government provided details on how it plans to achieve its aim of reducing private passenger auto premiums by 15% over two years.

Dickson made her remarks during at the National Insurance Conference of Canada Monday in Gatineau, Que., across the Ottawa River from the nation’s capital.

Dickson was alluding to an Aug. 23 announcement, by the Ontario Ministry of Finance, when the province said it aims to reduce private passenger auto premiums by 8% by August, 2014.

The Ontario Superintendent of Financial Services now has the authority to require insurers to re-file rates, and carriers will have to explain how their proposed rates and risk classification systems will contribute adequately to achieving the 15% reduction over two years. The provincial government is also promising to implement additional measures designed to reduce fraud.

When asked Monday whether it is conceivable that OSFI may give advice in the future to the Ontario Ministry of finance, Dickson replied: “Usually we talk to other regulators, we do not normally talk to Ministries of Finance.”

She added OSFI is focusing more on what Ontario auto regulations do to the capital position of insurers. The Ontario government announcements in August of this year were “helpful” because they provide “clarity” to insurance carriers, Dickson noted.

 “We live in a world where auto premiums are regulated, and I remember a speech a few years ago, where the message was, ‘The industry does have some ability to influence what happens,’” Dickson noted.

“If a company waits and waits and waits (to submit) a request to increase premiums, they are not going to be in the best position, relative to a company that is ahead of the curve, has the data and is in there early. That’s really what we encourage. We are seeing some clarity from the Ontario government on this, which I think means that the outcome there might not have been what people thought it was going to be when these changes were first announced.”

NICC, which continues Tuesday, is produced by MSA Research Inc. 

In her Monday presentation, Dickson suggested 2013 has not been as good, year-to-date, as 2012 was for property and casualty carriers. Last year, she noted at when she spoke at NICC that underwriting performance, across the industry, had been the strongest since 2006, though there was variation among firms.

“Indeed, for many in the P&C industry, the year has been, as the Queen said in 1992, an Annus Horribilis —and the P&C year is not over yet,” Dickson said Monday of 2013 year-to-date. “Perhaps CEOs of companies are thinking like Her Majesty, and saying that 2013 will not be a year on which they shall look back with ‘undiluted pleasure.’”

Dickson noted three major events within one month will “cause a negative impact on company bottom lines” in 2013.

One event was the Lac-Megantic, Que. tragedy — when on July 6 a train with 72 crude oil tanker cars derailed and exploded, killing at least 39. The others were the flooding later in June in Alberta (which inundated downtown Calgary) and a record rain storm July 8 in Toronto.

Dickson also discussed insurance linked securities.

“Catastrophe bonds can be used to help companies to  reduce exposure to certain risks, including earthquakes,” she said. “Cat bonds are an effective way to transfer risk to capital markets, instead of reinsurance markets, and to spread risks. At the same time, they do not eliminate all risk. For example, basis risk, where the trigger for a claim might not be directly matched to the losses of the insurer, could result in the insurer experiencing losses with no protection.”


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