April 13, 2005 by Canadian Underwriter
The Property and Casualty Insurance Compensation Corp. (PACICC) says member insurers have agreed to increase their maximum permissible assessment to the guaranty fund in order to better prepare for future insolvencies.
At Wednesday’s annual general meeting, PACICC deputy chairman Kevin McNeil, CEO of Gore Mutual Insurance Co. told members that a survey revealed “strong and clear” support for raising the allowable annual assessment rate (to the level of 1.5% of eligible direct written premium).
PACICC, which acts as a backstop when an insurer becomes insolvent in order to ensure liabilities are met, faces a “capacity gap”, McNeil explains. A management report found a gap between PACICC’s current annual capacity of $270 million, and the potential total liability of nearly $500 million from a mid-sized insurer failure. “The issue is not that PACICC and its member companies lack the total financial resources to respond to the failure of a larger p&c insurer. However, if that response absorbed more than a single year’s financial capacity, it could impair the ability to respond promptly to all claims from a sizeable failure, or to a subsequent insolvency,” he says.
PACICC CEO Paul Kovacs notes that despite improved industry results in 2003 and 2004, the threat of an insolvency remains “elevated”. “Industry capital is still below the strong levels reached in 2000, reflecting the depth of the industry downturn earlier this decade,” he comments. “A sustained period of improved earnings is needed before we can expect to see a significant decrease in the risk of company insolvencies.”
In the past year, PACICC also reformed its governance, adding three public board members with experience outside of the insurance industry, and devising means to enhance the resources available to and assessment of its board. A new “governance and human resources” committee of the board was formed.
PACICC has also worked with regulators to gain access to more data on the financial health of provincially-regulated insurer members, and to lobby provinces whose solvency regulation is not yet in line with the system used by federal regulators and advocated by the International Association of Insurance Supervisors (IAIS).
And while there were no insurer insolvencies in 2004, PACICC continued work on 10 ongoing wind-ups.
In 2005, the compensation fund will be addressing two key issues, Kovacs says. It will review its coverage, including lines of business and compensation limits. This includes bringing coverage in lines with the new harmonized classes of insurance created by the Canadian Council of Insurance Regulators (CCIR).