KPMG.PACICC

Reading: “Property and Casualty Insurance Compensation Corporation (PACICC), The Actuaries' role in safeguarding the solvency of P&C insurers,” March 2015, Parts 1, 2, 5 and 7 (pp. 43-47 only).

Authour: KPMG

Forum

BA Quick-Summary: Safeguarding Solvency PACICC identifies inadequate pricing and deficient reserves as the leading causes of insolvency for P&C insurers, and engaged KPMG to review how actuaries’ roles in solvency are defined in legislation and how they compare to international sound practices. The definition of “actuary” is inconsistent across Canadian jurisdictions; while some provinces define actuaries as FCIA, others do not define the term at all or allow exceptions, such as approval by a Minister or Commission based on experience. Many provinces lack explicit powers in their Insurance Legislation to issue enforceable rules, define insurance supervision objectives, or require actuarial reporting and peer review, resulting in gaps when measured against IAIS Insurance Core Principles.

Study Tips

This reading is 100 pages but you are only responsible for a small portion of it: Parts 1, 2, 5, 7 (page 43-47 only). A prior version was on the syllabus for a very long time, but as far as I can tell, it was only tested once in 2012. The new version of the reading for 2019.Fall appears to have quite substantial updates, so that old problem is likely not relevant anymore.

Anyhow, I was hard pressed to find anything that looked like a good exam question. At its heart, it's still a research paper so it doesn't really lend itself to exam-type questions. There is discussion of something called ICPs (Insurance Core Principles) which was a recently removed syllabus topic, so that doesn't seem important either.

Part 7 is probably the most important since that deals with international practices. Since Canada is adopting IFRS 17 in the near future, that could be something to pay attention to. (See CIA.IFRS17.)

Estimated study time: 30-60 minutes (not including subsequent review time)

BattleTable

• this reading has not been tested on any exam from the year 2012 up until Fall 2019 when exams stopped being published.

reference	part (a)	part (b)	part (c)	part (d)
no prior questions

Full BattleQuiz You must be logged in or this will not work.

  Forum

In Plain English!

Part 1: Executive Summary

Since you are only responsible for a small portion of this reading, most of the executive summary is not relevant.

Part 2: Introduction

The first 2 paragraphs of Part 2 are a quick review of facts covered in other readings. (See Baer.Intro & McD.Intro.) I've listed them in bullet points below:

• OSFI is responsible for solvency regulation of:

   - federally incorporated P&C insurers

   - Canadian P&C branch operations of insurers incorporated outside Canada

(these are called Federal P&C Insurers)

• Provinces are responsible for solvency regulation of:

   - P&C insurers incorporated in their own province

(these are called Provincial P&C Insurers)

Note that most P&C insurers are incorporated federally. All insurers, whether Federal or Provincial must satisfy market conduct and solvency requirements.

The only other item I found noteworthy from Part 2 was a description of CCIR: (Canadian Council of Insurance Regulators)

what is CCIR: an association of insurance regulators from across Canada

what does CCIR do: promote an efficient regulatory system to serve the public interest

Part 5: Definition of Actuary

I thought the definition of an actuary might be a good exam question but the problem is that each jurisdiction (province or territory) can have its own definition. Most jurisdictions simply define an actuary as a FCIA. I thought it was interesting, however, that Alberta and British Columbia had exceptions to the FCIA requirement as follows:

• a non-FCIA individual can serve as an actuary provided the Minister is satisfied they have the necessary training and experience
• the reason is to accommodate small provincial insurers who may not have a FCIA on staff

It has been proposed that the CIA be responsible for defining the term actuary to promote uniformity across Canada. Provinces could then make additional requirements as they deem appropriate.

Part 7: Provincial versus International Practices

The title of Part 7 is actually much longer than what I wrote above. The full title is:

• Powers of the Provincial Superintendents with Regards to Reserving & Solvency Monitoring Relative to International Sound Practices

Part 7 in the source text is about 50 pages, but you only have to read pages 43-47. As noted above, most insurers operating in Canada are federally incorporated (versus provincially incorporated) Part 7 strikes me as relatively unimportant. Nonetheless, here are a few facts that are mentioned:

• actuarial requirements for solvency regulation are set out in provincial Insurance Legislation
• this legislation is updated periodically (~ every 5 years) so that it reflects the current environment

The source text then details the timing of these reviews for each province/territory. If you look at the source text for any reason, keep in mind that the dates are already several years out of date because this KPMG research paper was completed in early 2015. Note also that as of early 2015:

• most provincial legislation falls short of international solvency regulation standards as laid out by IAIS (International Association of Insurance Supervisors)
• federal legislation is in line with IAIS standards

Question: identify 3 options for addressing the deficiency in provincial solvency regulation versus IAIS

• province restricts regulation to market conduct and relies on OSFI for solvency regulation
• province upgrades its own solvency regulation
• province transfers solvency regulation to another province that has higher standards

A key consideration in improving provincial solvency regulation is uniformity across Canadian jurisdictions. I found it of interest that there is already consistency in financial reporting since all insurers use the same P&C-1 financial statements. The reporting templates are on the syllabus under OSFI.AR1 and OSFI.AR2.

Question: identify a disadvantage of having separate federal and provincial solvency regulation

• separate regulation could create 2 classes of insurers
• the PACICC guaranty fund could then demand a higher risk premium from insurers with weak provincial regulation

Recall the PACICC guaranty fund is discussed in PACICC.Comp.

Full BattleQuiz You must be logged in or this will not work.

  Forum