Unlicensed Reinsurance
Reinsurance placed with companies not licensed in the jurisdiction - province, territory, or country
Terrorism
An ideologically motivated unlawful act or acts, including but not limited to the use of violence or force or the threat or violence or force, committed by or on behalf of any group(s), organization(s), or government(s) for the purpose of influencing any government and/or instilling fear in the public or a section of the public
Describe the regulatory environment for insurance and the challenge that it can pose for the insurance industry
Governance of insurance industry
- Provincial, territorial, and federal governments
- Regulatory and supervisory
Provincial/Territorial
- License and monitor insurers, adjusters and agents
Federal
- Monitor solvency of federally incorporated insurers and Canadian branches of foreign-owned insurers
Reinsurers regulated less closely than primary insurers
-May choose to register with a government
Canadian insurers, agents, and adjusters must comply with non-insurance legislation
Explain the role the provinces and territories in regulating the insurance industry.
Provincial and territorial regulation
- Financial services framework
- Insurance acts / Civil Code of Quebec encode authority of regulator
- Focus on solvency of licensed insurers
- Legislation allows regulator to determine if insurer has expertise to carry on business
Insurer files underwriting rules with province or territory
- Rules must be followed exactly
- They must also adhere to policy conditions of provincial or territorial legislation
- Province or territory enforces rules and legislation
- Regulatory intervention will affect operations and profits
Regulation changes cause management to review
- Current position
- Direction pursued under former regulations
- Direction that should be pursued due to new regulations
- Costs and loss of production time
- Skewing of actuarial projections
List five responsibilities of provincial and territorial insurance industry regulators. (5 marks)
Answers:
1. Responsibilities of provincial and territorial insurance industry regulators (any five of the following):
Monitoring the solvency and financial soundness of provincially or territorially incorporated insurers
Licensing insurers
Reviewing and interpreting contracts of insurance
Monitoring each insurer’s compliance with the provincial or territorial insurance legislation
Licensing and supervising adjusters and agents
Regulating insurance products and market conduct (underwriting, rating, claims, and marketing
practices)
- How can an undercapitalized insurer restore an acceptable balance between their premium volume
and the capital they have available to support it? (5 marks)
- How an undercapitalized insurer resolves capital requirement issues:
Reduces their premium writings
Takes a different strategic direction on the type of business they write
Cedes more to reinsurers
Reduces the capacity they provide in certain lines of business
Restructures their balance sheet to free more capital
- What are five insurer practices to adhere to when adding a new class to an existing licence or
creating a new insurance product? (5 marks)
- Insurer practices for adding a new class to an existing licence/creating a new product:
The insurer should conduct a detailed analysis of its available underwriting expertise, its claimshandling capabilities, and other important functional areas to make sure that it can fully support the
product it wants to introduce.
The insurer must establish appropriate controls and reporting so that it can accurately monitor the
performance of the new product or class of business.
The insurer must educate its distribution network about the new product or class of business.
The insurer must prepare financial forecasts to demonstrate that the new product or class of business
is viable.
The insurer must develop an exit strategy to prevent or minimize market dislocation should the
insurer decide to withdraw after consumers have come to rely on the new product or the insurer’s
participation in the new class of business.
Which of the following is a responsibility of provincial and territorial insurance regulators?
c. Licensing agents operating in the province or territory
What does the acronym OSFI stand for?
c. Office of the Superintendent of Financial Institutions
Which of the following statements is true?
Most insurers in Canada are overseen at the federal level.
Which of the following does provincial or territorial legislation generally make the regulatory body
responsible for?
The approval of classes of business
Which of the following classes accounts for the largest written premium in Canada?
Automobile
What role does OFSI play in relation to insurance companies?
The watchdog
Which of the following describes the MCT or minimum capital test?
It requires that insurers have assets worth at least a certain multiple of the amount of
their liabilities, as well as a margin of additional assets.
Which of the following is true of reinsurance recoverables?
They are a source of both credit risk and actuarial risk to an insurer.
What is the CCIR?
. Canadian Council of Insurance Regulators
. How many regulators does the CCIR consist of?
14
