PACICC.Comp

Question 1

What is the purpose of PACICC? (Property and Casualty Insurance Compensation Corporation)

Answer 1

Protect policyholder in the event of insurer insolvency for unpaid claims and unearned premium

Question 2

Who are the members of PACICC?

Answer 2

All licensed, participating insurers in a jurisdiction, with some exemptions (Ex: reinsurers)

Exclude: Auto in MB & SK, Auto BI in QC, mandatory auto BC

This ensures that policyholder protection is a collective responsibility of the industry.

Question 3

What triggers PACICC involvement? (2)

Answer 3

1. A formal winding up order must have been issued to insurer
2. Insurer must be a member of PACICC

• winding up : ordonance de liquidation

Question 4

Compare OSFI vs PACICC on their roles regarding insolvencies

Answer 4

OSFI: seeks to minimize PROBABILITY of insolvency

PACICC: provides reasonable recovery to policyholders AFTER insolvency

Question 5

Calculate PACCIC compensation

Answer 5

1. Unearned premium component = 70% x min(2500, unearned premium)
2. Indemnity component = min( loss - distribution - deductible, X)
   X = 425K for auto
   530k for pers prop
   400k for other
3. Recovery = (unearned premium component) + (indemnity component)

Question 6

Identify PACICC 3 funding methods

Answer 6

1. Assessment of participating insurers in affected jurisdiction:
   Total PACICC assessment = Amount given to policyholders – Amount recovered from insolvent insurer
   Individual insurer assessment = min(1.5% * DWP ; Total assessment *DWP/total DWP of all assessed insurers)
2. Compensation Fund – borrow money from this fund to cover short-term cashflow when required, to be repaid with interest
3. 3rd party recovery – PACICC has first priority on any amounts the insured receives from third parties related to the loss for which PACICC provided payment

Question 7

Which 2 PACICC funding methods increase capacity?

Answer 7

1. Assessment of participating (solvent) insurers
2. Compensation fund (the compensation fund is funded by assessments)

Question 8

Who does PACICC assess?

Answer 8

Participating insurers in jurisdiction where the insolvent insurer was writing business

Question 9

Formula for Total PACICC assessment in aggregate?

Answer 9

Total PACICC assessment = Amount given to policyholders – Amount recovered from insolvent insurer

Question 10

Formula for individual insurer assessment

PACICC

Answer 10

Individual insurer assessment = min(1.5% * DWP ; Total assessment *DWP/total DWP of all assessed insurers)

Question 11

Briefly explain whether PACICC is well positioned financially to handle insurer insolvencies in the future.

Answer 11

Yes, because:
- OSFI MCT regulations minimize insolvencies
- PACICC can assess solvent insurers
- a compensation fund already exists
- doesn’t have to provide FULL compensation

Question 12

Evaluate the performance of PACICC according to criteria for evaluating government programs (3)

Answer 12

Is it insurance or welfare:
→ it is insurance (sort of) because members pay assessment fees

Is it necessary:
→ yes, otherwise policyholders may be unprotected if their insurer goes
insolvent

Is it efficient:
→ yes, costs are lower because there are no commissions or advertising costs

Question 13

Identify the 4 steps in the PACICC procedure under an insolvency

Answer 13

1. PACICC discusses selection of liquidator with superintendent
2. PACICC consults with court-appointed liquidator
3. Collect assessments from solvent participating insurers
4. Policyholders are compensated according to prescribed scheme

Question 14

Identify the role of claimants of the insolvent insurer under PACICC

Answer 14

File claim with PACICC for unearned premium and outstanding claims net of other sources of recovery.

Question 15

Identify the role of the solvent participating insurers under PACICC

Answer 15

Pay assessments to PACICC according to prescribed formula