Canadian Underwriter July 2010

C A N A D A’ S I N S U R A N C E A N D R I S K M A G A Z I N E . C A N A D I A N U N D E R W R I T E R . C A

J ULY 2 0 1 0 A Business Information Group Publication #40069240

Flatland

BY DAvID GAmBrILL

Limitless Potential

BY J. BrIAn reeve

Governance reform BY roBert mcDoweLL AnD KoKer chrIstensen

Our Roots Run Deep

Providing Security, Strength and Innovative Solutions to the Canadian market for 30 Years

At Transatlantic Reinsurance Company, a mix of innovative programs, proven expertise and considerable capacity, on a foundation of financial strength, has created a new standard for reinsurance.

As we celebrate the 30th Anniversary of our Canadian operation, we thank you for your confidence.

With our international network of offices, we are committed to being a long-term partner in meeting your reinsurance needs.

Transatlantic Reinsurance Company For more information on TRC, please give us a call at 416-649-5300 145 Wellington Street West, Suite 900, Toronto, Ontario M5J 1H8 Visit our website at: www.transre.com S&P rating A+ AM Best Rating: A

VOL. 77, NO.7, JULY 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Flatland

32

Canada’s reinsurance market could well be living in Edwin Abbott’s two-dimensional world of Flatland, with flat growth, rates and retentions.

A glut of capital seems likely to keep the situation this way for some time to come.

BY DAVID GAMBRILL

FEATURES

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48

Reinsurance Governance

Home Sweet Home

OSFI’s latest paper on reinsurance makes clear the regulator expects corporate board members to take a more hands-on approach to securing reinsurance.

The 62nd Annual Conference & Trade Show of the Insurance Brokers Association of B.C. (IBABC) focused on many issues related to home insurance policies.

BY ROBERT MCDOWELL AND KOKER CHRISTENSEN

42 Going Fishing RSA Canada has teamed up with the World Wildlife Fund to create marine-protected areas in Canada, on the theory that a thriving fishing industry makes for fewer marine claims.

BY KEVAN GIELTY

BY DAVID GAMBRILL

52 More for Less?

To some, Ontario’s auto insurance reforms are more about providing consumers options than they are about reducing insurance premiums.

12 Without Limit

workplace violence. This Will OSFI’s proposed removal means new liability risks in of current restrictions on the sending employees abroad.

BY JOHN PROCTOR ceding of risk to reinsurers make any difference in today’s current market environment? 44 New Civil Rules

BY J. BRIAN REEVE Courts in Ontario and B.C. have introduced new rules to simplify 16 Sharon Ludlow and expedite small claims, which Swiss Re has a new CEO in may cause insurers to change how Canada. Her financial backthey address disputes.

BY ALBERT WALLRAP ground in transferring risk to capital markets has her discussing opportunities to intro- 50 Exit Planning duce Canada’s first cat bond. Brokers can help retiring busiBY DAVID GAMBRILL ness owners maximize the sale value of their business by going 20 Oil Risk over an exit plan with clients The Deepwater Horizon oil and ensuring proper insurance spill in the Gulf of Mexico coverage is in place.

BY JASON KWIATKOWSKI has regulators and risk managers evaluating how oil risk 54 Social Media is handled in Canada.

BY VANESSA MARIGA One key feature of the new social media is that they allow the 28 Working Abroad public to become the company’s New legislation in Canada best brand advocates.

BY PAUL FLETCHER places additional emphasis on protecting employees from

BY DONNA FORD

July 2010 Canadian Underwriter

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VOL. 77, NO.7, JULY 2010

PROFILE

10 Spotlight Mary Charman, incoming president of the Canadian Independent Adjusters’ Association (CIAA), will oversee the association’s planned entry into the public spotlight.

BY VANESSA MARIGA

SPECIAL FOCUS

6

Editorial

8

Marketplace

56 Moves & Views 58 Gallery

Editor David Gambrill david@canadianunderwriter.ca (416) 510-6796

Art Director Gerald Heydens Art Consultation Pylon.ca

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Canadian Underwriter July 2010

CApTAIn COOK COVERED MIllIOnS OF SQUARE MIlES.

WE COVERED HIS 450 SQUARE FEET BACK HOME.

Cautious is not a word you might associate with one of historyÕ s greatest explorers. But in 1764, a young naval officer took the prudent step of insuring his modest home with the Sun Fire Office. The world would come to know him as Captain James Cook.

compiled of the southern Pacific proved so accurate that copies remained in use until the twentieth century. Even when his ship ran aground off Australia in 1770, it was a moment of some significance; Cook and his crew had discovered the Great Barrier Reef.

In those days, insurance was not as common as it is today. But then, not every homeowner was given to disappearing for years at a time.

From 1768 to 1779, Captain Cook spent very little time in that house. Over the course of three famous voyages, he helped char t oceans and continents, establish new trade routes and develop modern navigation techniques.

To claim an association with so pivotal a figure might seem rather audacious to some. But, as we look back over three centuries of company history, it seems fitting to celebrate the lives of our most famous customers. It makes us immensely proud, after all, to recall that when Cook first set sail into uncharted waters, he did so having put his trust in our services.

He contributed to several important astronomical discoveries. He sailed closer to the South Pole than anyone before him and the char ts he

From the epic to the everyday, we continue to help the worldÕ s people and businesses move forward. To learn more, visit www.rsabroker.ca

Underwriting progress since 1710

EDITORIAL

Claiming ‘Cool’

What does it take to be ‘cool?’ If you know your audience and can connect with them using a simple, direct and supercharged message, you have the makings of a ‘viral’ industry ad campaign.

David Gambrill, Editor david@canadianunderwriter.ca

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Canadian Underwriter July 2010

At the Insurance Brokers Association of B.C. (IBABC) conference in Victoria on June 17, brokers and insurers alike were introduced to Jeremy Gutsche, a speaker MTV describes as “at the forefront of cool.”

Now what would a guy ‘at the forefront of cool’ have to say to Canada’s property and casualty insurance industry?

After all, the media rarely portray this industry as ‘cool’ at the best of times (cold-blooded, maybe, but definitely not ‘cool.’)

Gutsche was dispensing advice on ‘Exploiting Chaos: Sparking Innovation During Times of Change,’ which just so happens to be the title of his new book. Among his tips, he advised insurers and brokers to “be obsessed about knowing your current (and prospective) customers.”

This means everyone in the organization — especially chief executive officers — should be observing and talking to customers, Gutsche said.

Thanks to the vast reach of electronic and social media such as Facebook, Twitter and YouTube, “when you create something that connects [to the consumer]…your story will travel faster than ever before,” Gutsche observed.

To illustrate, he referenced a cutting-edge advertising campaign, ‘Don’t Mess With Texas,’ that successfully reduced littering in the state.

The slogan came from researching the kind of people who littered. The litterers were found to be predominantly young men aged 18-30 who

threw beer cans out of their pick-up trucks and lived a ‘king-of-my-world’ lifestyle.

How to reach these people?

One campaign ad featured a truck with such guys stopping to talk to a famous football player. One tosses a beer can out of the truck. The football player growls at them, saying ‘You mess with Texas, you’re messing with me,’ in exactly the kind of menacing fashion one would imagine the litterers to act. The ad campaign contributed to reducing litter by 72% over four years.

The point? If you know your audience and can connect with them using a simple, direct and supercharged message, you can get your story across.

Gutsche asked insurers at the conference to come up with their own “supercharged” slogans that would sum up in seven words or less what the industry does for consumers. “Life’s Condom,” one group came up with.

“Cover Your Ass,” was another. “I can see your compliance people are going to love you,” Gutsche joked.

But maybe therein lies the problem. It isn’t necessarily that the insurance industry isn’t cool. It’s that a host of lawyers and compliance people aren’t letting it be cool, since being cool is often associated with not doing things exactly by the book.

The industry is going to have to crack this nut soon, though, because to reach the Internet generation, the industry may just have to play with the

“shock value” fire. This industry needs to reach youth not only to sell them insurance, but to draw from their ranks to fill up open staff positions.

The chartered accountants have launched an aggressive ad campaign to promote their industry, doing their best to get beyond the stereotypes of dull people in suits doing boring number-crunching behind a desk. (They are portrayed as ‘team players,’ for example, the guys in suits who can turn a double play.)

The property and casualty insurance industry can be even more dramatic, when you think about what the industry does for a living. One can envision a TV ad showing chaos, fires and destruction everywhere, with a family of four in tears and crying, holding the shards of personal effects. The camera winds the earthquake devastation backwards, so that the building is placed back together, the family’s injuries disappear and the family is happily discussing their day in their home’s kitchen, just prior to the earthquake occurring.

One can envision the slogan “Normal Never Felt So Good” appearing on screen.

This is just one of a zillion examples the brains in our industry can come up with to pitch the value of the industry to consumers. It’s time to get these creative ideas flowing.

It’s time to start framing the way people identify the industry, instead of having the industry image shaped by other people as dull, boring and decidedly uncool.

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Š 2010

MARKETPLACE

Canadian Market CANADIAN P&C INDUSTRY DOUBLES PROFITS IN 2010 Q1 Canada’s federally regulated property and casualty (P&C) insurers slightly more than doubled their profits in 2010 Q1 compared to the same period of 2009.

Canadian P&C insurers fared better than their foreign counterparts.

Overall, Canadian and foreign P&C insurers totalled $835.8 million in profits in 2010 Q1, up significantly from their net income of $399.6 million in 2009 Q1.

But figures reported to the Office of the Superintendent of Financial Institutions (OSFI) show Canadian P&C insurers’ financial results are headed in a different direction than those of their foreign counterparts.

Canadian P&C insurers reported a profit of $729.6 million in 2010 Q1, a marked improvement over the $136.7-million profit they made during the trough of the market recession in 2009 Q1.

Foreign P&C insurers, on the other hand, made even less money ($106.2 million) in 2010 Q1 than they did at the height of the global recession in 2009 Q1 ($262.9 million).

One explanatory factor may be that Canada’s foreign P&C insurers are now officially losing twice as much as they are making in the automobile personal accident lines.

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Canadian Underwriter July 2010

Foreign insurers reported a claims ratio (claims costs divided by premium earned) of 216.5% in 2010 Q1, a 60point bulge over the same period last year.

Canadian P&C insurers, in contrast, reported a claims ratio of 119.79% in the automobile personal accident category in 2010 Q1.

ALBERTA’S ACTUARY CALLS FOR ZERO INDUSTRY-WIDE RATE ADJUSTMENT Preliminary industry-wide auto rate adjustment indications for Alberta in 2010 hover around 0%, according to the province’s actuary, Oliver Wyman.

The actuarial company estimates the required average auto premium to be $564 on the low frequency forecasts, $578 in the mid range (roughly the same as last year) or $592 on the high range.

The 2010 industry-wide adjustment (IWA) estimated street premium — the estimated average premium currently paid by consumers — is $583, compared to $610 last year.

“When we combine our estimate of the required average premium with our estimate of the street premium, we have three (3) preliminary IWA indications all hovering around zero percent,” Ted Zubulake, managing director at Oliver Wyman, said during a presentation to the Alberta Automobile Insurance Rate Board.

Underlying Oliver Wyman’s analysis is the assumption that no changes to the cap

will be made by the Alberta government as a result of the reviews that are thought to be undertaken this year with respect to the cap.

Risk Management CHANCE OF ‘THE BIG ONE’ HITTING B.C. OVER NEXT 50 YEARS IS 10-15% There is a 10-15% of a mega-earthquake hitting the northern segment of the Cascadia Subduction Zone at some point during the next 50 years, according to research from Oregon State University.

The northern segment of the Cascadia Subduction Zone covers an area from Vancouver Island, B.C. to Seaside, Oregon.

“The largest earthquakes occur in the north and usually rupture the entire fault,” said Chris Goldfinger, a marine geologist at Oregon State University. “These are quakes of about Magnitude 9, and they are just huge. But they don’t happen as frequently.”

Claims MODERATE EARTHQUAKE ROCKS OTTAWA-QUEBEC BORDER AREA A magnitude-5.0 earthquake struck the Ontario-Quebec border area, 60 kilometers north of Ottawa, at 1:42 p.m. on June 23, according to the United States Geological Survey (USGS).

Within minutes of the shaking, Twitter users reported they had felt the tremors in Ottawa, Montreal, Toronto and Kitchener. Reports of tremors extended into U.S. cities including Chicago, Cleveland, Rochester, Vermont and New York City.

Natural Resources Canada confirmed the earthquake on its Web site: “June 23, 1:45 pm Eastern Time — A moderate earthquake has occurred in the Ottawa-Montreal region.”

USGS reported earthquakes in this zone are typically small.

As of press time, the Insurance Bureau of Canada had received no reports of damage, although it was too early for the numbers to be calculated.

FLOODING IN ALBERTA AND SASKATCHEWAN SHUTS DOWN HIGHWAY States of emergency were declared following heavy rains that led to floods in Southern Alberta and Saskatchewan, forcing the evacuation of hundreds of homes and causing a sinkhole on the TransCanada Highway.

As much as 150 millimetres of rain fell in several regions of the Prairies over the weekend of June 19, extending into the early week, ctv.ca reported. The system moved further into Alberta, flooding areas around Medicine Hat and Lethbridge.

On the morning of June 20, about five kilometres of the Trans-Canada Highway at the Alberta-Saskatchewan border were closed due to flooding. A culvert along the stretch of high-

MARKETPLACE

way collapsed, causing a giant sinkhole just outside of Maple Creek, Sask., reported cbc.ca.

Alberta Environment Minister Rob Renner said that because the floods were not the type in which the water rises slowly, but rather flash floods, sandbagging efforts would do little to nothing to protect properties.

F1 TORNADO IN LEAMINGTON, ONTARIO CAUSES $85 MILLION IN DAMAGES A June tornado in Leamington, Ontario generated 4,750 home, commercial and auto claims totalling an estimated $85 million, a preliminary report finds.

The majority of the claims were for homes, the Insurance Bureau of Canada says, based on data from PCS Canada.

The F1 tornado touched down in Essex County, along the shore of Lake Erie, southwest of Leamington around 3 a.m. on June 6.

consumer with the lowest rate that is available having regard to all of the circumstances, including the means of distribution.”

According to FSCO’s bulletin: “Some insurer groups have two or more affiliated insurers that have been

used to segment business, commonly into a ‘standard’ market and a ‘preferred’ market.

“The distinction between these insurers is not always clear in the insurers’ filed declination rules or risk classification systems.”

The new UDAP regulation will require all affiliated insurers and associated agents/brokers to provide a rate on renewal for all of the affiliates for which the consumer qualifies, taking into account all methods of distribution.

Cunningham Lindsey offers expert claims handling for the most complex and specialized losses. To access our team of experts, write to us at corpservices@cl-na.com for a copy of our new Specialty Services Directory.

Regulation ONTARIO REGULATES FAIR PRICING AMONG INSURER AFFILIATES The Financial Services Commission of Ontario (FSCO) has amended its Unfair or Deceptive Acts or Practices (UDAP) regulation to ensure fair pricing among insurance company affiliates and their distribution channels.

The UDAP now requires “affiliated insurers and their agents/brokers to provide a

www.cunninghamlindsey.com

July 2010 Canadian Underwriter

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PROFILE

Stepping into the Spotlight Vanessa Mariga Associate Editor

Mary Charman, the incoming president of the Canadian Independent Adjusters’ Association (CIAA), looks forward to building on the momentum the association has established over the past year.

Within 48 hours, incoming Canadian Independent Adjusters’ Association (CIAA) president Mary Charman went from high school student to becoming an insurance professional.

Charman, the manager of Crawford & Company (Canada)’s Newmarket and Barrie branches, grew up in the northern Ontario town of Sudbury. Her older sister worked as an underwriter at a local insurer; through this connection, Charman spent her high school summer vacations working in the insurer’s office.

When Charman was 17 years old, management asked her when she would be graduating.

She told them that coming Friday.

“They told me: ‘That’s great. If

10 Canadian Underwriter July 2010

you like, you can start full-time here on Monday,” Charman says with a chuckle. “I quite literally had a weekend vacation between high school and my career.”

Charman started off as a claims assistant. Since then, she has not strayed from the claims sector over the course of her 31 years in the industry.

“Every day is a new day with new challenges,” she says. “Because I am multi-lined, and I don’t focus on any one area of claims — which a lot of people do these days — I’ve managed to see quite a variety of claims.”

Her time has been divided between working on the insurer side and working for independent adjusting firms. At the end of the day, whether you’re on the company side or the independent side, the end goal of the job is to provide a great level of service to the insured, she says. That having been said, representing a multitude of different companies can pose challenges to the independent adjuster.

“The most challenging part of being an independent adjuster is that you are trying to soak in each individual insurers’ business model and best practices,” she says. “You really need to know the subtleties of each businesses’ processes. That’s the real difference between working for an insurer and an independent firm — knowing each in-

surer’s philosophy when it comes to claims handling. But, at the end of the day, it’s always about service.”

She suggests every adjuster should spend some time working on the company side to gain a better understanding of the ins and outs of how insurers run, as well as the importance of good communication between the insurer and the independent adjuster.

“Sometimes a claim may appear to be only $5,000 at the outset but, as you delve into it, it grows to $10,000,” she says.

The CIAA has developed a fouryear plan, intended to help raise the association’s profile.

Implementation of its first initiatives will be on Charman’s watch.

“An [independent] adjuster may not appreciate just how big of an impact this might have on an insurer that has only reserved $5,000 for the claim. It’s not just the one claim that has doubled in size with which the adjuster is dealing — it could be 20 or 30. And then that insurer has a problem. That’s why it’s so key to keep communicating

with the insurers and keep them informed of any growing costs or expenses.”

Combing through her 30 years of experience, Charman says the biggest change she’s seen has been in the realm of accident benefits. Ontario’s auto insurance package has evolved considerably (and continues to evolve), challenging adjusters to keep up with the ever-increasing complexity of the package.

The trade-off is well worth it though, Charman says.

“For people with injuries, improvements to the accident benefits package over the years have brought them some comfort,” she explains. “In the old days, there wasn’t a lot available to them as far as treatment. When an insured has a serious injury, our job is to help. Today, the policy allows us to do just that, whereas 20 years ago it didn’t.

That’s been one of the biggest changes I’ve seen.”

Charman is preparing now for another major shift. In August 2010, at the CIAA’s annual conference in British Columbia, she will assume the role of association president. Over the past year, the CIAA has undergone what she calls a “deep-dive” review of its role and functions both within the insurance industry at large and to its own members.

A four-year plan has been developed. The association’s exec-

PROFILE

utive hopes it will help to raise the association’s profile, and the implementation of the first initiatives under the plan will be on Charman’s watch.

One of the first steps will be the revamping of CIAA designations. Currently these designations include the CLA (Chartered Loss Adjuster) and FCIAA (Fellow of the Canadian Independent Adjusters’ Association).

The CLA will be divided into two separate designations — the CLA and FCLA. Potential CLA requirements may soon require

the holder of the designation to be a member of the CIAA. Currently, if the adjuster discontinues his/her membership, he or she can still keep the designation. Another requirement would be to complete additional education modules.

The FCIAA may indicate a specialty designation, like surety bonds or transportation.

“So when an insurer looks at a CIAA member and sees that he or she has the designation, the insurer can feel comfortable that he or she has gone through a

process to accredit their expertise. It’s a means of showcasing members’ expertise.”

Ultimately, Charman says, “our goal is to raise the profile of the CIAA, so that insurers look at us and say they want to use CIAA members because they are professional members of our industry.”

CIAA participation in the 2010 National Insurance Conference of Canada (NICC) should help raise the association’s profile in the industry, Charman says. Last year, Patti

Kernaghan, the current CIAA president, was invited to sit on the NICC’s organizing committee. Moving forward, each year the association will lend its president to sit at the NICC organizing committee’s table. Being invited to participate in events of this calibre is exciting and represents a huge step forward for the CIAA, Charman says. “The NICC typically focused on the underwriting and actuarial side of the business, but this year a claims aspect will be introduced. It’s exciting for CIAA to be invited to be a part of it. It’s a huge part of raising the profile of the association.”

None of these initiatives and efforts would be possible without the association’s volunteers, she stresses. “It’s so important the principals of the independent adjusting firms recognize the benefits and value of belonging to the only organization solely representing the collective interests of the independent adjuster in Canada and that they encourage their adjusters to get involved,” she says.

“I get a lot of support from my employer, I think that’s really key, because if my employer doesn’t support me, then the association doesn’t have volunteers,” Charman continues. “And if it doesn’t have volunteers, then it doesn’t exist.”

July 2010 Canadian Underwriter

11

Reinsurance

Reform

J. Brian Reeve Partner, Cassels Brock & Blackwell LLP

OSFI’s recommended reinsurance reforms would eliminate percentage limits on the use of unregistered and registered reinsurance, but will these reforms change much in Canada’s current reinsurance marketplace?

The Office of the Superintendent of Financial Institutions (OSFI) in March 2009 issued its Response Paper: Reforming OSFI’s Regulatory and Supervisory Regime for Reinsurance. The response paper reflects the results of a lengthy review by OSFI of how reinsurance is regulated in Canada and is based on a significant amount of consultation with both insurers and reinsurers. It follows on an OSFI discussion paper in December 2008, in which the solvency regulator requested the views of the insurance industry on a number of key issues regarding the regulation of reinsurance in Canada.

The changes announced in the response paper are important and will have a significant effect on both insurers and reinsurers writing Canadian

12 Canadian Underwriter July 2010

business in the future.The changes will likely be in effect by the end of 2010. Until such implementation, the current OSFI rules will remain in effect.

OSFI’S REFORMS Elimination of the 25% unregistered reinsurance limit Under the current reinsurance regulations, a federally regulated property and casualty insurer — either a company or a Canadian branch — cannot be reinsured by unregistered reinsurers against more than 25 % of its risks insured in any given year (the so-called “25% limit”). As a result, the 25% limit provides a significant limitation on the use of unregistered reinsurance. In addition, an unregistered reinsurer trust account must be established as security in order for a Canadian cedant to be able to take credit for the unregistered reinsurance.

OSFI originally introduced the 25% limit in the early 1990s. The move was in response to concerns about the ability to collect unregistered reinsurance during certain insolvencies of property and casualty insurers that had occurred in the 1980s. The 25% limit reflects OSFI’s view that

there may be significant counterparty risk as a result of the use of unregistered reinsurance.

Historically, the 25% limit has caused problems for some insurers that inadvertently exceeded the limit in certain years due to unexpected increases in cessions under related party reinsurance or under fronting or pooling arrangements.

OSFI recognized the somewhat arbitrary nature of the 25% limit when it recently announced that some flexibility in the limit would be allowed in 2010 as a result of the implementation of the Part XIII changes to the Insurance Companies Act. OSFI also recognized the 25% limit tended to focus insurers on the total amount of unregistered reinsurance that they were using rather than the quality or collectability of it.

will also require an insurer to conduct some level of due diligence when assessing the ability of its reinsurers (particularly unregistered reinsurers) to meet their claims obligations.

The new Guideline B-3 will also stipulate that reinsurance agreements must be in writing and provide clarity and certainty regarding the coverage provided. Reinsurance contracts must be

legally binding, governed by Canadian laws and not adversely affect the cedent (for example, any insolvency clause must meet OSFI’s requirements).

Finally, new guidance will be provided regarding capital credit available to ceding insurers. A capital credit will not be provided by OSFI to a ceding insurer unless it meets the requirements set out in the new Guideline B-3.

CANADA’S LEADING SPECIALTY INSURER

Elimination of the 75% registered reinsurance limit Under the reinsurance regulations, a property and casualty insurer cannot be reinsured by registered reinsurers against more than 75% of its risks insured in any given year (the “75% limit”).

The 75% limit has never been a significant issue for Canadian insurers. Most insurers want to retain a reasonable net retention with respect to the business they write. The 75% limit reflected OSFI’s view that an insurer must act as a real risk-taker for at least a portion of the business it writes.

More corporate governance OSFI plans to issue a revised Guideline B-3 by the end of 2010. OSFI will then repeal the 25% limit and the 75% limit.

Guideline B-3 will apply to all Canadian insurers and will provide OSFI’s expectations for risk management practices and procedures regarding the use of reinsurance. OSFI will require that insurers integrate their reinsurance program into their broader enterprise-wide risk management practices and procedures. The board of directors of an insurer will be required to review and approve an overall reinsurance strategy, processes and procedures, as well as all material reinsurance contracts. OSFI

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Use of letters of credit Currently, there is no capital requirement for unregistered reinsurer default risk in the Minimum Capital Test (MCT).

Effective Jan. 1, 2011, however, a 0.5% capital charge will be implemented for letters of credit used as security for unregistered reinsurance. Until recently, the use of letters of credit as collateral was limited to 15% of the risks ceded to unregistered reinsurers. This limit was recently increased to 30% in the revisions to the MCT test announced by OSFI in March 2010.

IMPLICATIONS FOR INSURERS AND REINSURERS The elimination of the 25% limit is likely to result in a significant increase in the use of unregistered reinsurance. OSFI has indicated it will be closely monitoring the effects of such changes on the overall risk profile of insurers as a result of the increase in counterparty risk. OSFI will use its discretion to address situations deemed prudentially unsound. It is important to note that the OSFI collateral requirements will still be in effect in order for a Canadian cedant to be able to take credit for the unregistered reinsurance.

It is also likely that fewer foreign reinsurers will now decide to become registered in Canada. It will be easier for an unregistered reinsurer simply to establish an unregistered reinsurer trust account in Canada for each of its cedants rather than establish a Canadian branch.

With the elimination of the 75% limit on registered reinsurance, insurers can now eliminate complicated and costly reinsurance arrangements between related companies. The elimination of the 75% limit will also greatly facilitate pooling arrangements that typically require participant insurers to cede 100% of their business into the pool and to then reinsure back a portion of the total risks of the pool.

It is possible that more foreign insurers will attempt to rely on fronting arrangements rather than becoming directly licensed in Canada as a result of the elimination of the 75% limit. How-

14 Canadian Underwriter July 2010

ever, it is likely that fronting will continue to be expensive and will only be used on a temporary basis by most unlicensed insurers that wish to write Canadian business.

The linking of a capital credit with the quality and type of reinsurance obtained will likely result in insurers being required to undertake more due diligence so that they can be certain that their reinsurance arrangements comply with the requirements of the new Guideline B-3.

Various tax and transfer pricing issues may result from the new changes. For example, it may become very attractive for a Canadian insurer to cede most of its business to an unlicensed related party reinsurer in Bermuda that is not subject to income tax.

The 25% limit and the 75% limit are

The response paper reflects a shift in OSFI’s approach to regulating reinsurance from a rules-based approach — the 25% and the 75% limit — to a more risk-based framework. not currently applicable to Canadian registered reinsurers. As a result, the changes in the response paper will have no effect on their current retrocessional practices.

One of the advantages of the 25% limit and the 75% limit is that they provided certainty for insurers regarding what amount of reinsurance was permitted. In the future, OSFI may be more able to question whether a reinsurance arrangement is prudent and appropriate for a ceding insurer. The new Guideline B-3 will require an insurer to provide more disclosure and transparency to OSFI with respect to its reinsurance arrangements.

SUMMARY OSFI acknowledged in its response paper that international approaches to regulatory reinsurance vary widely and that in some jurisdictions there is no regulation of reinsurance at all.Two key issues facing OSFI were the current collateral re-

quirements for unregistered reinsurers and the 25% limit.

The response paper reflects a shift in OSFI’s approach to regulating reinsurance from a rules-based approach — the 25% limit and the 75% limit — to a more risk-based framework. OSFI will allow greater flexibility in how reinsurance is used, but it will also require better risk management and disclosure of reinsurance arrangements. OSFI will also provide more supervisory review of reinsurance arrangements.

Many Canadian insurers will be pleased with the changes, since they allow for more flexibility in ceding business to unregistered insurers.The greatest use of this additional flexibility is likely to come by ceding more business to related party reinsurers that are not registered in Canada. Reinsurers currently registered in Canada will be less enthusiastic about the changes since they may result in more competition from unregistered reinsurers.

The fact that there was no reduction of the collateral requirements for unlicensed reinsurance in the response paper is not surprising given the current global economic environment. The concept of mutual recognition of foreign insurance regulators makes sense for a global industry, but is likely to be deferred for a number of years before it is seriously considered. However, the decision to eliminate the 25% limit as well as the 75% limit was a surprise. Many members of the insurance industry had predicted the 25% limit would be relaxed (but not eliminated) and that the 75% limit would remain unchanged.

It appears OSFI has attempted to balance conflicting views in the Canadian insurance industry about how reinsurance should be regulated. For now, OSFI has clearly rejected the concepts of mutual recognition and the elimination of collateral requirements in Canada. However, greater use of both registered and unregistered reinsurance will be permitted, provided it is done in a prudent manner with a greater emphasis on the quality and collectability of the reinsurance involved.

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High Finance David Gambrill Editor

Sharon Ludlow, the new CEO of Swiss Re’s Canadian operations, sees an opportunity for cat bonds in Canada, but only in the event of M&A activity among the industry’s major players.

In a Canadian reinsurance market generally described as non-eventful, Sharon Ludlow’s appointment in June 2010 as CEO of Swiss Re’s Canadian and English Caribbean operations has injected some new life into the party.

The word ‘life’ above is used advisedly. In addition to her experience in finance and property and casualty insurance, Ludlow brings to Swiss Re an extensive professional background in life insurance. In fact, when Ludlow joined Swiss Re in 2005, she saw the move as an opportunity to weave together her experiences in both the life and property and casualty sectors.

“The reason I joined Swiss Re — there were lots of good reasons — is that by then I had a

16 Canadian Underwriter July 2010

background in primary P&C insurance and primary life insurance, and this was both life and P&C reinsurance,” she said. “I viewed it as kind of a triangle, with reinsurance being the centre point at the top that brought the foundation of life and P&C together.”

Point taken. But it could be argued that finance is in fact an adhesive that binds together all of her professional experiences in reinsurance, life and P&C insurance. In fact, her career in insurance spawned from her career in finance with Deloitte.

From Deloitte, Ludlow joined a life insurance client, Prudential, to implement Canadian GAAP accounting. She later participated in the sale of Prudential to London Life.

From here, she moved to Canada Life Financial, where she led the demutualization and initial public offering (IPO) of the company. After the company went public, she launched an independent subsidiary company, Kanetix, an online site for insurance and mortgage purchases.

Knowing that the Canada Life group was about to be acquired, she joined Liberty International Underwriters in 2001. As the company’s chief financial officer for four years, she played a part

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in two major divestitures at the company, Liberty Health and Liberty Mutual Personal. This took her to joining Swiss Re in 2005.

Ludlow is proof of her statement that chief financial officers are much more active in their executive roles than executive bean-counters. They are integral and dynamic figures in developing the company’s financial strategies.

“For me, in the five years that I’ve had the opportunity to shape the CFO role at Swiss Re in Canada, the finance function and the CFO is a partner to the business,” she says. “It’s not simply checking the numbers with a rearview look, it’s part of the business. So much of our business today is driven by regulatory and other capital considerations and financial considerations. I found that almost all of our interesting transactions over the past five years have had CFOs or financial people from our client companies at the table.”

Ludlow’s financial background is a natural fit for Swiss Re, considering the reinsurer’s work in coming up with innovative ways to transfer risk to the capital markets. These would include, for example, Swiss Re’s ventures in the areas of mortality bonds, catastrophe bonds, insurance-linked securities (ILS) and industry loss warranties (ILW).

“I find reinsurance really takes an intense amount of thought and consideration as to where you should pool your capital and your risk, where you should accept the risks geographically and how do you share that using the capital markets,” she said, listing the areas in which Swiss Re has sought to transfer risk to the capital markets. “These are examples demonstrating use of the capital markets to continue sharing the risk and diversifying risk among the stakeholders. To me, that’s the interesting part of it.”

On the face of it, the Canadian reinsurance market doesn’t seem to be an ideal location to create similar sorts of risk transfers such as catastrophe bonds, she observes. She notes that, to a different degree than primary insurers, reinsurers are able to leverage climatology research

18 Canadian Underwriter July 2010

The step further, although we haven’t completed it yet in Canada — none of the reinsurers have — is whether or not the risk and the appetite in the Canadian market is big enough to share risk into the capital market. There, we are talking about a cat bond. to assess risk concentrations — she uses flood risk as an example — of insurers throughout the country. “The step further, although we haven’t completed it yet in Canada — none of the reinsurers have — is whether or not the risk and the appetite in the Canadian market is big enough to share risk into the capital market,” she says. “There, we are talking about a catastrophe bond.”

But although Canadian reinsurers may not be ready to launch the country’s first cat bond yet, they may be soon, Ludlow

believes. She believes one of the triggers could be the actual occurrence of all of the significant mergers and acquisitions (M&A) activity that is always rumoured, but never seems to happen.

“We will see some M&A” in Canada, she predicts. “The timing is uncertain, but we will see it. In my mind, it’s the bigger of the primary players that will complete the M&A. As primary insurance companies get bigger, the risk that they have more concentration in a given geographic area will becomes greater as they acquire another book of business or a company that also operates in that jurisdiction.” This greater concentration of risk in certain areas will, in turn, have primary insurers thinking about using reinsurance.

Also, primary insurers in Canada are already somewhat primed to think about purchasing reinsurance in light of RMS introducing its new B.C. earthquake model last year. The new model ultimately caused Canadian primary insurance companies to look for additional capital in anticipation of an increased risk of damage than previously modelled.

A dove-tailing of these trends could reach a tipping point that would lead to reinsurers being able to transfer these risks to the capital markets, Ludlow says.

“I think we’re not at that point yet,” she says. “Certainly last year, with the release of the new RMS model, that caused companies to look at their B.C. quake exposure a little differently. It caused their boards and their risk committees to encourage management to ensure they have sufficient reinsurance.

So that, by and large, increased the reinsurance purchasing by Canadian companies. But it didn’t hit a trigger yet — for example, that Company A has so much [risk concentrated in a single area] that they might consider a cat bond. But having gone through this review of B.C. quake, if you had M&A, and if the largest Canadian primary company were to acquire Number 2, that’s going to make a very different size in their portfolio, and so there may be a trigger there.”

Deep Impact Vanessa Mariga Associate Editor

The oil slick created by the sinking of the Deepwater Horizon rig in the Gulf of Mexico has muddied the global insurance markets.

When the Deepwater Horizon explosion occurred in the Gulf of Mexico on April 20, ripple effects were felt as far away as the North Atlantic.

As of press time, experts are continuing their efforts to contain the still-gushing wellhead; as they do, reinsurers and risk managers in the oil and gas sector are bracing for the potential market impact of the catastrophe.

The exact cause of the explosion remains unknown. It will likely be years before the full environmental impact is realized, let alone the outcome of liability claims that are already starting to flow in. But, in the immediate future, insurance industry experts are predicting a hardening of the market in this sector. Phrases such as higher premiums, lower sub-limits and potentially less capacity are all being bandied about. The event has also caused Canadian regulators to tighten up their oversight of similar operations off the shores of Newfoundland and Labrador.

20 Canadian Underwriter July 2010

THE LOSS TALLY Property loss for the Deepwater Horizon event is essentially limited to the value of the rig, $560 million, and has reportedly been paid out. BP, the majority owner of the rig, is self-insured with its captive Jupiter Insurance Ltd. Jupiter has $6 billion in capital, does not have any outside reinsurance contracts and its per-occurrence limit on physical damage and business interruption is $700 million.This limit is not expected to cover environmental clean-up costs or third-party liability, Robert Hartwig, president of the Insurance Information Institute, told U.S. Congress on June 9.

Roughly 20 insurers have announced losses associated with the incident, Hartwig reported.

More are likely to do so in the coming months.

Despite BP being primarily self-insured, energy underwriters around the world have exposures via either excess placements or insurance on the non-operators (investors), drilling contractors and/or blowout-prevention manufacturers, said Richard Kerr, CEO of MarketScout.

The estimated total cost of cleaning up the spill has inched upwards of $60 billion. In late June, Associated Press reported BP has been incurring clean-up costs of roughly $100 million a day since the incident, for a total of $2.6 billion to date.The oil company received more than 80,000

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claims for compensation, and has paid out roughly 41,000 of those, for a total of $128 million, AP reported.

Total insured losses absorbed by the insurance industry at large will likely range between $1.4 billion and $3.5 billion, Hartwig said. “The wide range in loss estimates is primarily attributable to uncertainty surrounding the magnitude of business interruption losses if significant quantities of oil wash ashore.”

In a report, Deepwater Horizon Losses Sting Insurers and Reinsurers as Hurricane Season Looms, Moody Investors Service notes claims are likely to come from a number of lines including marine hull, marine liability, general liability, environmental/pollution liability, control of well, business interruption, D&O liability and workers’ compensation. Business interruption claims represent the largest unknown for insurers, and pollution damage along the coastline could push industry insured losses toward the upper end of the estimate, said James Eck, vice president and senior credit officer at Moody’s.

THE RESPONSE OF THE MARKET “The tragedy of the Deepwater Horizon loss — potentially the largest in the history of the upstream market — has come as a major shock that has fundamentally altered the existing market environment,” said Alistair Rivers, CEO of Willis Energy, in the Willis Energy Market Review.

As a result of the Gulf of Mexico oil spill, the market has “clearly hardened” for offshore property risks, Willis reported.

George F. Hutchings, senior vice president and chief operating officer at OIL Insurance Ltd., told Canadian Underwriter that while his organization is not involved in any of the Deepwater risks, he has heard reports from peers within the commercial insurance market that premiums have already seen sharp increases for offshore exploration and production risks, specifically in the Gulf of Mexico.

“The feedback I have gotten from [the mutual members of OIL Insurance], and it’s difficult to evaluate one company against another, but we’re looking at in-

creases anywhere from 15 to 35% for property damage, control of well and all of the typical types of coverages these offshore E&P facilities demand from the insurance market,” he said.

Willis also suggested that for marine liability risks such as offshore seepage, pollution and contamination insurance, likely there would be a wholesale revision of the way in which this class of business is underwritten in the future.

Where pollution liability is concerned, Hutchings suggested the incident will constrain capacity moving forward.

“There is a finite amount of liability insurance out there, and any one company is going to be unable to secure much more than a billion dollars worth of liability limits,” he said. “It wouldn’t surprise me if that comes down a bit when you add up all of the capacity out there. It might be that if a commercial market insurer is offering $75 million, maybe the maximum it will offer going forward is $50 million.”

Sub-limits will likely play a larger role

moving forward, he continued. “From a property damage point of view, you might get $100 million of coverage,” he said. “But a control-of-well piece of that may have a sub-limit of $50 million within that $100 million of coverage.”

EWI Risk Services suggests the Deepwater Horizon incident will see the ‘frills’ typically offered in the offshore D&O lines eliminated immediately.

BP is based in the United Kingdom, and so it is subject to the 2006 British Companies Act. The act requires corporate boards to ensure that their companies act with due regard for “the impact of the company’s operations on the community and the environment.”

“Taken collectively, and in light of the cross-jurisdictional issues at hand, specific exclusion carve-outs and coverage grants now available in this ‘soft’ D&O market (relative to representations, severability, pollution, bodily injury, etc.) are likely to be re-examined by carriers and reinsurers in the months ahead,” EWI says.

RIPPLE EFFECTS “The Gulf of Mexico incident is a reminder that accidents can happen,” said Max Ruelokke, chair and CEO of the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB).

Ruelokke made a statement to the House of Commons Standing Committee on Natural Resources on May 25 about the impact of the Deepwater Horizon event on Canadian offshore operations.

Since the exact cause of the Deepwater Horizon explosion is not yet known, risk managers in the E&P sector are not yet able to adapt their own risk management procedures.

Graham White, a team leader in external relations for Husky Energy, says his company will continue to follow the case as it unfolds “and work with our industry partners so lessons can be learned and such incidents can be prevented in the future,” he said.

Ruelokke told the House of Commons the incident has triggered a heightened regulatory oversight, par-

ticularly with Chevron Canada Limited’s Lona O-55 well, which is currently in development about 427 kilometres northeast of Saint John’s at a water depth of roughly 2,600 metres (Deepwater Horizon was at a depth of 1,500 metres).

“Detailed modelling of the potential fate of a spill at these locations, using 40 years of weather data, indicates that even if a large spill were to occur, it would be unlikely that oil would approach the Newfoundland and Labrador shoreline,” Ruelokke said.

“Thus, scenes like we see on the coast of Louisiana would not occur here.”

Nonetheless, Ruelokke continued, the Deepwater Horizon incident spurred CNLOPB to conduct a review of its regulatory practices.

Also, as of press time, the chairman of the National Energy Board made remarks to a Senate committee hearing suggesting the board was looking at requiring oil companies to drill a secondary relief well as part of any deepwater Arctic exploration project.

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Reinsurance Governance OSFI spells out its new expectations related to reinsurance governance and risk management.

Robert McDowell

Financial Institutions and Services Group, Fasken Martineau Dumoulin LLP.

Koker Christensen Financial Institutions and Services Group, Fasken Martineau Dumoulin LLP.

In its recently released Response Paper:Reforming OSFI’s Regulatory and Supervisory Regime for Reinsurance, Canada’s Office of the Superintendent of Financial Institutions (OSFI) outlines proposed changes to its approach to reinsurance regulation and supervision.These proposed changes represent a significant increase in the standard of governance and risk management OSFI expects from cedants.The proposed changes will require insurers to take a hard look at — and in many cases, make significant changes to — their reinsurance practices.

The response paper is the culmination of a policy review by OSFI that included the release of the Discussion Paper on OSFI’s Regulatory and Supervisory Approach to Reinsurance in December 2008 and responses to it. OSFI’s policy review has taken place in the context of similar reviews in other countries, including the United States and Australia, and initiatives by the International Association of Insurance Supervisors to develop international standards.

24 Canadian Underwriter July 2010

OVERVIEW OF THE RESPONSE PAPER The major themes of the response paper are 1. the move from a rules-based approach to a principles-based approach; 2. the need for enhanced governance in relation to reinsurance practices; and 3. ensuring regulatory “neutrality” between registered and unregistered reinsurance.

THE 25% LIMIT ON UNREGISTERED REINSURANCE Under existing regulations, a federally regulated property and casualty insurer cannot cause itself to be reinsured by unregistered reinsurers against more than 25% of its risks. Many see this as favouring registered reinsurance over unregistered reinsurance. The response paper notes this limit does not provide an incentive for ceding companies to scrutinize relevant risks (including credit risk) and that this limit does not necessarily prevent companies from gaining exposure to additional unregistered reinsurance (e.g., retrocession by the reinsurer to an unregistered reinsurer that is a captive of the direct insurer).

OSFI will recommend that the 25% limit be repealed once the following measures are in place: • Guideline B-3 is expanded and reinstituted so

Illustration by Stephane Denis/www.threeinabox.com

Response Paper: Reforming OSFI’s Regulatory and Supervisory Regime for Reinsurance

that, among other things, insurers are required to consider the likelihood of recoverability of reinsurance claims from both registered and unregistered reinsurance; and • insurers are required, upon request, to report to OSFI a description of all of their reinsurance arrangements, including the levels of reinsurance and the proportion of registered and unregistered reinsurance.

2010), and Draft Guideline B-13 (Reinsurance Agreements).

OSFI is clearly of the view that reinsurance governance at some companies does not measure up to OSFI’s expectations. The response paper says ample evidence exists that boards of directors are not always involved in establishing a company’s reinsurance program; in some cases, boards do not review material reinsurance agreements.

THE 75% FRONTING LIMIT Under existing regulations, a property and casualty insurer cannot cede more than 75% of all of its risks in a given year. The response paper draws a distinction between “fronting” and ceding risks. The 75% limit does not distinguish between fronting arrangements, which are a concern to OSFI, and situations in which the insurer has valid reasons to cede risks. The response paper states the 75% limit does not provide an incentive for ceding companies to scrutinize the risk associated with underwriting business. In addition, the 75% limit can be bypassed using other risk transfer methods.

OSFI will recommend repealing the 75% limit once the following measures are in place: • Guideline B-3 is expanded and reinstituted to, among other things, set out OSFI’s expectations with respect to insurance fronting/ceding arrangements and applying underwriting standards to federally regulated ceding companies; • insurance companies are required to disclose all fronting/ceding arrangements to OSFI if requested; and • a minimum operational risk capital requirement is imposed on the property and casualty sector in the Minimum Capital Test (MCT) that is parallel to the requirement imposed on the life sector through the Minimum Continuing Capital and Surplus Requirements (MCCSR).

REINSURANCE GOVERNANCE OSFI’s governance framework for reinsurance currently includes the Guideline on Corporate Governance, Guideline B-3 (Unregistered Reinsurance) (which OSFI regards as inadequate and revoked effective Jan. 1,

cording to the response paper, the new Guideline B-3 will provide the following:

The Guideline on Corporate Governance applies to all insurance companies with respect to effective risk management practices and procedures (including underwriting).

The response paper notes in the context of internal controls that “pure fronting” is not acceptable. Concerns have been raised that this is overly prescriptive and it is not clear what OSFI considers pure fronting to be.

Ceding companies should have a sound and comprehensive reinsurance risk management strategy and processes.

The board should review and approve the company’s overall reinsurance strategy, processes and material reinsurance contracts.These are significant expectations to place on the board; they might go beyond the practices of many companies.

OSFI has already articulated general governance and risk expectations, but OSFI’s view is that existing guidance does not address issues unique to reinsurance.

Enhanced guidance in this area is required, according to OSFI. Thus, OSFI will enact additional guidance by expanding and reinstituting Guideline B-3 (which, as noted above, will be renamed Guideline on Sound Reinsurance Practices and Procedures).

Some have asked whether additional guidance in this area is necessary, since OSFI has already articulated general governance and risk management expectations. OSFI’s view is that existing guidance does not address issues unique to reinsurance.

OSFI has indicated the new guideline will be principles-based; an overly detailed document is not expected. Ac-

Ceding companies should perform an adequate level of due diligence on their reinsurance partners.

As part of this, a ceding company should thoroughly evaluate the financial ability of reinsurers to meet claims obligations.

Given the fate of highly-rated securities during the recent subprime mortgage crisis, it is not surprising that OSFI states ceding companies should not rely solely on rating agency assessments.

The response paper says cedants should consider the reinsurer’s retrocession arrangements, as well as how those arrangements might indirectly affect the ceding company’s agreement with the reinsurer. It has been observed that singling out retrocession arrangements is rather prescriptive. Also, it is debatable whether or not this is workable: it will be difficult for ceding companies to obtain the information necessary to asses a reinsurer’s retrocession arrangements; in any case, these arrangements are subject to ongoing change.

The response paper also states ceding companies need to carefully examine counterparty risk when dealing with unregistered reinsurers.

July 2010 Canadian Underwriter

25

There should be clarity and certainty in insurance coverage under the terms of the reinsurance agreement.

The response paper sends the message that OSFI is not satisfied with the degree to which companies have clear and legally binding agreements. To address this, companies will need to change the long-standing practice of taking a significant time to reduce reinsurance agreements to writing.

Policyholders (i.e., ceding companies) should not be adversely affected by the terms of a reinsurance agreement.

A reinsurance agreement should contain an insolvency clause that meets OSFI’s expectations. Such a clause would specify that a reinsurer must continue to make full payments to an insolvent insurer without reduction resulting from the ceding company’s insolvency.

In addition, although OSFI may provide guidance in the future on whether a reinsurance agreement should contain “offset,” “cut-through” or other provisions that could effectively give certain creditors preferential treatment over policyholders, it remains the ceding company’s responsibility to ensure that such clauses are understood and prudent.The point has been made that while cutthrough clauses are in essence a way for certain creditors to “jump the queue,” offset clauses play a legitimate function by protecting reinsurers in the event of the insolvency of a ceding company.

The response paper also says arrangements under reinsurance contracts should not raise legal questions regarding the availability of funds — for example, “funds withheld” arrangements — in the event of reinsurer insolvency. Reinsurance agreements should be subject to Canadian laws and disputes should be heard in a Canadian court.

The response paper states the availability of a capital credit to a ceding company will be contingent on the ceding company meeting the expectations set out in the new Guideline B-3.That is to say, the terms of the reinsurance agreement must be clear and legally binding and the agreement must not in any way 26 Canadian Underwriter July 2010

adversely affect the policyholder (e.g., the agreement must contain an insolvency clause). There is reason to think OSFI may take a broad approach to this new regulatory tool. In recent remarks to the Canadian Reinsurance Conference, OSFI superintendent Julie Dickson said: “To the extent that insurers do not meet OSFI’s minimum expectations on sound reinsurance practices and procedures,

capital credit for reinsurance arrangements may not be granted.”

Companies entering into reinsurance arrangements may be asked to provide an attestation to OSFI that the arrangements meet the criteria in Guideline B-3.

have been considered. Among them are: • moving to a more sophisticated risk-based collateral regime; and • replacing the current approach with a mutual recognition regime.This would place reliance on the regulation and supervision of a reinsurer’s home jurisdiction and not require collateral in Canada.

According to the response paper, responses to the discussion paper indicate broad support for a move towards a system of risk-based collateral requirements.

OSFI believes it would be imprudent to weaken the collateral regime for unregistered reinsurance given recent financial market developments, and that it is premature to consider the adoption of a mutual recognition regime.

The response paper indicates OSFI will, nevertheless, work on identifying the issues and parameters associated with establishing a more sophisticated, graduated, risk-based capital/collateral framework for unregistered reinsurance.

As well, OSFI will assess the quality of collateral being posted in addition to its policy on the use of letters of credit as collateral (this was previously limited to 15% of risks; recently this was increased to 30%).

Finally, the response paper says OSFI will continue to review its capital rules to ensure that adequate capital is maintained by ceding insurers in respect of the risk posed by collateral arrangements.

COLLATERAL REQUIREMENTS AND MUTUAL RECOGNITION

NEXT STEPS

The issue of collateral requirements for unregistered reinsurance has been the subject of significant debate in recent years. Currently, if a federally regulated insurer cedes business to an unregistered reinsurer, the ceding company is only entitled to credit if the reinsurer vests collateral in trust to cover the ceded liabilities and the associated capital.The current collateral requirements do not take into account the risks associated with the collateral arrangement, nor the different risks presented by unregistered reinsurers of varying strength.

In this context, a number of proposals

OSFI’s stated objective is to revise and reinstitute Guideline B-3 and to adopt new disclosure requirements by the end of 2010. According to Philipe Sarrazin of OSFI, “it is anticipated that a draft of Guideline B-3 will be circulated for comment before the summer.”

The response paper indicates that until the changes are implemented, existing guidance remains in effect.

However, during the transition period, OSFI expects companies to take the changes into account in their planning and business activities and to prepare for such changes.

Violence

and Working Abroad Amendments to workplace legislation in Canada require companies to protect their employees from workplace violence — whether in Canada or abroad.

John Proctor

Director of Risk Operations, integrated Human Risk Solutions (A division of iFathom)

An amendment to protect Ontario workers against workplace violence and harassment came into effect in June 2010.The broad focus of Bill 168, an amendment to the Ontario Occupational Health and Safety Act (OHSA), will require every employer in Ontario with more than five employees to develop and implement a comprehensive violence prevention program. Mandatory elements of the bill include risk assessments, policy development, communication procedures and training obligations.

At the federal level, Bill C-45, the contents of which focused on the criminal liability of organizations, was passed in March 2004.The passage of the bill allowed the government to amend the Criminal Code of Canada. The legislation makes it clear that the duty of decision makers is “to take

28 Canadian Underwriter July 2010

reasonable steps to prevent bodily harm to … any person arising from work.” Failure to comply may have implications for both the individual decision makers and their organizations.

Generally speaking, using common sense and following guidelines from organizations such as the Canadian Centre for Occupational Health and Safety (CCOHS) will allow most companies, including insurance companies, to meet their obligations and demonstrate due diligence.

However, the level of risk to the employee must be considered when determining training requirements. For example, an insurance professional who works in the corporate headquarters is at a much lower risk than an insurance professional who has to provide bad news personally regarding a claim or some other matter. Therefore, a ‘one-size-fits-all-employees’ training policy is not appropriate; it suggests no internal risk assessment has been done.

REASONABLE EXPECTATIONS Under the Canadian Labour Code, an employer is obligated to provide a reasonably safe work environment. However, if that work environment involves working on a dam project in Colombia,

an oil well in Algeria or exploring for minerals in Pakistan, then duty of care would include a responsibility to warn employees of the risks and to prepare (educate and train) them adequately and appropriately.The obligation on the organization is to take reasonable and appropriate steps to ensure the physical and mental safety of the workers while they are overseas.Thus, in the same way we provide First Aid training for employees so they can deal with a medical event or emergency, an employee can reasonably expect to receive training to deal with such events as kidnapping if they are to be employed overseas or sent to areas where the risk of kidnapping is high. A recent legal opinion stated: “Liability could result if the com-

in both situations could be very costly. liaise with government representatives, Unlike in situations such as a fire, provide bills and estimates to insurance hostage-takings or other overseas inci- companies and other groups, as well as dents such as wrongful detention can be a myriad of other small tasks. Compalong, drawn-out and very public affairs, nies may be bombarded with questions sometimes lasting years. During this such as: What is being done? Are they time, there may be a continuous re- still being paid? Do they get overtime? quirement to support the family and Can a family member who doesn’t have Winmar-CC-Mag-Feb2010:CC half-pg power ad 2/11/2010 PM Page 1 of attorney10:32 have access to the colleagues, respond to media enquires,

WHEN DISASTER STRIKES

Violence can and does occur in the workplace. Such an event is much more complex if it happens to take place overseas. pany or organization omitted to provide or prepare for something, which ought reasonably to be done.” In the long run, proper preparation can easily mitigate and reduce this liability; this includes training management’s response to an incident.

For other potentially dangerous or life-threatening events, organizations have risk-mitigation strategies in place that include management response.Take the risk of fire, for example. Not only do we practice fire drills in the workplace, we appoint fire coordinators or marshals to manage the incident. When the fire brigade arrives, someone is ready to brief them on employee location, status and other organizational details. If a company’s employee gets into trouble abroad, or is even taken hostage, is there anyone who is trained and prepared to provide the correct information to DFAIT, the RCMP or other government departments when they arrive to help?

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wages being paid by the organization?

Concurrently, detained employees may also be interviewed by the media, and may publicly ask the organization to care for their family for the duration.

Beyond publicity, other costs to the organization should be considered. If the individual taken was the top engineer or ‘prospector’ in this field, will the shareholders be concerned? If the organization is busy dealing with this incident, are there lost production costs?

If it turns out you were not prepared, how will this affect your personnel’s willingness to undergo overseas tours on your behalf in the future? Were the actual costs of an incident assessed correctly?

RISK MITIGATION AND LIMITING LIABILITY Plan, prepare, prevent and respond — that is the formula for success.

Planning includes a risk assessment.

Where are the employees going? What are the risks associated with their destination? In a recent worldwide study, Venezuela, Nigeria, Mexico, Pakistan, India and Afghanistan were listed as the six riskiest countries to visit in terms of kidnapping. The next six were Honduras, Brazil, Philippines, Somalia, Colombia and Haiti. Canada has trade links with nearly all of these countries; for a majority of them, official DFAIT travel warnings have been issued. Beyond considering the country itself, an organization should consider in which part of the country their personnel will be working, for what reason (i.e., will their work affect the environment? local communities? the local economy?, etc.), what support is available in country and other factors.

Preparation may include both education and practical training.The training offered should be scaled to the risk and threat to personnel. In other words, a risk analysis should drive the degree of education and/or training required. Practical training, for example, is likely only required in those

30 Canadian Underwriter July 2010

cases where the likelihood of kidnap is extremely high (i.e., countries ranked among the Top 6 risks). But what separates good training from bad training?

At a minimum, companies offering this type of training should be staffed with subject matter experts, including psychologists, who have specialized experience in the field of captivity. Furthermore, the training offered should be grounded in science, particularly Stress Inoculation Theory. Case studies have shown that using trainers or psychologists who do not fully understand this complicated area can actually cause harm, thereby increasing the organization’s liability. Just being ex-Special Forces doesn’t give people a qualification. Most Special Forces (certainly in Canada, the United States, United

Planning includes a risk assessment. Where are the employees going? What are the risks associated with their destination?

Kingdom, New Zealand and Australia) are taught by other people who have specialized training and are qualified in this area. Ask them.

The training offered should be scaled not only in terms of degree of intensity and duration, but also in terms of how it is delivered. Options include simple elearning packages, short facilitated training sessions for executives or multiple-day training courses for people working in places such as Mexico or Colombia. A good training organization will tailor their training to the client and be flexible enough to meet their needs; it should also offer education for any management team members that may be involved in any form of incident response.

Prevention is achieved through following plans and learning from training. However, luck also plays a role: every now and then, bad things happen

to good people. If and when it does, then the response plans developed at the planning stage and rehearsed as part of preparation kick in. Even bringing people back from an incident overseas can have its issues. If a proper decompression protocol is not followed (for which best practices do exist), then it is likely the organization — or the insurers thereof — will incur more cost in supporting the returnee after the event.

What mechanism does the organization have for tracking or monitoring their personnel? Who is notified, and using what mechanism? What details will the government response want? Are they held in a centralized, secure repository? All of these questions should be analyzed as part of planning. They should be answered as part of the preparation, and the answers should be made deliverable as part of the response. Best practices in a number of these areas should be met or exceeded.

SUMMARY In summary, violence can and does occur in the workplace. Such an event is much more complex if it happens to take place overseas. If an organization has no plans in place, has not prepared or finds that prevention has been unsuccessful, then the risk of a failed response is much greater; this increases the risk to the individual and the organization simultaneously. An integrated solution starts at the top, with policy, which leads to plans, procedures and timely assessments.

In purchasing personal insurance (be it life, property or car insurance), I would assess my requirements, and then purchase suitable insurance from qualified professionals. Likewise, an organization, having assessed its requirements, should buy its training from qualified professionals. This limits the risk, gives the organization’s management team (and investors) peace of mind and demonstrates due diligence towards protecting employees and their families.

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Flatland

Canada’s reinsurance market is often portrayed as “flat,” a word used to describe premium growth, rates and retentions.

A glut of capital is responsible for giving the Canadian reinsurance marketplace a stable, if somewhat two-dimensional feel.

BY DaviD GamBrill

32 Canadian Underwriter July 2010

“All beings in Flatland, animate or inanimate, no matter what their form, present to our view the same, or nearly the same, appearance, viz. that of a straight Line.”

— Edwin A. Abbott, Flatland

Canada’s

reinsurers, the companies insuring Canada’s primary insurers, might very well be living in Edwin Abbott’s fictitious, two-dimensional world of Flatland. Over the past four years or so, their premium growth, their overall rates and their clients’ retentions of their own risk have all been fairly flat.

One might view this state of affairs positively, euphemistically describing Canada’s reinsurance market as “stable,” as many industry observers do. For global reinsurers with head offices overseas, Canada is a great place to diversify risk. That’s because this country hasn’t witnessed huge, catastrophic claims events experienced in Europe (windstorm Xynthia), Haiti (earthquake) or Chile (earthquake) this year, not to mention the hurricane claims of the southern United States in 2005. “The capacity in Canada is still plentiful, and Canada is perceived by a lot of global reinsurers as being a fairly stable market,” says Lambert Morvan, senior vice president and chief agent in Canada for Odyssey America Reinsurance Corporation. “It generates good return on a long-term basis, so as capacity is growing, then people want to grow their business.”

July 2010 Canadian Underwriter

33

COvEr STOrY

Flatland

But therein lies the problem. Canadian reinsurance market “stability,” even if it shades slightly into the territory of marginal profit, is not necessarily a good thing if reinsurers want to grow their business by more than 2% or 3% each year. In hospital emergency TV shows, a flatline represents the death of a patient. And certainly the price of financial stability has been a nominal-growth environment for Canadian reinsurers. “I think the market is still flat,” says André Fredette, senior vice president and general manager of the Caisse Centrale de Reassurance. “If you look at the Reinsurance Research Council (RRC) numbers over the last five or six years, there’s not very much growth, if any, on the amount that the domestic reinsurers are writing. It’s pretty flat. It’s about $2-plus billion now. So it’s not a growing market out there.”

And so how does a company writing the same amount of premium each year make money for its shareholders?

Well, it could raise premium rates. But there hasn’t really been a justification to raise reinsurance rates in Canada, because the Canadian insurance market is flush with capital. Joel Baker, president of MSA Research, says the licensed Canadian insurance industry has about $3 billion in capital right now; that’s in addition to the $1.4 billion it wrote in net premiums in 2009. And this doesn’t count the capacity coming to Canada from the Lloyd’s market in London, as well as from the unlicensed market in Bermuda. To put this in perspective, the biggest claims event in Canadian history, the 1998 Ice Storm in eastern Ontario and Quebec (which resulted in nearly 800,000 Canadian claims), cost the industry about $1.8 billion. And yet, “even the Ice Storm, when you go back, had minimal impact on reinsurance catatstrophe rates in the Canadian market,” observes Caroline Kane, senior vice president and chief agent in Canada for The Toa Reinsurance Company of America.

And so that begs the question: What would it take for Canadian reinsurers to deploy enough capital that their reinsurance rate increases would be justifiable?

34 Canadian Underwriter July 2010

“Good question,” responds Sharon Ludlow, CEO of Swiss Re in Canada. “I’m not entirely sure what that event would be. I’m not sure I would want to guess what it would be, because it would be pretty awful.”

The capacity in Canada is still plentiful, and Canada is perceived by a lot of global reinsurers as being a fairly stable market. It generates good return on a long-term basis.

Flatland Welcome to the Canadian world of reinsurance, which features flat (or “stable”) premium growth and flat financial results.

Since 2006, members of the RRC have annually written within a range of $2.2 billion of net premium at the most (in 2009), and $1.8 billion in premium at the least (in 2007), according to RRC figures complied by Hans Rohlf, managing director and chief underwriting officer for North America at Hannover Re. On average, they have written $1.9 billion, Rohlf’s figures show.

Canadian reinsurers experienced premium growth in 2009, featuring a 10% increase in business assumed from primary insurers, as MSA Research notes in its 2009-Q4 MSA Baron/Outlook

Report. “The growth in assumed business can be partially attributed to capital relief that primary insurers sought out during their 2008 renewal season amid the financial upheaval that occurred then,” MSA/Baron says. “Since that time, the financial markets have calmed down and primary insurer financials have stabilized, leading us to believe that the growth the reinsurers experienced [in 2009] was short-lived.”

And while reinsurers’ net premiums written have more or less hovered around the same mark, so, too, have the reinsurers’ financial results. Canada’s primary insurers have posted an underwriting loss during the global financial crisis over the past two years; in contrast, during the same period, Canadian reinsurers posted modest underwriting profits (an $18.4-million underwriting profit in 2009, according to MSA Research, and $16.2-million profit in 2008).

As for the Canadian reinsurers’ combined ratio, it is flat as a pancake. Canadian reinsurers reported to MSA Research that they paid out $962 million in claims costs in 2009. Against this, they reported underwriting — or assuming from primary insurers — about $1.4 billion in premium. When you divide these claims costs by the premiums earned, you get a combined operating ratio in 2009 of 98.6%. (A combined ratio of more than 100% means the company is paying more in claims costs than it is earning in premium, meaning the company is losing money.). Let’s compare this 2009 result to Canadian reinsurance results in 2008, when Canadian reinsurers underwrote or assumed $1.2 billion in premiums and paid out $848 million in claims. This resulted in exactly the same combined ratio of 98.6% as in 2008. Read: flat.

losses: the UsUal sUspeCts Catastrophe losses Assuming Canadian reinsurers end up writing approximately the same amount of premium in 2010 as they have over the past four years, the question MSA Research poses is this: “Can commercial insurers and reinsurers continue to coast without rate?”

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COvEr STOrY

Flatland

Not if they want to generate a healthy return on their abundant capital. Especially when signs exist that commercial property claims costs are on the rise. On commercial property business, Canadian reinsurers saw their combined ratios for commercial property lines go from 62.8% in 2008 to 75.4% in 2009. This had to do with several mid-scale business losses, including, for example (to list only a few): a $110-million loss for a fire at the Chapman’s ice cream plant just outside Toronto; a $30-million loss sustained by a tent manufacturer for the Dallas Cowboys; a $30-million loss due to faulty foundations in Quebec; and some catastrophe losses arising from tornado damage in Ontario and storm damage in Alberta. In the grand scheme of things, these losses hardly equate with the monster, $1.2-billion loss Suncor sustained in a 2005 fire. But they do add up. “On the reinsurance side, it has translated into some rate increases for loss-affected treaties, sometimes higher retentions, but no general firming,” reports Hervé Castella, chief agent in Canada of PartnerRe. Canadian reinsurers reported receiving some additional business from primary insurers as a result of RMS changing its Canadian earthquake model in 2009.

RMS upgraded and extended its earthquake modeling capabilities throughout the Americas, establishing a consistent view of risk from Canada to Chile. “In the majority of cases, the model updates [led] to increases in risk for Canada’s high hazard and densely populated regions, roughly translating into a 25% increase in modeled losses across Canada,” RMS reported in Canadian Underwriter in 2009. The modeled increase was between 30% and 40% for B.C. quakes. “Some companies were buying an extra $50 million to $100 million in coverage” as a result of the RMS model upgrade, Fredette said. “That happened last season. It was purely a result of the models doing some updating.”

Also, as A.M. Best observes, “in Canada specifically, an increase in property claims from weather related losses is resulting in a 5% to 10% increase in ‘catastrophe’ protection costs for 2010 for some insurers.”

36 Canadian Underwriter July 2010

auto Insurance losses Reinsurers’ excess-of-loss treaties respond to catastrophic auto accident injuries. And there have been some concerns about the frequency with which catastrophic auto injury claims costs are penetrating into

are going to do very little from a reinsurance point of view, if no impact at all,” he said. “I don’t see any change. My concern is that the frequency of severity may escalate, because the catastrophic impairment rules are too loose. They’ve not yet been defined [in the reforms].”

Rates

If you look at the Reinsurance Research Council (RRC) numbers over the last five or six years, there’s not very much growth, if any, on the amount that the domestic reinsurers are writing. It’s pretty flat. these upper layers. Ontario has introduced auto insurance reforms that are intended to address the province’s catastrophic injury definition; this in turn will address reinsurers’ concerns about escalating claims severity. But the new cat definition is a work in progress and may take the better part of a year to resolve.

“On the reinsurance side, I don’t believe there’s any impact [of auto reforms] on the reinsurers,” Morvin says. “Basically, we get catastrophic-type losses with the bodily injury and accident benefit… the reforms don’t really address that.” Steve Smith is the president of Farm Mutual Reinsurance Plan, which wrote almost $40-million worth of auto liability business in 2009. He believes it is far too early to tell whether or not Ontario’s recent auto insurance reforms will have any impact on catastrophic impairment losses. “The new reforms in my mind

And so, if reinsurers’ losses end up being comparable in 2010 to what they were in 2009, what does that say for reinsurance rates going forward? Not surprisingly, reinsurers are gazing into the distant horizon from their porch, searching for any signs of a hard market, featuring higher premium rates and tighter coverage — and seeing nothing but a flat line.

“If I go back to last renewal season [July 1, 2010], I would have thought it would be a harder market,” Fredette says. “To be honest with you, I didn’t appreciate how interest rates have reached historic low levels and the primary market was flat. So I thought reinsurers would start to price up themselves a little bit [to make up for a decrease in their investment income], but that didn’t happen.”

Morvin concurs. “The general sense is that [since] it’s been less-than-expected loss activity over the last couple of years, you would have rates that are basically as-is, as far as renewals are concerned,” he says. “Overall, for our portfolio, the average rate is up by 2% or 3%, but that’s because maybe 20% of our treaties are going up by 10% and the others are asis. It’s about a 2% increase [overall].”

In other words, basically flat. “Rates are not really softening anymore, but they’re not hardening either,” Morvin says. “It’s like we’re sitting at a point in the cycle where everyone is basically waiting for some large event, or a shock-loss, before rates start going up.”

abUndant CapaCIty Most reinsurers are at a loss to say what kind of catastrophe that might be.

“From a cat perspective, I think it’s going to be interesting, because first of all, there’s a lot of capital in the market,” Smith observes. “There’s a lot of surplus

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COvEr STOrY

Flatland

in the market. So it’s going to take a really significant, almost market-changing event for anything to happen to harden the market…. Unless something really dramatic happens with hurricane activity in the United States [in 2010], probably it will take some kind of Hurricane Katrina-Wilma-Rita event to have any real effect on cat and property rates from a reinsurance perspective.”

And even that might not be enough.

Insured losses from Hurricanes Katrina, Wilma and Rita in 2005 are estimated to have totaled just under $80 billion.

Meanwhile, Aon Benfield’s June 1, 2010 Renewals Update reports global reinsurance capital hit the $434-billion mark in 2010 Q1. That level of capitalization only further insulates the Canadian market from the effect of global catastrophes, several sources suggest. For example, Chile’s February 2010 earthquake measured a magnitude of 8.8, causing an estimated $8 billion in losses. Nevertheless, is not expected to have any far-reaching implications for Canada’s reinsurance market. “With Chile, which was very well insured, the ramifications of that event haven’t really gone even beyond the borders of Chile itself,” Ludlow observes.

“Even within South America, we’re not seeing any dramatic change in pricing, which also demonstrates that there’s some significant capital out there.”

Of course, it remains to be seen what the 2010 summer hurricane season brings. The Canadian Hurricane Centre has warned of an active hurricane season, citing U.S. forecasters. The U.S. National Oceanic and Atmospheric Administration (NOAA) predicts between three and seven major (Category 3-5) hurricanes this year. “If [the hurricane season] is really bad, then balance sheets may be damaged, and then we can have a general reduction in capacity,” Castella says. “After any catastrophic event, it creates an adjustment in models and pricing. And in that case, particularly for the rare event, it affects top layers.” Still, he adds, these types of catastrophes happening elsewhere, such as the Chilean earthquake in particular, “do not translate directly to the Canadian market.”

38 Canadian Underwriter July 2010

In Canada, the current level of capital will easily absorb some of the 2010 losses seen thus far in this country.These include floods in Alberta and Saskatchewan (the Saskatchewan floods resulted in 4,700 auto and property insurance claims totaling $57 million); tornadoes in Ontario and Saskatchewan (one tornado in Leamington, Ontario caused caused at least $85 million in damages); a 5.5-magnitude earthquake on the Ontario/Quebec border, relatively minor damage arising from the G20 summit held in Toronto — you name it, reinsurance catastrophe treaties will cover it.

Rates are not really softening anymore, but they’re not hardening either. It’s like we’re sitting at a point in the cycle where everyone is basically waiting for some large event, or a shock-loss, before rates start going up.

And from where does all of this capital come? Head offices of reinsurers overseas send their capital here, because Canada is a much-needed “stable” market. “Reinsurers have the capacity and would like to do more business in Canada because it provides further geographical diversification and historically has been a stable profitable region in which to do business,” A.M. Best says.

In fact, it may well take global reinsurers to decide for themselves to drain excess capital out of the Canadian market, assuming they encounter no opportunities to deploy it, Kane observes. But that is where Canada’s solvency regulator, the Office of the Superintendent of

Financial Institutions (OSFI), steps in, says Ludlow. When asked if there might be any inclination to pull capital out of the Canadian market, Ludlow responded: “Well, not if you’re OSFI. And that’s the other side of the equation: [industry observers] can use the term ‘overcapitalized,’ but our friends down the road in the regulator’s office would say: ‘We’re quite happy at that level.’ And for some companies, they’d probably like to see a little more. There’s a fine line there.”

Certainly OSFI’s long-term policies have required Canadian reinsurers to keep enough capital in Canada to cover the losses of their Canadian policyholders. Right now, “MCT levels for the reinsurance sector are healthy at slightly over 300%,” Baker reports, referring to the Minimum Capital Test (MCT). It takes a test score of less than 175% for OSFI to become actively involved on the re/insurer’s file.

Some speculate OSFI’s latest proposal to eliminate the so-called “25% rule,” which prohibits Canadian insurers from ceding more than 25% of their business to unlicensed reinsurers, will bring even more unlicensed capacity into a Canadian market that is already flush with capital. Time will tell, but Canadian reinsurers are sounding a skeptical note that the rule change will have much effect.

“Our view is that it’s not ‘gamechanging,’” Ludlow says. “They’re not removing the requirement for collateral for unlicensed reinsurance, so it doesn’t really move the needle. You’re not going to see Canadian companies fleeing to offshore reinsurers and then demanding that they put up collateral. The collateral is still expensive relative to what it was a few years ago.”

Smith said the elimination of the 25% rule would only make a difference in a different marketplace environment — one in which many small players were vying for scarce capacity.

“If you look back to the late 70s, early 80s, there were a lot of small players around struggling to buy reinsurance, to keep fronting,” he says. “With a lot of unlicensed reinsurers, it was happening

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There’s a lot of surplus in the market, so it’s going to take a really significant, almost market-changing event for anything to happen to harden the market.

Probably it will take some kind of Hurricane Katrina-Wilma-Rita event to have any real effect on cat and property rates from a reinsurance perspective. quite a bit. And there was the liability crisis that was happening in the early 80s. If we see a liability crisis take place, and all of a sudden capacity becomes a real problem for some players, or if you see major collapse in the reinsurance market, then I see [the elimination of the 25% rule] becoming an issue. But I don’t see it happening. I don’t think the [25%] rule is going to be overly material.”

RetentIons Although significant reinsurance capital is available, primary insurers appear loath to use it. Some time ago, after the hard market in 2005, primary reinsurers started to retain more of the risks themselves, declining to transfer the risk exposure on their books to reinsurer partners. The theory was that the primary insurers were doing well financially in a low-claims environment; therefore, they could afford to pay for the risk exposure on their own balance sheets. By not transferring their risk

exposures to their reinsurers’ balance sheets, primary companies thereby improved their own financial returns. But the trend of primary insurers starting to take on significant retentions of risk was somewhat counter-intuitive, Kane says.

“They started that out several years ago, which went against the grain,” she says.

“It was at a time when rates were fairly soft [low], so theoretically they should have been buying lower down, but they didn’t. We haven’t really seen much of a trend in the last year, as far as further increased retentions.”

Fredette says companies are still retaining large amounts of risk. “They are still retaining what they have,” he says. “No one has handed back [to reinsurers] too much on that, and they [primary insurers] have the capital still and I haven’t seen any movement.”

But while retentions are not decreasing, they are not increasing much either, Morvin says. In a few instances when primary insurers reduced their

retentions, primary companies were addressing capital issues in light of the global recession — a short-term phenomenon, says Morvin. “Some treaties and retentions are starting to [dip] a little bit, but I think what generates that is mostly the soft market environment on the primary side, when companies are actually looking for ways to cut their reinsurance costs, even though it means taking more risk,” he says. “There are some instances where some companies are just not willing to spend more on their reinsurance costs. [Reinsurers are] asking for more premium and [the primary insurers are] not willing to do that, so [the reinsurers] say: ‘Okay, well, if you’re not willing to spend more, you can increase your retention.’ But that means taking more risk.

We’ll see down the road, when the losses start coming in, to see whether or not they change their minds.”

But until they do, retentions can join the rest of the Canadian reinsurance denizens in Flatland.

July 2010 Canadian Underwriter

41

Floating Ideas for Change

President, Coast Underwriters (part of RSA Canada)

When a major oil rig explosion this past April sent millions of gallons of oil spewing into the Gulf of Mexico, the environmental and financial implications of this devastation were immediately clear.

But a quieter assault is taking place against our marine eco-system; in this scenario, the scourge is climate change. Granted, the ramifications of climate change might not be as visibly extreme as those of an oil spill. Nevertheless, we are already seeing the real consequences of climate change on our oceans and the industries dependent upon their vitality.

When thinking about how to prevent the neg-

42 Canadian Underwriter July 2010

ative impact of climate change and human activity on our oceans, the role of insurance companies doesn’t likely spring to mind. And yet, as experts in risk mitigation, these companies could have a logical role to play — especially in Canada.

FROM CLIMATE CHANGE TO CLAIMS Bordered by the Pacific,Atlantic and Arctic oceans, Canada is home to the world’s largest coastline.

Sea-related activity contributes more than $20 billion annually to the Canadian economy. But the increasing population and demand for marine resources is putting a greater strain on an already fragile eco-system.

Over the past two years, millions of sockeye salmon have vanished from the West Coast. In addition, the commercial cod fishery in the Atlantic is practically extinct. The exact causes for these events remain unknown, but possible factors include warmer temperatures, declining food supplies, increased fishing activity and the impact of aquaculture (also called aqua-farming) on marine life.

Illustration by Stephane Denis/www.threeinabox.com

Kevan Gielty

When Canada’s marine industries experience the negative effects of climate change, insurers’ claims costs go up, and so insurers are fishing for solutions to help their clients succeed.

From an insurance perspective, declining fish stocks put financial pressures on the fishing industry. Falling revenues can lead to lapsed or decreased vessel main-

tenance; in turn, this increases risk to the insured and ultimately the insurer. In extreme circumstances, some customers choose to economize by simply not purchasing insurance for some aspect of their marine operations. A correlation exists between these increased risk exposures and an increase in marine claims.

And this doesn’t just affect insurers: to prevent these kinds of risk exposures, public and governing bodies are under pressure to subsidize lost revenue.These concerns of Canada’s marine insurance industry were raised by RSA and Coast during a roundtable discussion with key marine stakeholders and the Minister of Fisheries and Oceans Gail Shea on Parliament Hill on World Oceans Day. RSA’s conservation partner, World Wildlife Fund-Canada (WWF-Canada), hosted the June 8 discussion.

CREATING MARINE PROTECTED AREAS

GETTING INVOLVED

Declining fish stocks put financial pressures on the fishing industry. Falling revenues lead to lapsed or decreased vessel maintenance, which increases risk to the insured and the insurer.

Critical to the success of this project is building awareness within the insurance industry, communities and government.

We want to build support around these MPAs not only among local communities, but also among our marine-based clients. Such awareness is an important part of creating a healthy balance between conservation and industry. WWF considers the growth of fish stocks and the recovery of Atlantic cod to be a good indicator of the health of our oceans and proof of the project’s overall success.

However, for this to work, it’s important that all of those affected by climate change get involved.With marine-based industries already taking a hit, there is more buy-in now than ever before. We

of this expertise, it was a logical fit for the company to sign on to fund a threeyear marine conservation project with WWF-Canada.

RSA and WWF-Canada are working together to help conserve Canada’s oceans by creating a network of marine protected areas (MPAs). The network is intended to protect biologically important areas and build ecosystems that are more resilient to climate change.The mapping process will open the door for feedback and insight from all stakeholders to determine the right approaches to take to create a sustainable fishing industry for all. The MPAs will help to maintain a wide range of species; they will also benefit neighbouring communities by creating larger fish stocks and providing opportunities for eco-tourism. The goal is to create a healthy and productive marine environment, which will ultimately provide for a stronger economy in Canada.

must rely on science and the experts to direct us in terms of what needs to be done.

Insurance is all about risk. The insurance industry is able to help customers understand the level of risk they face, underwrite that risk to give security and respond when the worst happens. The world’s changing climate presents a new set of risks. It’s important that insurance companies get involved in helping to understand and reduce these risks.

RSA is a global marine insurer underwriting shipping, cargo, aquaculture and fishing. As such, it has a unique insight into the challenges and opportunities facing businesses operating in and interacting with the marine sector. Because

July 2010 Canadian Underwriter

43

Simplifying

Claims Ontario and B.C. each have changed their courts’ Rules of Simplified Procedure, which may cause insurers to re-think how they address claims disputes.

Albert Wallrap Associate, Borden Ladner Gervais LLP.

This article is intended to provide background information only and does not constitute legal advice.

You should seek specific, professional advice before acting or omitting to act based upon any information provided.

The recent modernization of rules in Ontario and British Columbia reflect a trend towards simplifying procedure and fast-tracking litigation so that courts and the justice system are more accessible. It is now anticipated that more than onethird of the claims issued in Ontario’s Superior Court will be put under simplified procedure — a prospect that warrants attention.These rule changes further enhance litigation as a viable option for dispute resolution and require the insurance industry to rethink how it addresses claims disputes.

Effective in January 2010, the Ontario Rules of Civil Procedure were amended to raise the monetary limits for small claims matters from $10,000 to $25,000, and for Rule 76 (simplified procedure) cases in Superior Court from $50,000 to $100,000. Various changes have been made to make Rule 76 matters more efficient and bal-

44 Canadian Underwriter July 2010

anced with procedural safeguards. In British Columbia, the Rules of Court have been significantly overhauled. As of July 1, they were renamed the Civil Rules, and they now include Rule 15-1 (Fast Track Litigation), which applies to claims for up to $100,000. Although B.C.’s Rule 15-1 has some similarities to Ontario’s simplified procedure, there are significant differences that will be discussed in this article.

The changes to the rules in Ontario and British Columbia, among others, highlight the principle of proportionality: each case is dealt with in a manner proportionate to what is involved, the jurisprudential importance of the case and the complexity of the proceeding. Proportionality is now a vital concept insurers should understand so as to minimize legal expenses and risk of exposure to cost consequences.

CHANGES TO THE ONTARIO RULES In Ontario, Rule 76 now requires litigants to use simplified procedure for claims of up to $100,000 (exclusive of interest and costs) in monetary amounts or fair market value of any real or personal property, or else face severe cost consequences. Rule 76 specifically excludes class actions, actions under the Ontario Construction Lien Act (except trust claims) and actions under

case management. At any time, the parties may agree to bring their actions under simplified procedure for claims exceeding $100,000. Any claim for more than $100,000 may be brought under simplified procedure unless an opposing party objects in its pleadings. In practice, a number of case management masters and judges in the Toronto area have encouraged the use of simplified or an equivalent procedure even though the claims go beyond the monetary jurisdiction of Rule 76.

The recent changes to Ontario’s simplified procedure embody many of the recommendations made by Coulter Osborne, former associate chief justice of Ontario, in his November 2007 report on civil justice reform, as well as the culmination of reviews and experiences since the pilot project was first introduced in 1996. Justice Osborne’s two key recommendations were adopted in the new rules: an increase in monetary limits to $100,000, and the availability of oral discovery for up to two hours.

Another significant change is the modification of the summary trial procedure to include a brief examination-in-chief.

In addition, the rules for both ordinary and simplified procedure have been changed and harmonized by applying the proportionality principle and including new standards narrowing production of documents and expanding the scope of summary judgment.

One of the primary driving forces behind simplified procedure is cost consequences. With an increase in monetary limit, these consequences become more broadly applicable. If a plaintiff or any other claimant (i.e., by counterclaim or third-party claim) fails to put a matter under simplified procedure and receives a judgment of $100,000 or less, then the court shall not award costs to the successful party, even if they received a judgment better than a previous offer to settle. However, cost consequences will not apply where it was reasonable for the party to issue a claim under ordinary procedure. When a transfer from ordinary to simplified procedure occurs, the court may award an adjustment of costs

up until the transfer date. For simplified procedure, courts have applied proportionality to lessen both the potential recovery of costs by successful parties and the exposure to costs against for unsuccessful parties.

There are various advantages and disadvantages in pursuing a claim under simplified procedure. One of the ongoing concerns of parties is that protracted litigation results in significantly higher

legal costs. The benefits of simplified procedure include the requirement of timely production and limits on discoveries, motions and other costly procedures. Simplified procedure requires the parties to exchange sworn affidavits of documents and produce documents and lists of witnesses within 10 days of the close of pleadings; complete discussions of settlement within 60 days; commence

Announcing a new member of the team

Nancy McKinstry CHAIR OF THE BOARD OF DIRECTORS

Nancy McKinstry has been appointed as chair of the board of directors of ICBC. Nancy, who received the Order of Canada in 2005, is well known in B.C.’s business and non-profit communities.

She has served on corporate, university and non-profit boards in recent years, and spent more than two decades with Odlum Brown Ltd., most recently as a senior vice-president and director.

Her board experience includes serving as chair of Simon Fraser University, the Investment Dealers Association’s B.C. District and the Minerva Foundation for BC Women, where she was a founding member.

Nancy received a Distinguished Alumni Award from BCIT in 2003 and an honourary Doctor of Laws degree from SFU in 2004.

icbc.com

We’re driven to ensure the well-being of drivers. We’re working to keep rates low and stable, providing hassle-free service, and proactively partnering to reduce crashes and loss.

July 2010 Canadian Underwriter

45

Putting the pieces together.

Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.

CIP Society Events and Seminars Moncton - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .August 12

Ottawa - 13th Annual CIP Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . .September 15

Edmonton - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .August 23

Toronto - CIP Society Annual Fellows' Golf Tournament . . . . . . . . . . . . . .September 20

Hamilton - Annual CIP Society Beach Volleyball Tournament . . . . . . . . . . . . .August 26

Toronto - Severe Weather and its Effects on Risk . . . . . . . . . . . . . . . . . . . .September 23

Saskatoon - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . .September 1

London - CIP Society Golf Tournament . . . . . . . . . . . . . . . . . . . . . . . . . . . .September 24

Keeping you at the forefront of the P&C industry.

The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety

formal steps towards a pre-trial conference within 180 days; and provide expert opinion, if any, at least five days before the pre-trial conference. Under simplified procedure, the parties may proceed to either a summary or ordinary upon consent, or as a judge so decides at the pre-trial conference.

The summary trial under simplified procedure is a distinctive feature that has been made more functional by allowing for limited examination-in-chief and cross-examination of witnesses who provide affidavits. The new standard for a summary judgment application is open to interpretation, but courts may now exercise their discretion and weigh the evidence, evaluate the credibility of a deponent and draw any reasonable inference from the evidence. These changes could transform summary judgment into a more viable option for those clear cases where there is no genuine issue requiring a trial.

CHANGES TO THE BRITISH COLUMBIA RULES Recent changes to the B.C. Rules of Court warrant some attention in light of sweeping reforms. British Columbia’s Rule 15-1 not only includes monetary or property claims for up to $100,000 but also encompasses lien actions and other actions subject to a trial of three days or less. Some of the primary differences between these two models is that the Ontario model: • provides more detailed limitations and controls the timing of various litigation steps, particularly document production, discoveries, expert opinion, settlement and pre-trial conferences; • provides for a tailored procedure for summary trial; • applies to jury trials (but this may have been limited by recent case law applying proportionality); and • has more detailed cost consequences.

On the other hand, the model in British Columbia is broader in scope and includes explicit limits to cost consequences based upon proportionality and up to $11,000 for recovery of costs upon success for a trial of three days or less.

WHAT IS THE IMPACT ON INSURERS? Changes to the Ontario and British Columbia rules affect insurers and their strategies in preparing and litigating a claim. Under simplified procedure, there may be advantages in reducing the time to trial and limiting the more expensive procedures such as discoveries and motions. Coverage disputes, in particular, may be amenable to simplified procedure given their focus on interpretation of insurance contracts. As well, subrogation claims of less complexity and for lower amounts — particularly those that have been adjusted — also seem amenable. Insurers may also consider engaging simplified procedure or fast track for claims exceeding $100,000.

Simplified procedure and fast-track litigation may be beneficial in situations of potential insolvency, where parties

Changes to the simplified procedure have made summary proceedings more viable, shifting the focus in litigation from oral testimony and argument to affidavit evidence and written submissions. Adjusters may wish to focus on evaluating potential witnesses and obtaining their sworn statements. are competing over remaining assets.

The faster a party obtains judgment, the faster it can register its judgment in priority against and seek recovery of assets.

However, insurers will need to investigate and assess a claim, produce relevant documentation and retain an expert, if necessary, much earlier than under ordinary procedure.The cost consequences, particularly under Ontario’s simplified procedure, will require parties not only to assess claims early, but also to periodically re-assess their quantum and consider whether to amend their pleadings into or out of simplified procedure. Accordingly, insurers should consider ad-

dressing issues of coverage and uninsured interests earlier in the process — especially in subrogated cases, when the insurer steps into the shoes of the insured and has the onus of proof. For subrogation cases, the insured may have an uninsured interest that brings the total claim outside of simplified procedure; there is potential for an insured to be prejudiced by the unilateral waiver of certain procedural rights.

Simplified procedure also pressures the claimant to secure expert opinion — and the opposing party to reply — prior to the pre-trial conference. These types of decisions require an early investigation of facts and assessment of claims.

The two-hour limit to examinations for discovery is better than none at all, but may be a disadvantage in more complex cases. The prosecution of subrogation claims involving technical or engineering issues, for example, often requires lengthy discoveries that are beyond the limits of Rule 76. In some cases, the claimant’s damages may not be wholly resolved by the earlier discovery, making an assessment of quantum and liability exposure more difficult.

The changes to the simplified procedure have made summary proceedings more viable, shifting the focus in litigation from oral testimony and argument to affidavit evidence and written submissions. Affidavit and discovery evidence becomes essential in summary proceedings, and adjusters investigating claims may wish to focus on evaluating potential witnesses and obtaining their sworn statements so as to prepare claims that may come under simplified procedure or summary judgment.These statements are often invaluable, especially when the opportunities for discoveries and crossexamination are rather limited.

Overall, the recent changes to Ontario’s simplified procedure provide insurers with a more refined and cost-effective option to litigating claims. Simplified procedure has now become a significant and enduring tool in the lawyer’s toolkit, and insurers should become well aware of the same.

July 2010 Canadian Underwriter

47

Home Team Advantage Editor

Home insurance issues dominated the sports-themed 62nd annual Conference & Trade Show of the Insurance Brokers Association of B.C. (IBABC).

Habitational insurance was the order of the day at the Insurance Brokers Association of B.C. (IBABC)’s 62nd annual Annual Conference & Trade Show, held in Victoria, B.C. in June.

The B.C. brokers’ association has been front and centre in publicizing issues around the insurance to value (ITV) issue. Several brokers used the seminar as an opportunity to raise their concerns with a representative of the Insurance Bureau of Canada (IBC) about the dilemmas associated with using several different cost calculators to evaluate the reconstruction costs of homes.

Also, a B.C. lawyer brought to the brokers’ attention a recent case that deals with a broker’s duty of care to advise about gaps in a client’s home insurance coverage. The case involves an innocent co-insured who was listed on a home insurance policy that included an intentional act exclusion for criminal activity.

48 Canadian Underwriter July 2010

A BROKER’S DUTY TO ADVISE A February 2010 B.C. Supreme Court case, Beck v.

Johnston, Meier Insurance Agencies Ltd., spells out the onus on brokers to advise clients of gaps in homeowners’ coverage, particularly in situations when the client has changed dwellings.

Krista Prockiw of Clark Wilson LLP referred to the case in her presentation during the IBABC’s home insurance seminar. The case is currently under appeal.

The case involved a tragic set of circumstances that led the court to consider whether the broker had sufficiently advised a client about an intentional act exclusion in her homeowners’ policy.

Richard Beck murdered his wife, Karen Beck, in November 2007 and then set fire to the house she owned, which had been their family home and where Richard Beck had resided since his wife had moved out in 2005. Richard Beck then killed himself.

The Becks were co-insured on the home.The insurance policy contained an intentional act exclusion, meaning the policy did not cover damage arising out of any intentional criminal acts.

After settling a claim with the insurer, Canadian Northern Shield, for 50% of the value of the home, Karen Beck’s son, representing her estate, went after the broker for the balance of the

Illustration by Stephane Denis/www.threeinabox.com

David Gambrill

home’s value.The estate argued the broker had failed to advise Karen Beck of an opportunity to change her coverage — i.e., to a policy that did not contain an intentional act exclusion — once the broker had found out she no longer lived in the family home.

The court found three different occasions when the broker could have — and should have — reviewed Karen Beck’s homeowners’ insurance with her.

“On September 1, 2006, Mrs. Beck went to the defendant’s Chilliwack office and purchased a tenant’s insurance policy for her new residential address, an apartment she was renting,” the court stated of the first occasion. “Despite this being a clear indication that Mrs. Beck was living somewhere other than the home for which she had home insurance, the broker asked her no questions about her insurance needs for her own home, and gave her no advice in this regard.”

On the second occasion, in January 2007, Karen Beck contacted the brokerage’s Maple Ridge office, and cancelled her tenant’s insurance policy because she had moved in with her parents.

On the third occasion, the broker called Karen Beck in May 2007 to speak with her about her policy renewal.The broker did not get in touch with Karen Beck, who did not return the broker’s call.

Subsequent to these three separate contacts with the brokerage, Karen Beck’s home insurance policy automatically renewed, the court found.

The broker argued that even if the alternative tenant’s package had been offered to Karen Beck, she would have declined it, since the alternative coverage was more expensive and she did not have the money to pay for it. Ultimately the court found that had the broker advised Karen Beck of the more expensive coverage, she would have made the switch to escape the intentional act exclusion in her home insurance. She would then have been covered for her husband’s (or any other tenant’s) illegal acts.

“I find that if Mrs. Beck had received proper advice from the defendant’s brokers, she would have been advised that her homeowner’s policy showed Mr.

A February 2010 B.C. Supreme Court case, Beck v. Johnston, spells out the onus on brokers to advise clients of gaps in homeowners’ coverage, particularly in situations when the client has changed dwellings.

Beck as a co-insured, that one of the exclusions in the policy meant that she would not have coverage for any intentional acts by him, and that she could obtain on the market a rented dwelling policy that would not have a similar exclusion, but it might be more costly,” Supreme Court of B.C. Justice Susan Griffin wrote for the court. “I find that if Mrs. Beck had received this advice, it is more likely than not that she would have chosen to obtain a rented dwelling policy without an exclusion for intentional acts of a tenant, whether the tenant be Mr. Beck or someone else.”

WHY INSURERS WILL NEVER REQUIRE BROKERS TO USE A SINGLE COST CALCULATOR Canada’s Competition Act is the main reason why the Insurance Bureau of Canada (IBC) will have nothing to do with the idea of insurers requiring brokers to use a single cost calculator for the purpose of calculating the reconstruction costs of a home.

The idea of insurers governing the brokers’ use of a single calculator was raised several times during an insurance-tovalue (ITV) panel discussion at the IBABC conference.

During the question-and-answer session, one broker cited the consequences of three or four different cost calculators in B.C. “People are using the calculators for shopping,” he said.

For example, brokers could potentially use several different calculators to calculate the reconstruction cost of the same home, and then submit the lowest reconstruction cost estimate to the insurer in order to guarantee the lowest insurance quote for the consumer insuring the home.

Lindsay Olson, IBC’s vice president of B.C., Saskatchewan and Manitoba, said IBC’s best practices guide for ITV discourages a broker’s use of multiple cost calculators to shop for the least expensive insurance quote.

Upon hearing this, one audience member pressed Olson further on the point of whether insurers would go so far as to require brokers to use just a single cost calculator, thereby effectively abolishing the potential to comparison shop.

“The only way this [situation] is going to improve is if the insurance companies have the balls to say:‘We’re not going to take multiple copies. You have to pick one and stick with it,’” the broker said.

Prior to this comment, Olson said that when push comes to shove, the Competition Act prevents insurers from enforcing a broker’s use of a single calculator.

“As for choosing a single tool...one of the things we [an IBC committee investigating such a possibility] bumped into [years ago] were issues around competition,” Olson said. “We have a thing in Canada called the Competition Bureau.

There is this legislation called the Competition Act. And if we restrain competition by limiting the options that are available for choosing a specific supplier [against] another supplier, you are in contravention of the act. And there are some pretty severe penalties that go with that.

“So choosing between going to jail or not, we prudently decided we would not go there.That’s a non-starter.”

July 2010 Canadian Underwriter

49

EXIT

Plan Brokers can help retiring business owners maximize the sale value of their business by going over an exit plan with their clients.

Jason Kwiatkowski

Senior Manager, Financial Advisory Services Group, BDO Canada LLP .

Do your clients who operate their own businesses have the appropriate insurance and coverage in place to ensure a successful exit from their companies?

Like many business owners, Reta was thinking about selling her company in the near future – but hadn’t yet devised a plan for doing so. She will be relying on the proceeds from the sale of her distribution company to support a comfortable retirement.Yet Reta was unaware that nearly two-thirds of Canada’s independent business owners also plan to retire, sell or pass along their enterprises within less than a decade.

This growing supply of companies that will be coming to market makes it vital for owners to have an exit plan in place to optimize the value and salability of their businesses. However, a BDO/COMPAS poll has found that fewer than half of business owners actually have an exit plan in place.

In order to allow sufficient time to develop a strategy and to build the value of a business, exit planning must begin several years prior to the intended exit date. This presents an opportunity for insurance brokers and agents to review their clients’ current and future insurance requirements in light of the role that insurance can play in enhancing the value and salability of their enterprises.

A potential purchaser of Reta’s business, for example, will expect assurances that certain risks facing the enterprise have been addressed with appropriate insurance. Adequate coverage will not only protect Reta, her business and her fam-

50 Canadian Underwriter July 2010

ily in the event of an unforeseen or unexpected incident (theft, fire, flood, death, etc.), but it will also make her business more attractive and salable to potential purchasers by reducing the company’s overall risk profile and increasing its value. Inadequate insurance coverage, however, may discourage prospective buyers and prevent her from controlling the timing of her exit.

EXIT STRATEGY Fortunately, Reta’s broker contacted her when he did. As it turns out, Reta did not have an exit plan.

Also, she hadn’t reviewed her company’s insurance coverage in more than four years, despite the fact her business had expanded significantly during that time. The broker’s timing proved to be ideal, not only to review Reta’s current insurance requirements but also to discuss the need for an exit plan in light of her intention to sell her business in the near future.

An exit plan addresses the business, personal, financial, legal and tax issues involved in transitioning a privately-owned business to new owners. Devising a comprehensive plan therefore generally involves a team of people. Among those who typically participate are the shareholders and their families, as well as key members of management. The company’s insurance agent or broker, accountant, lawyer and financial advisor with experience in developing exit plans should also be involved.

Fortunately, Reta’s broker often worked with an advisor who had extensive experience with exit planning.When he suggested they all meet, Reta’s own plan was soon underway. Here are the steps they took: • They assessed Reta’s personal, business, and family goals to provide direction and a frame of reference for the plan. Reta decided she wanted

to maximize the net proceeds on the sale of her business.

• They conducted a financial needs assessment to identify the funds she must realize from the sale of the business in order to achieve her goals. Reta estimated the after-tax annual income she would require in retirement to sustain her lifestyle.

• A professional business valuator conducted an independent business valuation to determine the insurance coverage required.The valuator then mapped out a plan for increasing the value of the business in preparation for a sale. Reta learned she needed additional insurance coverage; she also received suggestions from the valuator regarding ways to increase the value of her business over the next three years.

• An exit alternatives analysis identified the exit option that would best achieve Reta’s goals. Reta decided she wanted to pursue a sale of her business to a strategic purchaser; she indicated she would be willing to stay on with the company for a period of one year to ensure a smooth transition and maximize value.

An analysis done for other business owners might suggest a sale to family members, shareholders or management team; a third-party sale; a refinancing; or going public.

• A net proceeds analysis for each relevant exit alternative to ensure the expected net proceeds would accomplish Reta’s goals.

• An action plan for Reta, personally, and for her business. Among the key action items were assessing insurance needs (i.e. types and coverage), updating existing insurance policies and preparing a contingency plan.

• In order to protect the assets and operations of Reta’s business, her broker recommended she obtain property and casualty insurance, including business interruption insurance. He also recommended increasing her life insurance in light of her company’s growth in the past four years. This would protect her family in the event of her untimely death by providing them with funds to replace her income and help to pay the estate taxes.

By investing the time and effort to prepare for the sale of her business, Reta was ultimately able to sell her company to a strategic purchaser for a significant sum in excess of what similar, unprepared businesses would receive if they came to market around the same time. Proper insurance and coverage was instrumental in allowing her to leave her company at a time of her choosing.

Given the surge of baby boomer business owners who will be exiting their companies in the coming decade, this is an opportune time to initiate a discussion with your clients about proper exit planning. Integrating the appropriate insurance into their planning can help them maximize the company’s value when they decide to sell or transfer the business to new owners. Now, that’s a good conversation starter.

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Our state-of-the-art online claims system, iAdjust, is a time-saving solution that allows your team, your clients, and the insurance company to easily track a claim. This streamlined claims process helps independent adjusters maximize their potential.

To review the complete job description for District Manager or to view all of our job opportunities please visit the Claimspro Job Board at www. scm-claimspro.ca/careers.asp. Apply on-line or confidential inquiries can be made to Manager, Recruitment & Licensing: kimberley.jeffries@scm.ca.

July 2010 Canadian Underwriter

51

Ontario’s auto insurance reforms give consumers more options, but will they make the product more affordable?

Donna Ford Freelance Writer

The primary goal of auto insurance reform in Ontario is to give consumers more options, not to make insurance more affordable, James Cameron told an industry group at the Insurance Institute on May 17 in Toronto.

Cameron and Nicole Langley of Cameron and Associates, a Toronto adjusting and consulting firm, have been offering training seminars around the province in advance of the changes coming into effect on Sept. 1, 2010.

Although it isn’t clear yet how insurers’ pricing will respond to the reforms, the Financial Services Commission of Ontario (FSCO) has posted benchmarks or guidelines on its Web site for actuaries.The guidelines suggest a 30% reduction in the accident benefits portion of the premium as a result of the reforms, and a 26% increase in the bodily injury portion, Cameron said. So the reforms appear to be about something more than pricing and affordability.

This is where consumer choice comes in.

CONSUMER CHOICE Under the new Statutory Accident Benefits Schedule (SABS), there will be a coverage limit of $50,000 (down from $100,000) for medical and rehabilitation benefits for non-catastrophic in-

52 Canadian Underwriter July 2010

juries; there will be a $3,500 cap for minor injuries. Optional additional coverage will be available, but not for minor injuries.

As for what constitutes a minor injury, a new, interim Minor Injury Guideline (MIG) has been released. It replaces the Pre-Approved Framework Guideline for Grade I and II Whiplash Associated Disorders (WAD). Under the MIG, a minor injury is defined as a sprain, strain, whiplash associated disorder, contusion, abrasion, laceration or subluxation and any clinically associated sequelae (symptoms following and related to any of these listed conditions).The guideline does not apply, however, if the insured person or health practitioner provides “compelling evidence” of a pre-existing condition that prevents the insured from achieving maximal recovery from the minor injury.

Consumers do have the option to “buy back” up to their pre-reform level of standard coverage ($100,000) or higher ($1.1 million). Caregiver, housekeeping and home maintenance benefits will not be available under a standard policy unless the insured person has suffered a catastrophic impairment (CAT) or has purchased an optional benefit; these three optional benefits will be offered together and not separately. If optional coverage is purchased, the benefits will only be available to the insured and his/her spouse and dependents, but not to other passengers in the car, Cameron said.

The section of the SABS that requires the insured to elect between receiving income replacement benefit (IRB), non-earner or caregiver benefits has

Illustration by Stephane Denis/www.threeinabox.com

More Choice, but More Affordable?

INCURRED EXPENSES DEFINED A very significant change to the new SABS, according to Cameron, is the addition of a definition for “incurred expenses” related to goods or services such as housekeeping, caregiving, attendant care and funeral benefits. An insured person incurs an expense only if: • the insured person has received the goods and services to which the expense relates; • the insured person has paid the expense, has promised to pay the expense or is otherwise legally obligated to pay the expense; and • the person who provided the goods and services did so in the course of his or her regular occupation or profession, or sustained an economic loss as a result of providing the good or services to the insured person.

After 1994, the courts did not require the use of professional caregivers in order for an expense to be incurred, an interpretation that favoured the insured over the insurer.

been changed. “The Reader’s Digest version of the change,” Nicole Langley said, is that “once you have elected one benefit, you can’t change.”

The IRB calculation will no longer be based on 80% of net income. Instead, it will use the simpler calculation of 70% of gross income, Cameron said. It will still be capped at $400 per week unless the insured has purchased optional additional coverage. Treatments or monitoring are to be provided in four-week blocks of time (three such blocks, according to FSCO’s interim MIG).

This replaces existing caps of 12 weeks for WAD I and 16 weeks for WAD II. Section 4(5) has been added to the IRB section, codifying the serious consequences of a claimant’s failure to pay income tax. If a person fails to do so, “the person’s income before an accident shall be determined for the purposes of this part without reference to any income the person has failed to report contrary to that act or legislation.”

An insured will be permitted to hire an accountant at the insurer’s expense to calculate an IRB.Accountants hired by the insurer and the insured must be licensed under the Ontario Public Accounting Act or equivalent legislation; their fees will be capped at $2,500 for each side for one or more reports.

Under the existing SABS, some claimants with collateral benefits have

been overcompensated, Cameron said.

The new SABS has sought to remedy that by clarifying that the auto insurer can take the benefit of collaterals.

The standard attendant care benefit for a non-catastrophic impairment will be reduced to $36,000 from $72,000, but optional additional coverage may be purchased. Only a registered nurse who has received special training or an occupational therapist will be permitted to sign a Form 1 for attendant care benefits.

The new SABS also clarifies that an aide or attendant for a person may include a family member or friend who does not possess special qualification.

CATASTROPHIC IMPAIRMENTS Under the current SABS, chiropractors and other regulated health practitioners, many of whom do not have the training or skills to make CAT determinations, have been completing the applications and sending them to insurers together with assessments costing up to $25,000, according to Cameron.The insurers have had to spend as much to respond and it has been a big abuse, Cameron said. Under the new SABS, the Application for Determination of Catastrophic Impairment may only be completed by a physician, or by a neuropsychologist in the case of brain impairment.

A claimant who is declared to be catastrophically impaired will be entitled to

all prior expenses that would otherwise have been covered. Arbitration decisions have been permitting the claiming of the prior expenses, so it has been enshrined in the new SABS, Cameron said.

EFFECTS OF THE NEW SABS In addition to the changes noted elsewhere, the new SABs will also have the following effects: • interest on overdue payments will be reduced from 2% to 1%, compounded monthly; • no rebuttal exams; and • the treatment plans and applications for approval of assessment or examination will be merged into one process.

Insurers will have 10 days to give notice of the following: the goods, services, assessments and examinations the insurer agrees to pay for; those things the insurer does not agree to pay for, as well as medical and other reasons why the insurer considers them not to be reasonable or necessary.The treatment plan must be signed by the insured.

EXAMINATIONS AND ASSESSMENTS With respect to examinations and assessments, the new SABS provides for: • no in-home assessments for minor injury; • no more than $2,000 in respect of fees for any one assessment or examination; • no payment for future care plan, life plan, or related assessments (These have been used in the tort claim, but paid for by the accident benefits insurer, Cameron said.); • no limit to the number of assessments, but no more than are reasonably necessary; • the cost of assessments requested by the claimant will reduce the medical and rehabilitation limit of $50,000.

The assessment cost maximums will apply to all assessments completed on or after Sept. 1, 2010 and will apply to both new policies and existing policies.

July 2010 Canadian Underwriter

53

And Then They Told Two Friends…

A key feature of the Aviva Community Fund is the use of social networking, which engages the public in spreading the company’s brand name.

Paul Fletcher

Senior Vice President, Brand Marketing, Aviva Canada

“And they told two friends, and they told two friends, and so on, and so on….”

From where do I know that phrase? Wait for it…

Think late ’70s/early ’80s television ad campaign.You know the one, starring Heather Locklear and other models…? If you’re not there yet, don’t worry: we’ll circle back later.

What does this have to do with insurance? Well, very little so far. But I’m not here to talk about insurance: I’m writing to share how that theme helped Aviva touch communities across Canada.

The commercial 30 years ago spoke of the power of word of mouth. What it foretold, and what I am writing about here, is the power of social media. Last year, we wrote in Canadian Underwriter about using social media to engage our customers and help our broker partners do the same.

This year, we’re looking at the power of social media from a different angle: getting the public to be our best brand advocates. We did

54 Canadian Underwriter July 2010

this through our Aviva Community Fund (ACF) competition.

THE AVIVA COMMUNITY FUND Let’s set the table. Referred to by at least one journalist as ‘Community Idol,’ the Aviva Community Fund competition challenged Canadians to come up with ideas to improve their communities. Be they programs to give at-risk youth better opportunities, the construction of new playgrounds and anything in between, the programs were submitted to AvivaCommunityFund.org.

After submitting their projects, the idea generators needed to get Canadians to vote for their concept. The top 20 vote-getters from each of three rounds moved on to the semi-finals. The semi-finalists were again asked to generate votes for their ideas; the highest 25 vote-getters moved on to the finals, where a panel of judges evaluated the feasibility and sustainability of the projects. In the end, eight winners shared the competition prize of $500,000.

WHY DID AN INSURANCE COMPANY CREATE SUCH A CAMPAIGN? It came down to two core reasons: 1) investment in our communities is in line with our business model of supporting Canadians and their insurance brokers, and 2) the competition was a way

to expand Aviva brand awareness.

We know Canadians are a highly engaged, Web-using population. In fact, Canada ranks as a global leader in online video viewing, according to 2009 statistics compiled by comScore. Knowing this, and given the insurance industry’s budget challenges of the previous 18 months, we knew we had to take a different approach. As in traditional news media, in order for the public to pay attention to something or pass it along to their own personal networks, a concept needs to have a few basic components: it needs to be interesting, exciting and relatively easy upon which to act.

ENTER SOCIAL MEDIA One large question stood in front of us: would Canadians have the means to turn their good ideas into concepts and generate votes? This is where social media came in.

The campaign started with some traditional media components such as print ads and targeted television sponsorships, public relations outreach and direct mailings to schools, community groups and charities. From there, we turned to social media using Facebook and Twitter, online banner advertising and building outreach specifically to bloggers and online reporters.

AvivaCommunityFund.org was established not just as a site to explain how the competition worked, but also as a simple way for people to display their ideas. They could use the site to explain their ideas in plain text, post pictures and video, and respond to questions from voters and interested parties who posted in the comments section.

Idea generators received a couple of tips on how to ask for votes. Step 1: start with the simplest of concepts. Email everyone they knew — those associated with the project, friends, colleagues, family and anyone else they could think of who might vote for their great idea — and ask them to vote everyday. Step 2: Generate a following and keep them updated using social networking tools such as Twitter and Facebook. Thus, with a few key strokes, and perhaps by using funny photos and updates of a weekend

just past, idea generators could keep their followers engaged.

TELLING TWO FRIENDS, AND SO ON… In short, our job was to publicize the program, their job was to publicize the ideas and ultimately we both won.

We used Twitter and Facebook too, developing pages specifically for the ACF, providing updates on the number of ideas, votes, media articles, etc.This kept

This year, we’re looking at the power of social media from a different angle: getting the public to be our best brand advocates. us top of mind with anyone who registered on the site.

The response was incredible. Our prepromotion was designed to get the ball rolling; we hoped to have 20 or so ideas submitted prior to launch. Waking up one day to find that we were approaching the 200 submission mark was a great feeling. The competition was up and running very well, but it didn’t come without its issues.

As we were asking people to vote, we soon trapped system-generated votes and those entering fake email addresses to cast more votes. We chose a progressive response defence, adding filters and protocols to ensure a level playing field.

From there, the ball just kept rolling.

Three weeks after launch, we had more than 1,300 ideas submitted, 130,000 registered and 17,000 comments. The ACF was gaining significant momentum.

One astounding number is that 75% of all traffic to the ACF site came as the result of sharing. Organization Web sites were featuring our logo, encouraging all of their visitors to vote.

The most telling statistic came from Twitter. For a two-month period, 90% of all tweets about Aviva across the planet were about the Aviva Community Fund. This is a staggering figure: Aviva Canada accounts for only about 5% of the company’s sales and employee base worldwide.

TRADITIONAL MEDIA AND THE RESULTS It all comes back full circle when we add traditional media into the mix. Since many of the submitted ideas were community-based, the nets they each cast grew wide enough to catch the attention of the local media.These local media, in turn, started promoting their local ideas, asking the general population (who may not otherwise have known about the local idea) to vote as well.

The media response was spectacular.

The Aviva Community Fund and the submitted ideas were mentioned in more than 500 media stories, reaching an audience of more than 65 million.

After a grand total of more than 2,100 ideas submitted and more than 2-million votes cast, we were pleased to announce the eight winners of the Aviva Community Fund this past January. The tough part is that many great ideas and organizations didn’t get funding, but the feedback was still tremendous. We were told the ACF gave some of the organizations valuable experience in self-promotion. It even connected a few with other alternative sources of support. Take, for example, the Thirsty Church project in Nova Scotia. Once the local paper publicized they were out of the running for ACF funding (their idea was to add plumbing to the old church-turned-community centre), a local contractor stepped up to do the work for free.

So in the end, our success was based on the ability of those we engaged to spread the word about the Aviva Community Fund and, ultimately, Aviva. It worked out so well that the second Aviva Community Fund is scheduled to start this September. Oh, and did I mention?

We doubled the commitment to $1 million, and we see a huge opportunity for brokers to participate, too.

In case you’re still scratching your head wondering where the opening quote came from, it’s an ad for Faberge Organics Shampoo. It seems kind of ironic for a guy who ‘barely’ needs shampoo to use it as a metaphor for describing the power of social media. If you are unfamiliar with the campaign, type “and they told two friends” into a search on YouTube and you’ll be back in the ’70s in no time.

July 2010 Canadian Underwriter

55

MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

In the most recent canadianunderwriter.ca poll, we asked: Do you think Ontario’s auto insurance reforms, scheduled to be implemented Sept. 1, 2010, will improve the auto insurance product for consumers? An overwhelming 72.22% responded “No.” Only 27.78% of respondents are optimistic about the reform’s impact.

NO 72.22%

YES 27.78%

2

Paul Hancock [2] has joined Crawford & Company (Canada) Inc. as national director of Global Technical Services (GTS) Canada. Hancock has a Chartered Insurance Professional (CIP) designation with more than 25 years of experience in the claims industry.

“Paul’s dedication to quality, excellence and customer

56 Canadian Underwriter July 2010

service, along with his extensive experience in both claims investigation and claims management, have earned him a strong reputation within the industry,” said Pat Van Bakel, senior vice president of claims operations.

3

Global Special Risks (GSR), a wholesale insurance broker and managing general agent, has established a Canadian presence with the opening of an office in Calgary, Alberta. Selena Halasz will head the new office. She was most recently with Aon Reed Stenhouse’s energy practice group. “We are extremely pleased to establish a permanent presence in Canada and to appoint Selena Halasz to head our new office in Calgary,” said Rick Burns, president of GSR. “Calgary also gives us a solid base upon which to expand our business throughout Canada.”

4

Intact Financial Corporation and the University of Waterloo are launching a research project to identify initiatives and action plans that would ensure better adaptation to the potential consequences of climate change. The three-year project, Climate Change

Adaptation Project: Canada, is being funded in full by a grant from Intact Foundation.

The research project will identify the most appropriate initiatives and action plans that governments, businesses and civil society can undertake to adapt to the potential consequences of climate change on Canada’s ecological systems, its social fabric and the economy. The study will be headed by Professor Blair Feltmate, director of sustainable practice in the school of environment, enterprise and development (SEED). He is based at the University of Waterloo’s faculty of environment.

5

The Economical Insurance Group and Chubb Insurance Company of Canada are among four Canadian organizations that received recognition for their approaches to pandemic preparedness. Criteria for the first annual APEX Award for Pandemic Planning Excellence include: corporate governance; recovery objectives; planning assumptions; human resource pandemic policies; pandemic triggers and escalation; ongoing monitoring and reporting; pandemic awareness and communications; business

2 unit-level response procedures; and regular plan testing. The APEX Award is co-sponsored by Marsh Canada Limited and Roche Canada.

6

XL Insurance has launched coverage enhancement for adulterated ingredient product recalls. The product enhancement covers the recall of an insured’s product caused by an ingredient that is subject to a recall notice, even if there is no evidence that the insured’s product itself would have caused injury. Traditional product contamination policies require the insured to prove their own product is contaminated and would cause injury. As a result, a company caught up in a nationwide recall of products caused by an adulterated (or added) ingredient may find its own products are not deemed ‘contaminated’ under traditional coverage.

MOVES & VIEWS

9

7

8 was called to the Ontario Bar in 2003. Since his call, Ballard has practiced in many areas of insurance litigation including personal injury, medical malpractice, product liability, disability insurance and class action disputes.

9 The biggest recall in U.S. history occurred in 2009, when hundreds of products were recalled due to the inclusion of contaminated peanuts supplied by Peanut Corporation of America.

“Many companies found they were either uninsured or that their policies didn’t apply when they recalled their product with contaminated ingredients,” said Ed Mitchell, global product rec all manager for XL Insurance.

7

Derek Ballard has joined Blouin Dunn LLP. Ballard obtained his law degree at the University of Manitoba in 2002 and

8

Willis Re is opening an office in Toronto on Sept. 1 to complement Willis Group’s current presence in the city. “Adding an office in Toronto will enable us to build on our success in Canada and offer an enhanced level of service to our current and future clients,” Willis CEO Peter Hearn said in a press release. Robert M. Wildbore [8], currently executive director at Willis Re, will relocate from London to Toronto to assume the role of executive vice president and head of the new office. Wildbore most recently was responsible for the group’s reinsurance business in the English-speaking Caribbean.

The Insurance Brokers Association of B.C. (IBABC), with the support of RSA and CNS, has launched the New Broker Essential Skills certificate program. The program is intended to provide entrylevel licensees with the technical knowledge, customer-service skills and learning habits that are the foundation of a successful career in the property and casualty insurance industry. It’s designed for junior licensees employed by a B.C. brokerage who have less than four years of experience in the industry.

Program requirements include (among others): • incorporating some Canadian Accredited Insurance Broker (CAIB) licensing/ designation courses into the program syllabus; • requiring students to take the online course ‘Customer Service for the Insurance Professional; and • requiring students to complete five seminars designed specifically for the program covering: E&O avoidance; broker management systems; ethics; claims reporting and fraud indicators.

IBABC president Richard Pindral described the program as “a turn-key training program that gets new em-

ployees well on their way to an insurance designation and provides a systematic learning approach for the more intangible skills a broker needs. “I think it will become a cornerstone of brokerage training programs for entrylevel licensees.” The program is made possible by a $250,000 contribution from CNS (acquired by the RSA Group in 2008).

CORRECTION A statement made in the cover story published in the May 2010 edition of Canadian Underwriter, ‘Riverboat Gambling,’ incorrectly states this is the first time Ontario has introduced consumer choice in the auto insurance product.

As one reader pointed out, a flyer entitled ‘Your Choice’ was issued in 1996 for Bill 59. The flyer contained information provided by RIBO and appears to be very similar in appearance to the ‘More Choice’ flyer outlining the changes effective Sept. 1, 2010). In 1996, as in 2010, the consumer had a choice to buy back coverage that had been reduced.

Canadian Underwriter apologizes for the error.

July 2010 Canadian Underwriter

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GALLERY

The Ontario Risk and Insurance Management Society (ORIMS) celebrated five decades with a 50th Jubilee Gala on May 27. Guests arriving at the Liberty Grand on the grounds of the Canadian National Exhibition (CNE) in Toronto were transported back in time by the sounds of the Swing Shift Big Band and an ORIMS exhibition and midway — complete with candy apples and cotton candy. A video presentation during dinner included past presidents of the association offering their memories and thoughts of the risk management profession over the past five decades.

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

Continued on Page 60 July 2010 Canadian Underwriter

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GALLERY ORIMS 50th Jubilee Gala, continued from Page 59

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

July 2010 Canadian Underwriter

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GALLERY

Insurance Brokers Association of Ontario (IBAO) and the Young Brokers Council (YBC) hosted its 6th Annual YBC Conference in downtown Toronto on June 3.

Delegates enjoyed educational sessions during the day, with presentations given by IBAO executive staff, insurer CEOs and industry experts. A minitrade show and exhibit hall allowed attendees to check out the latest product offerings from carriers and vendors. A live performance by Canadian R&B songstress Ivana Santilli spiced up Hospitality Night as delegates cut loose.

62 Canadian Underwriter July 2010

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

July 2010 Canadian Underwriter

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GALLERY

Canpro Global jazzed up the Vancouver Art Gallery with its Jazz Night on May 20.

The Scott Robertson Trio provided the tunes, while attendees enjoyed a full bar, hors d’oeuvres, a special viewing of the gallery’s latest exhibition, Fiona Tan: Rise and Fall. The Canpro Foundation took the opportunity to raise funds for the UNICEF Haiti Relief Fund.

64 Canadian Underwriter July 2010

APPOINTMENT

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

For the launch of its new office in Toronto, specialist business insurer QBE hosted more than 350 guests at The Grand Banking Hall at One King West in Toronto for an evening of drinks, canapés and entertainment.

The guests, a mix of managing general agents, brokers, lawyers and adjusters, enjoyed exclusive performances from aerial ballet group Les Oiseaux du Paradis and the opportunity to create personalized flipbooks from short videoclips of themselves with Flip Book studio from Party Impressions. QBE general manager David Edgar delivered a speech, as did David Constable and Ash Bathia from QBE’s European headquarters in London. QBE opened its Toronto office to provide face-to-face service for the business it writes through Lloyd’s of London for the Canadian commercial insurance market.

Dr. Anne Walker The partners of McCague Borlack LLP are pleased to announce the appointment of Dr.Anne Walker.

Dr. Anne Walker is a practising veterinarian who applies her experience and expertise in the health sciences to the resolution of a broad range of legal problems.

Anne practises civil litigation, focusing on insurance law, including animal and veterinary law, personal injury, professional liability, occupiers’ liability, motor vehicle defence, property (with a focus on livestock), transportation, and marine. She has extensive experience working with health care and scientific professionals and is the chair of the firm’s Animal Law practice group.

McCague Borlack LLP is the largest insurance litigation boutique in Canada.

With over 50 lawyers, 15 clerks and 40 support staff, the firm has the bench strength and capability to meet our clients needs efficiently and effectively without compromising our tradition of personalized service.

McCague Borlack LLP provides complete coverage, subrogation, dispute resolution and risk management services across Canada through its affiliation with Canadian Litigation Counsel and throughout the United States, Mexico, United Kingdom and Europe as an affiliated member of The Harmonie Group.

July 2010 Canadian Underwriter

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GALLERY

Swiss Re held a FareWelcome cocktail reception on June 10 to bid farewell to former CEO of Swiss Re in Canada Jean-Jacques Henchoz, who returned to Switzerland, and welcome Sharon Ludlow as the new CEO of Swiss Re in Canada. Attendees enjoyed stunning views of Toronto from the balconies at Panorama (located on the 51st floor of the Manulife Centre at Bay & Bloor). Pierre Ozendo, chairman and CEO of Swiss Reinsurance America Corporation, offered very kind words about Henchoz and Ludlow, as did George Cook, president and CEO of The Dominion of Canada General Insurance Company.

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Canadian Underwriter July 2010

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

July 2010 Canadian Underwriter

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GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

CARSTAR Collision Centres raised more than $150,000 across North America for the Canadian Cystic Fibrosis Foundation, the Make-A-Wish Foundation in the United States and local fundraising groups. More than $117,000 was raised in Canada alone during the annual CARSTAR Soaps it Up for Cystic Fibrosis initiative, in which volunteers helped wash more than 5,500 cars. This year's event, A Splash of Magic, was held on Jun. 12 at more than 80 locations across Canada. In keeping with the theme of magic, CARSTAR enlisted illusionist Brian Michaels

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Canadian Underwriter July 2010

as spokesperson for the National Charity event.

Michaels has cystic fibrosis and is encouraged by all the community support behind making this fundraiser a reality in so many locations across the country each year. “Over the past seven years, the CARSTAR Soaps it Up for Cystic Fibrosis campaign has grown and become an important fundraising event for our customers, employees and partners,” said Sam Mercanti, president and CEO of CARSTAR Automotive Canada Inc. “We’re very honoured to have our franchise partners and staff who take the lead in their markets and are committed to finding a cure for this disease.”

APPOINTMENT

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

XL Capital celebrated its fifth annual Global Day of Giving, an employee volunteer day dedicated to supporting the communities in which XL companies operate. More than 2,000 XL colleagues in 25 countries helped out more than 170 community projects.

In Montreal, XL employees lent a hand to Moisson Montreal, Canada’s largest food bank. XL’s Toronto office split into two teams and focused their efforts on sprucing up the Cabbagetown Youth Centre and the Toronto Friendship Centre. At the Toronto Friendship Centre, about 30 XL colleagues painted the community centre, a drop-in location for people living through “the affordable housing crisis,” At a time when job shortages and changes in the social service system have increased the number of people living in hostels and on the streets, the Toronto Friendship Centre provides a safe, warm and

friendly place for those who are homeless or marginally homeless. XL’s team was able to give nearly the entire interior of the centre a fresh coat of paint and planted a small flower garden outside. Another 24 XL employees in Toronto spent their Global Day of Giving at the Cabbagetown Youth Centre.

Founded as the Cabbage-

town Boxing Club in 1972, the CYC began providing social programs for youth in Toronto’s eastern, inner-city core. There, XL staff repaired and painted walls and baseboards.

They also installed new ceiling tiles to make the centre’s classrooms — used for English-as-a-second-language classes — look like new.

Barb Reddick Carolyn Horan and Jean Faulkner, cochairs of WICC Ontario are pleased to announce the appointment of Barb Reddick to the position of Executive Director & Secretary.

Barb has excelled in her 16 year insurance career. Barb spent the first 13 years of her career in the industry as a broker owner in the GTA region. For the past 3 years Barb has been managing her book of business and acting as a consultant to industry peers.

Barb has also spent a number of years volunteering for not-for-profit organizations in an administrative role as well as board chair. Barb is looking forward to bringing her extensive business experience to the Ontario chapter of WICC. Since the inception of WICC in 1996,with the help of the entire insurance industry and its supporters, over $4 million has been raised in support of cancer research and education. Numerous individuals, companies and associations within and related to the insurance industry have held or sponsored events specifically to raise funds for WICC or directed the proceeds of their annual events to WICC. The involvement of all WICC supporters and volunteers has made it possible for WICC to achieve its Mission: To mobilize the Canadian Insurance Industry in the fight against cancer by focussing on cancer research, support and education.

wicc www.wicc.ca July 2010 Canadian Underwriter

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GALLERY

Career Connections and the Insurance Institute of Canada raised a glass to celebrate Career Connections’ initiatives throughout 2009-10 and to announce initiatives for the 2010-11 year. Attendees gathered on June 17 in Toronto at the National Club. Organizers offered a special thanks to ambassadors and stakeholders who contributed to the Career Connections program over the course of the year.

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APPOINTMENT

GALLERY See all photos from this event at www.canadianunderwriter.ca/gallery

The inaugural Canadian Insurance Financial Forum (CIFF) met at Exhibition Place in Toronto on May 19 to discuss the important financial issues of the day.

The forum featured seminars on a wide variety of financial topics, including new models for capital management; actuarial predictive modeling such as credit scoring; key tax issues (such as the impact of the HST and proposed changes to the GST); IFRS; and ways to manage financial and operational risks.

The day concluded with a CFO panel that considered issues such as mergers and acquisitions potential and rate adequacy and other topics.

Lyna Newman Carolyn Horan and Jean Faulkner,co-chairs of WICC Ontario are pleased to announce the appointment of Lyna Newman to the position of Director, Golf Chair.

Lyna has over 20 years experience in the insurance industry both with insurance companies and most recently with RRJ Insurance Group Limited as the Vice President, Human Resources and Operations. Lyna’s expertise in operational strategy, mergers and acquisitions and human resources has led her to an exceptional career within the insurance industry.

During her time as Executive Director of WICC Ontario, Lyna was instrumental in establishing numerous operational procedures, overseeing the incorporation process, developing the website and providing guidance to the various event sub-committees. After 9 years as Executive Director & Secretary of WICC Ontario Lyna is looking forward to bringing her expertise to her new role as Director and chairing the golf committee.

Since the inception of WICC in 1996, with the help of the entire insurance industry and its supporters, over $4 million has been raised in support of cancer research and education. Numerous individuals, companies and associations within and related to the insurance industry have held or sponsored events specifically to raise funds for WICC or directed the proceeds of their annual events to WICC. The involvement of all WICC supporters and volunteers has made it possible for WICC to achieve its Mission: To mobilize the Canadian Insurance Industry in the fight against cancer by focussing on cancer research, support and education.

wicc www.wicc.ca July 2010 Canadian Underwriter

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GALLERY

Hannover Re showed appreciation to its friends and clients at a NiagaraOn-The-Lake Event. Held at the Queen’s Landing on June 16 and 17, guests took in presentations by members of the reinsurers’ North American and Canadian executive team. Afterwards, they went on a tour of the Cave Springs vineyard in the nearby town of Jordan, Ontario.

Attendees finished the first day with a gourmet wine pairing dinner and a beautiful sunset at the Windows on Twenty.

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Canadian Underwriter July 2010

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GALLERY

Assured Automotive has partnered with the Women Certified Network. Women Certified is designed to teach professionals how to communicate effectively with and listen to women — not teach them how to sell their products or services better. Hazel McCallion, mayor of Mississaugua, Ontario, cut the ribbon at a celebration commencing the new partnership on June 14.

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Canadian Underwriter July 2010

If you’re the one with the ball,

make it count.

You can be an expert and play the game, or you can apply your expertise and win it. Choose a business partner with the strength, skill and agility to execute the strategy and you’ll take it to the goal every time.

Property & Inland Marine Division Executive Liability Division

GreatAmericanInsurance.com Scotia Plaza, Suite 2100 I 40 King Street West I Toronto, Canada M5H 3C2

“In a little place

called Mount Jackson” Ian, Customer, Nova Scotia

NS

Ian’s story begins with a bad car accident in a remote area of North Virginia. He wasn’t hurt, but his car was a wreck and towed to a town called Mount Jackson.

He called Intact Insurance from his motel and talked to Emma Doiron, a Claims Representative. It’s why he wrote us a letter. “I was amazed to be on my way the next day in a rental car with everything being looked after.” At Intact Insurance we know accidents can happen anywhere. It’s why we promise to get your customers back on track in a way that’s respectful, fair and as easy as possible. Because we believe insurance isn’t about things, it’s about people. People like Ian, who love the open road.

HOME • AUTO • BUSINESS Certain conditions, restrictions and exclusions may apply. Products and services are not available in Saskatchewan or Newfoundland. The BIP logo is a registered trademark of the Insurance Brokers Association of Canada (IBAC) used with permission. All other trademarks are properties of Intact Financial Corporation used under license. © 2010, Intact Insurance Company. All rights reserved.