The P&C Actuary's Role in Solvency Monitoring - Property and ...

PACICC – The P&C Actuary’s Role in Solvency Monitoring Page 16
The guideline outlines the conditions that reinsurance of short-term insurance
contracts must meet in order to be accounted for as reinsurance by federally
regulated property and casualty insurance enterprises. It also sets out the
accounting standards to be applied to these reinsurance contracts.
The guideline applies to all ceding enterprises including assuming enterprises
that retrocede insurance risks. The guideline also applies to assuming enterprises,
that do not retrocede insurance risks, with respect to the guidance on
indemnification against loss or liability and the disclosure requirements, where
relevant. 31
Guideline D-7 is organized as follows:
― Introduction to reinsurance of short-term insurance contracts
― Definition of insurance risk
― Indemnification of a ceding enterprise against loss or liability
― Reporting of assets, liabilities, revenues and costs
― Recognition of revenues, costs, assets and liabilities
― Disclosure
― Appendix - Definition of terms
Many P&C actuaries work for federally regulated reinsurance companies or primary companies
in the area of reinsurance. Thus, it would be expected that these actuaries would be familiar with
the regulatory requirements as set out in Guideline D-7.
Earthquake Exposure Sound Practices, Guideline B-9
Guideline B-9, issued in May 1998, sets out sound practices for the management and
measurement of earthquake exposures. Since the end of fiscal year 1998, federally regulated P&C
insurers have been required to estimate their probable maximum loss (PML) arising from a major
earthquake either through the use of computer-based model(s) or through the application of
default loss estimate (DLE) standards. Many actuaries work in the area of catastrophe modeling
both within insurance companies and with service providers to insurers and assist companies in
complying with Guideline B-9.
Guideline B-9 sets out:
― Common parameters
― Insurance coverage information
― Risk characteristics
― Loss estimation factors for consideration in estimating PMLs
The purpose of this information is to enable OSFI to assess an individual insurer’s capacity and
financial preparedness for a major earthquake.
31 Guideline D-7, February 1998, cover note, bold terms indicated defined terms.