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

PACICC – The P&C Actuary’s Role in Solvency Monitoring Page 18
Reinsurance is an important risk management tool available to an insurer. It can
be used to reduce insurance risks and the volatility of financial results, stabilize
solvency, make more efficient use of capital, better withstand catastrophic
events, increase underwriting capacity, and to draw on reinsurers’ expertise.
However, reinsurance exposes an insurer to other risks, including operational,
legal, counterparty, and liquidity risks. The combination of these risks can make
reinsurance complex and challenging to implement effectively. Inadequate
reinsurance risk management practices and procedures can materially affect an
insurer’s financial soundness and reputation, and can ultimately contribute to its
failure.
This Guideline sets out OSFI’s expectations for effective reinsurance practices
and procedures. These practices and procedures should form an important part of
an insurer’s overall reinsurance risk management plan. It applies to all federally
regulated insurers, including life insurers and property and casualty insurers,
domestic insurance companies and foreign insurance companies in respect of
their insurance business in Canada, registered reinsurers, and fraternal benefit
societies (collectively referred to as FRIs), that are party to reinsurance cessions,
retrocessions, and, where applicable, to assumption reinsurance transactions. 34
Similar to our comments about Guideline D-7, it is expected that the many P&C actuaries who
work for federally regulated reinsurance companies or primary companies in the area of
reinsurance would be familiar with the regulatory requirements as set out in Guideline B-3.
Memorandum for the Appointed Actuary’s Report on Property and Casualty Insurance
Business
The Memorandum for the Appointed Actuary’s Report on Property and Casualty Insurance
Business (OSFI Memo to the AA) provides critical guidance to P&C actuaries on an annual basis.
Pursuant to Section 667 of the ICA, OSFI routinely updates this guidance, and typically releases it
in the early fall of each year. The purpose of the OSFI Memo to the AA is to describe the
guidelines and requirements for AAs who prepare reports to be filed with the P&C-1 and P&C-2
annual returns. The OSFI Memo to the AA applies to federally regulated P&C insurance
companies and branches. 35
The “Introduction” of the 2010 OSFI Memo to the AA states:
This Memorandum describes the requirements of the Office of the
Superintendent of Financial Institutions (OSFI) with respect to the Appointed
Actuary’s Report (AAR), sets out the minimum standards used in determining
the acceptability of the AAR and provides guidance for actuaries preparing
reports in matters relating to presentation, level of detail and nature of the
discussions to be included.
…
34 Guideline B-3, December 2010, cover note.
35 Cover letter from Stuart Wason, Senior Director, Actuarial Division, Regulation Sector, to the OSFI
Memo to the AA, October 26, 2010. Mr. Wason notes that for companies regulated by FSCO, the
requirements are basically the same apart from differences due to differences in laws, regulations and filing
instructions.