CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006  Les 29 et 30 juin 2006 Ottawa, Ontario PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA Agenda 2005 Activities OSFI reinsurance project IAIS financial reinsurance paper Information requested in AAR 2006 Activities CIA Reinsurance Task Force Future plan PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA 2005 OSFI reinsurance project Reinsurance is an effective risk management tool when it is properly used to transfer insurance risk between counterparties A problem arises when there is no significant risk transfer between ceding company and the reinsurer, and the primary motive of reinsurance is to – smooth income – enhance earnings – reduce capital requirements PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA 2005 OSFI reinsurance project In June 2005, OSFI issued a letter to insurance companies engaging in reinsurance – Develop risk management practices on reinsurance – Review each major reinsurance treaty : the presence of risk transfer : intent of entering into the treaty : side letter or other offsetting treaty : impact on financial statement presentation – Report findings to Board with copy to OSFI PC-1: risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA 2005 OSFI reinsurance project –Some of the findings :Foreign branches generally rely on the reinsurance polices and practices of head office :Board of some companies are apprised of risk transfer issue :Some insurers have already enhanced the risk transfer governance while some are still enhancing the policy –Follow up with companies as part of supervision PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA IAIS financial reinsurance paper In March 2005, IAIS established a task force to draft a finite reinsurance paper On October 21, 2005, the finite reinsurance paper was passed at the IAIS General Meeting The paper is a supervisory guidance paper PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA IAIS financial reinsurance paper From a supervisory perspective, key issues addressed in paper are –Adequate risk transfer –Appropriate accounting, and –Appropriate disclosure PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA IAIS financial reinsurance paper Recommended supervisory approaches include – Review insurer’s reinsurance strategy – Understand motives of entering into arrangement – Determine amount and types of risk transferred – Have access to all reinsurance documents including side letters – Require insurer to perform analysis of risk transfer and economic value of the transaction – Have power to take corrective measure and apply sanction against insurer who mislead supervisor – Cooperation among supervisors PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA Results of information requested in 2005 AAR –Refer to presentation by Pierre Dionne –Out of 172 companies, 77 responded –A few companies mentioned that the treaties may fall short of risk transfer requirement –The remaining companies indicated no financial reinsurance –95 companies did not responded. We assume these companies do not have any financial reinsurance PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA CIA Reinsurance Task Force – Refer to presentation by Claudette Cantin –OSFI participated in the Task Force –Shared our findings on Reinsurance Project with Task Force PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA Future plan – Study the report by the Reinsurance Task Force – Follow up on some companies who did not respond in the 2005 AAR – Update the 2006 Memorandum to the P&C Appointed Actuary – Possibly revise OSFI guideline D-7 PC-1: Risk TransferAugust Chow

CIA Annual Meeting  Assemblée annuelle de l’ICA Thank you PC-1: Risk TransferAugust Chow