Canadian Underwriter November 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

N O V E M B E R 2 0 10 A Business Information Group Publication #40069240

Under Pressure 2011 Reinsurance Market Outlook

Aggregate Cover

By Robert Finnie

Shifting Domiciles

By Vanessa Mariga

The forces of nature can strike at any time.

Let’s discuss how to plug our defenses.

As the Earth’s climate is changing, so are the frequency and intensity of floods and storms. What’s the answer: retreat from the most hazardous locations? Protect vulnerable areas with sea walls, drainage systems and better building codes? Or take measures to transfer the financial risk and rebuild? All we know at Swiss Re is that, as our climate changes, we must adapt apace. Which is why we’re helping countries and communities develop strategies to protect themselves against the forces of nature. Risk is the raw material we work with; what we create for our clients is opportunity.

Plug into www.swissre.com

Size 8-3/8”X 11-1/8” - Live image area - .25” bleed set up as 4 color - file: 10_Plug_Property_Canadian_Und_Can_Sept 15

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VOL. 77, NO.11, NOVEMBER 2010 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

2011 Reinsurance Market Outlook Several factors are putting pressure on the Canadian reinsurance industry, including soft market pricing; mergers and acquisitions; a shift from proportional to excess of loss treaties; and regulatory policies and requirements.

Combined, they are squeezing the growth of the country’s reinsurance premium pie.

38 FEATURES

14

46

Aggregate Cover

Shifting Domiciles

Aggregate reinsurance cover is one way for primary insurers to transfer their risk in ‘mini-cat’ situations, when the storm damage starts to add up.

Many reasons explain the eastward shift of (re) insurers from Bermuda to Europe, including changing tax laws, incentives, an evolution in technology and trends in global premium growth.

BY ROBERT FINNIE

24 Reinsurance P3s Canada has helped fund the first multinational parametric reinsurance facility in the Caribbean, an example of a public-private partnership (P3) model.

BY BILL LaCOURT AND NIKHIL da VICTORIA LOBO

BY VANESSA MARIGA

54 Golf Carts Manitoba’s Court of Queen’s Bench has ruled that a golf cart is an automobile for the purpose of determining no-fault benefits, calling into question other legal definitions of the word ‘automobile.’

18 Reinsurance M&A

50 A.M. Best Webinar

Insurance and reinsurance merger activity, both globally and in Canada, is beginning to show signs of new life after a period of relative dormancy.

Reinsurance experts affix numbers to the kind of catastrophe(s) it would take to reverse the current inertia towards an ongoing soft market.

BY JAMIE LYONS, GEOFFREY LUBERT

BY VANESSA MARIGA

AND SCOTT JELLOUS

52 CIAA Conference

28 National Approach The Supreme Court of Canada formulates a national approach to coverage for construction deficiency claims under the CGL policy.

The expanded role of CFOs and the importance of sustainability to insurers were featured at the Canadian Insurance Accountants Association (CIAA)’s 47th Annual Conference.

BY CHRISTOPHER R. DUNN

BY MICHELLE RAMSAY

34 IBAO Convention

57 Heads Out of Sand

Transparency and the province’s auto reforms emerged as key themes throughout the Insurance Brokers Association of Ontario (IBAO)’s 90th Annual Convention in Niagara Falls.

Even the most ardent ostriches in the world of underwriting D&O insurance must be aware of a trend in which the U.S. plaintiff’s bar is taking an active interest in Canada’s approach to class action litigation.

BY DAVID GAMBRILL AND VANESSA MARIGA

BY JAY A.R. CASSIDY

BY JENNIFER D. PEREIRA

November 2010 Canadian Underwriter

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VOL. 77, NO.11, NOVEMBER 2010

PROFILE

12 Risk Control Jack Lee, incoming Toronto Insurance Conference (TIC) president, notes how the evolution of commercial insurance has placed a premium on broker advice for complex risks.

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

Art Director Gerald Heydens Art Consultation Pylon.ca

Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793

Production Manager Gary White (416) 510-6760

Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800

Subscriptions/Customer Service Gail Page gpage@bizinfogroup.ca (416) 442-5600 ext 3549

Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788

Circulation Manager Mary Garufi mgarufi@bizinfogroup.ca (416) 442-5600 ext 3545

Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122

Print Production Manager Phyllis Wright

BY VANESSA MARIGA

SPECIAL FOCUS

6

Editorial

8

Marketplace

60 Moves & Views 62 Gallery

Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114

President Bruce Creighton Vice President Alex Papanou

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Canadian Underwriter November 2010

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EDITORIAL

Finding Clarity in Catastrophe

Insurers have long argued psychological and physical injuries shouldn’t be lumped together when determining catastrophic impairments. Finally, insurers have a court authority that agrees with them, although the decision is under appeal.

David Gambrill, Editor david@canadianunderwriter.ca

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Canadian Underwriter November 2010

As Ontario prepares to hash out a new definition of catastrophic impairment, an Ontario court has delivered the clearest expression yet on the issue of combining physical and psychological impairments to reach the 55% threshold for “whole person impairment” (WPI).

In Kusnierz v. The Economical Mutual Insurance Company, the Ontario Superior Court basically sided with insurers, who have long argued that courts and arbitrators should not be combining psychological and physical injuries for the purpose of determining whether an accident victim meets the 55% threshold for a catastrophic injury.

The issue is of critical importance to insurers because a catastrophic impairment designation means auto injury victims are eligible for a significantly higher amount of accident benefits. These impairments can mean the difference between up to $100,000 in medical-rehabilitation benefits and up to $1 million. The impact on insurers’ claims costs is huge.

The legal issue centres on two subsections in the Statutory Accident Benefits Schedule (SABS) — ss. 43.2(1.1) (f) and (g).

Subsection (f) says a catastrophic impairment is “an impairment or combination of impairments that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment [The Guides], 4th edition, 1993, results in 55 per cent or more impairment

of the whole person.”

Subsection (g) says a catastrophic impairment could be the result of a “class 4 impairment (marked impairment) or class 5 impairment (extreme impairment) due to mental or behavioural disorder.”

Trial lawyers, judges and arbitrators have been having a field day with the reference in Subsection (f) to a “combination of impairments.” Based on this language, decisions abound in which triers of fact have determined percentages of physical and psychological impairments, added them together, and then found a person to have exceeded the 55% threshold.

Insurers have long argued this sort of combination was never intended under the SABS. Finally, insurers have a court authority that agrees with them, although the decision has been appealed.

In Kusnierz, Ontario Superior Court Justice Peter Lauwers wrote: “The Guides deliberately do not provide a mechanism for translating mental and behavioural impairments into percentages that can be used in determining the WPI. The lack of a mechanism is not an oversight.”

Lauwers then cites the Guides, which state: “There is no available empiric evidence to support any method for assigning a percentage of [psychiatric] impairment of the whole person . . . The results of such assessments are inconsistent and therefore unreliable.”

Alas, Kusnierz is but one decision in a cacophony of

noise suggesting precisely the opposite view. A clear legal definition is therefore just as elusive to insurers now as it ever was.

Lauwers’ decision does suggest a way out of the dilemma.

He notes the Workplace Safety and Insurance Board has bridged the gap between physical and psychological injury determinations, even though it uses the third edition of the very same Guides to which the insurance legislative regime refers.

“Some workers injured in a workplace accident do suffer both physical impairments, and mental and behavioural impairments,” Lauwers wrote, referring to testimony given

by Dr. Michel Lacerte. “He [Lacerte] testified that since the Guides do not provide a method for translating medical and behavioural impairments on a percentage basis so that they can be combined with physical impairments, the WSIB has created a policy that sets out a method for translating findings of mental or behavioural impairments into percentage terms that can be combined with physical impairments under the Guides.

Dr. Lacerte testified that there is no parallel in the automobile area.”

This is food for thought in upcoming discussions that should have already been underway. Given the absence of clear direction from courts and arbitrators on this issue, it is now more important than ever for industry stakeholders to define catastrophic impairments clearly once and for all.

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MARKETPLACE

Canadian Market SASKATCHEWAN BROKERS CONCERNED BANKS, DIRECTS WILL BUY BROKERAGES TO OBTAIN SGI CONTRACTS The Insurance Brokers Association of Saskatchewan (IBAS) is anticipating a meeting with Tim McMillan, the minister responsible for Saskatchewan Government Insurance (SGI), about the government’s proposed plan to allow the province’s motorists to obtain licenses from agencies that do not have contracts with SGI. Saskatchewan’s policy change is not yet written. The independent broker channel in the province is concerned the proposed move would allow bank-owned insurers and direct writers an opportunity to buy brokerages for the purpose of retaining the brokers’ SGI contracts.

“With the proposed legislation it will be possible for these [property and casualty] businesses to purchase a brokerage and retain issuing contract,” observed Heather Pottle, president of IBAS, at the Insurance Brokers Association of Ontario (IBAO)’s 90th annual convention in Niagara Falls on Oct. 20.

In a follow-up interview, Pottle said brokers were concerned the proposed legislation might allow an insurer represented through an agency channel to buy an in-

8

Canadian Underwriter November 2010

dependent brokerage’s book of business and to retain the brokerage’s SGI issuing contract, without having an SGI Canada contract in place.

The agent would then be able to take the brokerage’s book of business and place it with the agent’s insurer.

“That’s where IBAS’s concern stems from — will bankowned insurers also be able to do that?”

INSURERS’ 2009 RESULTS NOT INDICATIVE OF COMPLETE FINANCIAL RECOVERY: OSFI The operating results of Canada’s federally licensed property and casualty insurers still have not recovered to pre-financial crisis levels, Canada’s federal solvency regulator notes in its 200910 annual report.

“The operating results of the property and casualty (P&C) insurance sector have been significantly lower in the past two years compared to immediately preceding years,” the Office of the Superintendent of Financial Institutions (OSFI) says in its report, The Importance of Managing Risk. “Net income in the sector in 2009 was $2.5 billion, a negligible increase over the prior year, and still not recovered to pre-2008 levels....

“Industry return on equity was 7.6%, a reduction from 8% in 2008 and well down from the 16% recorded in 2007.”

OSFI notes the major un-

derwriting challenges remain in personal lines — personal auto, (in particular, Ontario auto) and personal property.

RSA CANADA TO BUY GCAN FOR $420 MILLION RSA Canada has entered into an agreement to purchase GCAN Insurance Company and its parent company, Glenstone Capital Incorporated, from the Ontario Teachers’ Pension Plan Board for approximately $420 million.

“This is actually the secondlargest insurance company acquisition in the past 10 years in the Canadian P&C market, and it’s important because it’s now moved RSA up to the fourth-largest general insurer in Canada,” RSA Canada president and CEO Rowan Saunders said in an interview.

“GCAN is really a scarce opportunity in the Canadian marketplace. It’s a commercial insurance company that focuses on mid-market risks, large commercial corporate risks and specialty business.

And that’s an area in which RSA has been looking to both bring in business and extend our appetite. This really accelerates our commercial insurance vision and strategy.”

Prior to the deal, RSA Canada stood fifth in terms of 2009 premiums written. The consolidation is expected to increase RSA Canada’s premium base from $1.9 billion (based on 2009 figures) up to $2.2 billion.

GCAN wrote annual premiums of approximately $255 million in 2009. The company

employs 148 people in four locations across Canada, and partners with a network of 130 brokers.

Completion of the transaction is subject to regulatory approval.

Claims E&O INSURERS CAUTIONED TO BE AWARE OF INQUESTS, DISCIPLINARY HEARINGS AGAINST INSUREDS Insurers defending professionals should be aware of inquest or disciplinary hearings involving insureds — even though these ‘sideshow’ proceedings might not be covered under E&O policies — because of the potential impact the proceedings may have on a subsequent civil action that does come under the E&O policy.

Jamie Trimble of Hughes Amys LLP raised the issue of the need to pay attention to inquests and disciplinary hearings at The ARC Group of Canada’s 5th Annual Seminar & Cocktail Reception on Oct. 28 in Toronto.

“There are some professional liability policies that do grant some defence costs relief to the insured, presumably because that insurer recognizes that the impact of the disciplinary hearing, or whatever ‘sideshow’ it is, will come back to haunt them on the civil action side,” Trimble said.

Disciplinary hearings are tricky for E&O insureds, Don Dear of McLennan Ross LLP

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MARKETPLACE

noted, for at least three reasons: • the standards of regulatory bodies differ with each profession and territory; • sometimes people sitting in judgment on behalf of selfregulated professional bodies are tougher on peers appearing before them; and • evidence and testimony made public at the inquest or disciplinary hearings can sometimes find their way into future trials.

contributed to improved business performance included: • management of individual risk exposures (69% of respondents); • risk monitoring and reporting

(65% of respondents); • risk limits and controls (64% of respondents); and • the use of economic capital in decision-making (56% of respondents).

The survey also found insurers are increasingly documenting their corporate risk appetites and tolerance levels (47% in 2008 compared to 59% in 2010).

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Of the 465 insurance and reinsurance executives surveyed around the world, 58% felt satisfied with their ERM program’s performance over the past 18-24 months.

Thirty-one per cent were neutral and 11% were dissatisfied.

More than two-thirds of respondents reported their risk management programs contributed to enhanced business performance in such areas as core risk control technologies and a strengthened risk culture.

The main ERM areas that

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November 2010 Canadian Underwriter

9

Check.

Mate.

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As the level of competition in the insurance industry ramps up, so does the need for brokers to hone their business skills in order to advance in their careers, to build their business; even, perhaps, to open their own brokerages. And the need for owners to groom the best qualified talent for succession will only increase, too.

There is no better way to gain these strategic business skills than through a business degree, and now brokers have a unique opportunity to acquire such credentials through a Laurentian University MBA or H.B.Com degree. Online.

With an outstanding reputation for this calibre of business education, Laurentian University will recognize senior broker industry credentials and professional experience to enable students to fast-track their degrees.

Both programs are open to members in good standing with their provincial broker association, and who have successfully completed their CAIB or CPIB designation. Admission to the online MBA program requires a 4-year undergraduate degree, although brokers with no degree but with exceptional industry experience will also be considered. Applicants to the online H.B.Com program must hold a college diploma. (For full details visit your provincial association web site.)

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Check.

Mate.

The ideal opportunity for insurance brokers to up their game is imminent — Laurentian University’s online Honours Bachelor of Commerce (H.B.Com) and Master of Business Administration (MBA) programs, offered through an exclusive arrangement with your insurance brokers association.

As the level of competition in the insurance industry ramps up, so does the need for brokers to hone their business skills in order to advance in their careers, to build their business; even, perhaps, to open their own brokerages. And the need for owners to groom the best qualified talent for succession will only increase, too.

There is no better way to gain these strategic business skills than through a business degree, and now brokers have a unique opportunity to acquire such credentials through a Laurentian University MBA or H.B.Com degree. Online.

With an outstanding reputation for this calibre of business education, Laurentian University will recognize senior broker industry credentials and professional experience to enable students to fast-track their degrees.

Both programs are open to members in good standing with their provincial broker association, and who have successfully completed their CAIB or CPIB designation. Admission to the online MBA program requires a 4-year undergraduate degree, although brokers with no degree but with exceptional industry experience will also be considered. Applicants to the online H.B.Com program must hold a college diploma. (For full details visit your provincial association web site.)

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PROFILE

Returning to Relationship-based Advice Vanessa Mariga Associate Editor

Jack Lee, incoming Toronto Insurance Conference (TIC) president, notes how the evolution of commercial insurance has highlighted the importance of broker advice for complex risks.

For BFL Canada president Jack Lee, becoming president of the Toronto Insurance Conference (TIC) is an instance of déjà vu.

He already held the position 20 years ago, when Brian Mulroney was Prime Minister and Bon Jovi’s ‘Blaze of Glory’ was firing up the charts. “I’m a retread with a number of years in between,” quips the native Montrealer.

Roughly 40 years ago, as he was preparing to graduate from high school, Lee sought advice from a guidance councillor. He learned that a large commercial insurance brokerage was preparing to set up an office in Montreal and was advertising for people to work at the new location.

Lee’s guidance councillor put him in touch with the broker-

12 Canadian Underwriter November 2010

age’s recruiter; Lee subsequently became one of two people chosen to help launch the company’s Montreal operations.

Lee has always worked in commercial lines. Initially, he worked in a department that placed U.S. business with the London market through the brokerage’s Montreal facilities. “The best thing about that experience was that it taught me early on that whether the premium was $1 million or $10,000, the only difference was a few zeros,” he says.

“I was never intimidated by higherend premiums. It was always the same philosophy when handling accounts — big or small, you treat them all the same.”

A lot has happened in the 40 years since Lee got his start in the insurance market. Reflecting on his experience, he notes perhaps one of the largest shifts has been the role of the underwriter. “Earlier on, at least in the first 20 years [of my career], the underwriter was key to the relationship between the insurance company and the broker,” he says. “The underwriter had a lot of authority. But over the past 10 or 15 years, they have become tightly regulated. They have to follow their guidelines and just about everything they do has to be referred back to head office or someone senior. And unfortunately the underwriter rarely has any input into grey area claims.”

This shift has created chal-

lenges and fundamentally altered how business is conducted. In earlier days, brokers would rely on the underwriters with whom they had fostered a good relationship, knowing that the underwriter would back them up in the event of a complicated claim and work with the broker to place difficult risks.

But as time has passed, Lee says, the emphasis is no longer on working relationships and

We reminisce about the days when coverage would be bound on the back of a napkin. That would be ground for being fired today. trust. Rather, the emphasis on whether or not a risk fits within the pre-set parameters within which an insurer is comfortable underwriting.

“We reminisce about the days when coverage would be bound on the back of a napkin,” Lee says. “That would be ground for being fired today. You can certainly see from that standpoint why some insurance companies have blocked that [way of doing business]. But if you go back to the founding of insurance, the relationships between the broker and underwriter is what it was all about — and that’s not as signif-

icant anymore. If the account fits, then the insurer underwrites it.”

The challenge to this cookiecutter way of doing business is in trying to place complicated risks. “The easy placements, everyone can do,” Lee says.

“The real challenge for any brokerage firm is the account that has just come out of a major loss, is just starting up or — as are a lot of companies today, because of the economy — the company is running close to the red line. These are the clients that need the most help. As a broker, you have to find the market that’s willing to consider them even though they’ve been told to stay away from those accounts.”

Shifts in the Canadian marketplace are adding a new wrinkle to the broker’s task. Commercial insurers have entered the Canadian market, increasing competition for premium in a market that shows no real signs of growth. For a broker, the crowding of the marketplace creates a few new challenges.

Trying to satisfy the needs of the underwriters while honouring existing relationships is already a tricky balance. But now the talent pool is a finite resource, Lee observes. Many of the new entrants are poaching staff from already existing companies. “So, the relationship you’ve had with those underwriters, now they’ve gone over to a new company,” Lee says. “There’s a need to

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PROFILE

If you go back to the founding of insurance, the relationships between the broker and the underwriter was what it was all about. support them as well as the underwriter that’s taking over from the incumbents.”

The increased demand for experienced, seasoned underwriting staff may be outstripping available resources. An increasing number of front-line underwriters are referring a risk not just to head office in Canada, but down to the United States or London to get a proper answer.

This is because they simply lack the experience to handle the risk on their own, Lee says. “It’s an issue of the talent pool,” he says.

“There’s just not enough time for all of these companies to be beefed up with good underwrit-

ers — and they [the underwriters] tend to move around a lot.”

Markets are becoming as fluid as the people. Lee notes a flurry of merger and acquisition activity may be on the horizon, pointing to RSA’s recent acquisition of GCAN. Nevertheless, despite all of these observed shifts in the marketplace, Lee says his relationship with the TIC has remained fairly constant over the past 20 years. Earlier this year, he seized the opportunity to rejoin TIC’s executive committee as its vice president, which serves as the next year’s president. He had just wrapped up serving on the

board of Ontario’s broker regulator, the Registered Insurance Brokers of Ontario (RIBO), and wanted to continue supporting the industry through active involvement with an association.

One big issue the TIC continues to look at will be ensuring brokers and their clients are fully aware of and in compliance with the Excise Tax Act. Clients of commercial insurance brokers must pay an excise tax when purchasing insurance through foreign, unlicensed markets. Canada Revenue Agency (CRA) allows an exemption from paying the tax if clients can prove that not enough ca-

pacity existed in the licensed Canadian market to insure their risk. To qualify for the exemption, CRA requires clients to provide five letters of declaration from insurance companies, recording their refusal to provide coverage. The letters must be dated prior to the inception of the policy.

“If the client is audited and the paperwork isn’t what it should be, they are subject to a 10% penalty tax and CRA can retro-tax up to four years on what the true premium should be,” Lee says. “The Excise Act has always been there, but as we understand it, the government is going to be looking at more enforcement and checking of clients to ensure they’re in accord.”

Needless to say, says Lee, “the brokers who do a lot of that business, which are larger commercial brokers, need to ensure that they and their clients are in compliance and that their clients know what the compliance issues are.”

Perhaps now, more than ever, being an insurance broker has never been more complicated.

But, ultimately Lee remains buoyant about the business.

“It’s a great business to be in,” he says. “It’s refreshing to look around conventions like the Insurance Broker Association of Ontario (IBAO)’s and to see so many university graduates who have chosen this field and want to get into insurance. It’s a wonderful thing.”

November 2010 Canadian Underwriter

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Robert Finnie Vice President, CCR (Canada)

Aggregate reinsurance cover is one means for primary insurers to transfer their risk in ‘mini-cat’ situations, in which big storms add up, but individually they aren’t big enough to trigger traditional reinsurance coverage.

A catastrophe aggregate XS treaty is a reinsurance tool designed to help insurers manage the effects of multiple extreme weather events on their results.

Weather-related catastrophes in Canada are commonplace. In some years, they can spoil the results of insurance companies. The inherent variability in the weather is difficult to predict and impossible to control.This can be a problem for insurers’ operating results and profit projections. We can’t change the events, but we can manage the repercussions.

In the past few years, the industry has seen more than the long-term average number of natural catastrophes. Almost all of these catastrophe losses are weather-related. In meteorologi-

14 Canadian Underwriter November 2010

cal terms, these weather events are thunderstorms or “severe convective storms,” which form as a result of interactions between regional air masses. Their origins and development patterns are quite different from hurricanes or “tropical cyclones” that originate in the tropical latitudes of the Atlantic and in the Caribbean.

However, the effect of convective storms and hurricanes on the landscape and on insured property can be quite similar. Extreme wind speeds, tornadoes and heavy rain happen over large areas, with lightning and hail in localized spots. Unlike earthquake risk, which is a major issue in B.C. and the Ontario/Quebec border region, weather events can happen anywhere in the country.The really spectacular stuff, though, is on the Prairies. Severe convective storms in large cells and “supercells” can travel across the entire expanse of the Prairie provinces and last several days. After the storms have passed, insurers are left to help clean up in the aftermath.

Damage to buildings and vehicles can be severe.

If the storm “footprint” covers a broad area, it is likely an insurer’s catastrophe XS treaties will be triggered.The common “per-event” catastrophe XS program is intended to cover the losses that are too large for the insurer to retain com-

Illustration by Shane McGowan/www.threeinabox.com

Aggregate Cover

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fortably. But if the storm footprint is smaller, the insurer may have a string of claims that do not add up to the attachment point of their reinsurance program. That is not a problem, because the insurer has already decided that it can handle the loss without serious repercussions to its business plans. But what happens when there are too many of these smaller events?

Retentions start to add up. At the end of the fiscal period, their impact might be significant. Does your multi-year catas-

Page 29

trophe loss cost, net of your catastrophe XS program, look like this? (Please see See Table 1 below). A catastrophe aggregate XS cover is an effective solution to exactly this problem.

DEFINING CATASTROPHE AGGREGATE XS Catastrophe aggregate excess of loss reinsurance protects insurance companies against a specified level of accumulation of their net loss position due to catastrophes during the period of the contract. Note that:

Table 1

150.0 112.5 75.0 37.5 0 1

2

3

4

5

6

7

8

9

10

• coverage is for the company’s net position, after all other reinsurance, including the company’s regular catastrophe XS program, and • coverage is for multiple events occurring within a specified time period.

HOW CATASTROPHE AGGREGATES WORK A hypothetical insurance company writes property and auto business across Canada. It has a catastrophe XS program protecting them from individual catastrophic losses. With the help of some modeling software, the company has determined that its largest possible catastrophic loss is unlikely to exceed $100 million. It therefore structures its catastrophe XS program to protect them up to a limit of $100 million. It has also decided that its capitalization and risk tolerance can withstand a $10-million loss from a catastrophe. So, their net retention before the catastrophe XS program attaches is set at $10 million each loss occurrence. In treaty underwriter

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November 2010 Canadian Underwriter

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Table 3

Table 2

Annual Losses Larger than $1M Each Event, with Agg XS 15,000,000 15,000,000 11,250,000 11,250,000 7,500,000 7,500,000 3,750,000 Ceded XS

Ceded xs

3,750,000

Ceded agg

0

Net Losses 1

2

3

4

5

0

Net Losses 1

shorthand, this is shown as follows: Cat XS: $90M xs $10M, any one event.

The insurer retains catastrophe losses that do not add up to $10 million for any one event. Reinsurers pay for larger catastrophic events once the primary insurer has paid out claims totaling their $10-million catastrophe XS program retention for that event or occurrence.

Table 2 (above) shows a fictional year of large and small catastrophe losses. It also demonstrates how the main catastrophe xs program alters the insurer’s net loss position. Table 2 assumes total cat event losses for the year are $38.4 million before reinsurance..

WITHOUT A CATASTROPHE AGGREGATE XS COVER In the Table 2 scenario above, the insurer retains $33.4 million and cedes $5 million to its catastrophe XS reinsurers.

If the individual loss does not exceed $10 million, the cat XS program is not triggered. Here is the calculation in shorthand: Insurer Net Cat Loss (2010): $38.4M gross less $5M ceded to Cat XS = $33.4M net Our hypothetical insurer may or may not be able to absorb $33.4 million of unanticipated losses comfortably, depending on its size and expected profit margins.

ADDING A CATASTROPHE AGGREGATE XS COVER Let’s say that to guard against being overwhelmed by numerous small losses, our hypothetical company has in place a catastrophe aggregate XS treaty. The treaty protects them from multiple net

16 Canadian Underwriter November 2010

losses of $40 million in a year above a net aggregate retention of $20 million.

In reinsurer parlance: Catastrophe Aggregate XS: Limit: $40M aggregate annual net loss XS of Retention:$20M aggregate annual net loss.

To make it clear that the “net losses” are only due to catastrophes, there is usually a condition that the loss has to exceed a certain size. This is a threshold (or “franchise”) that defines which losses are included. It generally does not act as a deductible. For our example, the threshold is set at $1 million. Multiple policy claims caused by a single event are added together and when they reach the $1 million threshold, the entire amount is included in the aggregation list. Events where the claim totals do not reach $1 million are not aggregated.

Using the same set of losses as in Table 2, Table 3 shows how the aggregate XS applies.

In the Table 3 scenario, the insurer retains $20 million, cedes $5 million to the catastrophe XS reinsurers, and $13.4 million to the aggregate XS reinsurers.

In shorthand, this reads: Sum of Cat Losses (2010): $38.4M gross less $5M ceded to Cat XS less $13.4M ceded to Agg XS = $20M net.

DOES A CATASTROPHE AGGREGATE XS FIT YOUR COMPANY’S NEEDS? How do you assess whether buying a catastrophe aggregate cover makes sense for your company? You need to answer the question: “Do I anticipate an unacceptable financial impact from an accumulation of retained catastrophe losses?”

2

3

4

5

To answer this question, you need to know:

1) Your annual expected cat loss cost (net of Risk XS and Cat XS) For example, cat losses variability of $10M to $100M, average of $20M. 2) Your (ROE)/profitability expectations For example, a target profit (at average expected cat losses) of $50M ($70M less $20M average annual cat losses).

A quick comparison Impact of a “good” cat year: $70M minus $10-million worth of annual cat losses = $60M profit.

Impact of a “bad” cat year: $70M minus $100-million worth of annual cat losses = $30M loss.

Based on the above, the corporate decision would be: Is a financial year loss of $30M “acceptable,” or would it be better to buy a multi-year smoothing mechanism?

CONCLUSION A catastrophe aggregate XS cover represents long-term protection. It should be considered as a multi-year strategy to reduce annual patterns of volatility in weather-related losses. The limits and attachment points are determined according to each company’s specific needs, but the framework is easy to establish. The recoveries are simple annual calculations.

Reinsurance pricing is based on longterm experience and exposure assessments and could be much more “bottom-line friendly” than simply accepting the unpredictability of the weather.

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The

Valuation Paradox Jamie Lyons

Vice President, Guy Carpenter & Company LLC

Geoffrey Lubert Vice President, Guy Carpenter & Company LLC

Scott Jellous Vice President, Guy Carpenter & Company LLC

Insurance and reinsurance merger activity, both globally and in Canada, is beginning to show signs of new life after a period of relative dormancy.

Both the insurance and reinsurance acquisition environment, globally and in Canada, is beginning to show signs of renewed life after a period of relative dormancy.We witnessed the marriage of Paris Re and Partner Re last year, forming a global reinsurance heavyweight with equity of more than US$7.5 billion. Max Re and Harbor Point become Alterra in Spring 2010. Brit Insurance announced a deal with private equity investment firm Apollo Management in the early fall of 2010. And closer to home, in October 2010, RSA Canada announced an acquisition agreement with GCAN Insurance Company, which is expected to form the country’s fourthlargest general insurer with pro forma gross written premiums in 2009 of approximately Cdn$2.2 billion. Recently the Beazley unit of Lloyds Banking Group unit reported it is still interested in acquiring Hardy Underwriting.

18 Canadian Underwriter November 2010

So, is this a sign of things to come? Should we brace ourselves for a wave of consolidation?

These questions have been the topic of speculation and lunchtime banter for several years now; they have been discussed and written about ad nauseam.We’ll stop short of trying to be another prophetic voice in the crowd.

VALUATIONS AND ‘STRONG BUY’ RECOMMENDATIONS We can factually say companies in the global reinsurance sector are trading at or near longterm low valuations. (We focus here on the global reinsurance sector because of its influence on the reinsurance landscape in Canada.) So why are “strong buy” recommendations not more common? The answer may lie in the fact that, generally, analysts and investors are concerned about three important obstacles to returns on

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To the surprise of many after the financial crisis, an abundance of capital now exists in both the primary and reinsurance sectors, at least in simple accounting terms. Guy Carpenter estimated the sector was over-capitalized by as much as US$20 billion, or 12%, at the beginning of 2010.

equity: softening reinsurance pricing, low investment yields and masses of under-used capital.

There is a belief that, barring any major global capital-depleting event, the softening reinsurance pricing trend will continue in Canada and in major markets around the world. Lower pricing of varying degrees has been seen in the most recent reinsurance renewals. This creates several areas of downward earnings pressure, both now and in the longer term. For carriers exposed to particularly soft prices, top line premium growth could slow or decrease.

Worse, if companies are too aggressive in a softening market today, “adverse reserve development” (the great destroyer of reinsurance capital) may soon rear its ugly head. Savvy investors remember the events of the last soft cycle, including significant reserve strengthening, particularly on longer-tail lines.

This has caused them to be nervous when it comes to owning reinsurers’ shares.

If the soft cycle by itself is insufficient to ward off investors, another force to be considered is investment grade bond yields. In many regions, these bonds trade at or near 40- to 50year lows. Alongside the heavy focus on underwriting in the reinsurance sector comes the danger of forgetting that well over half of carriers’ earnings are supplied by investment income over the cycle. When fixed income securities yields are low, this crucial income stream diminishes.This scenario has existed in varying degrees since the depths of the financial crisis and shows few signs of abating.

20 Canadian Underwriter November 2010

Finally, to the surprise of many after the financial crises, an abundance of capital now exists in both the primary and the reinsurance sectors, at least in simple accounting terms. It must be remembered that in the reinsurance sector, true capital balances can be highly educated guesses. Guy Carpenter estimated the sector was over-capitalized by as much as US$20 billion, or 12%, at the beginning of 2010. Although over-

There is a belief that, barring any major global capital-depleting event, the softening reinsurance pricing trend will continue in Canada and in major markets around the world. capitalization fell back to around 8% by the end of June, the surplus capital among reinsurers remained the driving factor at the 2010 renewals.

It is worth noting a significant part of the four-percentage-point change is voluntary capital exodus — such as share buy-backs and dividend payments — as opposed to simply underwriting losses.These large capital positions make book values per share look larger, which in turn deflate price-to-book ratios.Yet one must ask: if reserve strengthening is anticipated by investors, are price-tobook ratios really so low?

Plotting Valuations Figure 1 (please see Page 22) plots reinsurer valuations, as measured by priceto-book, against consensus 2011 estimates for return on equity (ROE).There

is a clear correlation between estimates of ROE and valuation, as is normally the case. An area of particular interest appears in the lower left quartile of the chart. Why are these companies’ “forward” ROEs so low? Is it fear of overly aggressive growth followed by reserve strengthening? Is it heavy exposure to low yielding assets? Is it unusually high catastrophe exposure? The answer to these questions may reveal why these companies exhibit particularly low valuations.

The upper right hand quartile of the chart also warrants study.Why, in a softening market, do these favoured few trade at such a premium? Is it their unique underwriting acumen? Is it superior risk protection or careful and well-advised capital allocation?

The dots on this chart will likely move around over the next year as analysts and investors are proved right or wrong.

Capital positions will change pursuant to retained earnings growth and impairments. Many argue returning capital to shareholders is key to remaining or arriving in the upper right hand quartile. We think this may be overly simplistic. The real challenge lies in making efficient use of excess capital and, for most companies, executing business moves that add value without naïvely deploying capacity. The leaders and innovators of our industry, in Canada and globally, will be those who can optimize capital and deliver longterm earnings power.

This brings us back to the topic of acquisitions, consolidation and the future make-up of our industry. We don’t know who will be the next reinsurer or reinsurance buyer to make mergers and

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acquisitions news, and we don’t know where they might “plot” on the aforementioned chart. We do know the current steady state may not be so steady.

As of 2010 Q3, the prevailing conditions suggest a ripe domestic and global environment for corporate activity over the next several years, at least in the absence of a market-changing event.

So what’s the best way to approach

this environment? In honour of the start of hockey season, we offer these words from Canadian icon Wayne Gretzky: “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

Perhaps it’s easier just to have a superior capital strategy, stellar risk management and lots of good sound bites to chew on.

Figure 1

Valuations at Long-term Lows 1.3 1.2

Price to Book

1.1 1.0 0.9 0.8 0.7 0.6 0.5 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 2011E Consensus RoE Source: Guy Carpenter & Company, LLC, Bloomberg Data

Corrections In a profile of IBAO incoming president Peter Burns (‘News Flash,’ Canadian Underwriter, October 2010), Burns’ brokerage was misidenitifed as ‘Burns Meyer Associates.’ The correct name of the brokerage is Burns, Demeyere & Associates. Also, the business volume of the brokerage should have read $10 million.

In the article, ‘Decision Time,’ the 2010 National Insurance Conference of Canada was accidentally identified as happening in September 2009. Also, the number of delegates reported was 330. It should have been 400.

Canadian Underwriter apologizes for making these errors.

22 Canadian Underwriter November 2010

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THE TORNADO LEFT AN AFTERMATH.

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For twelve minutes of August 20th, 2009 the close-knit community of Vaughan was under siege.

WE LEFT AN IMPRESSION.

Mark and his son Simon were about to sit down to dinner when Mark looked outside and saw a huge funnel cloud in the park behind his house.

Seconds later, debris began falling from the sky.

Drilling rain, lightning and vicious winds whipped around their home. An F2-strength tornado, packing wind gusts of 180 kilometres per hour was ripping roofs off homes, flipping cars and downing fences, power lines and trees with truly shocking speed and violence.

Fearing for their lives, Mark instinctively grabbed his son and took shelter in the basement.

Several kilometres away, Peter, an RSA Adjuster, was finishing work when he heard news of the unfolding devastation on the radio. He ran to the RSA Mobile Claims Response vehicle and drove towards the battered community.

Peter’s timing was perfect and his thinking fast.

He came across a convoy of Emergency Services vehicles en route to Vaughan and gained access to the area behind the rescue cordon, worst affected by the storm.

The streets were almost in total darkness.

People like Mark and Simon had only just had time to survey their wrecked home when Peter arrived on the scene to reassure them that everything would be taken care of.

His presence there meant that the rebuilding of their lives could begin immediately.

Damage was assessed, calls made and the claims process started. In those dark, frightening hours after the tornado, Peter provided them with hope, confidence and the certainty that they were not alone.

A little help that left a long-lasting impression.

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Canadian Connections to Global P3s

Bill LaCourt

Senior Vice President, Marketing, Swiss Re

Nikhil da Victoria Lobo

Vice President, Public Sector Business, Swiss Re

Hurricane Ivan churned through the Caribbean Sea in 2004, leaving a trail of death and destruction in both Grenada and the Cayman Islands. Jamaica and other islands caught in Ivan’s path also suffered severe damage.

Later the same year, Hurricane Jeanne caused severe flooding in Haiti, resulting in more than 3,000 deaths, compounding the damage already suffered in the Bahamas from an earlier storm, Frances.

However, in addition to the suffering caused from these catastrophic events, the regional governments had to confront the challenge of financing the disaster. This not only included the emergency expenses for relief activities in the immediate aftermath of the event, but also the medium- to long-term impact of lower tax revenues, economic revitalization costs and reconstruction. Often these challenges create such a burden on the public sector that even minor events in insurance terms become major catastrophes in economic terms.

MULTINATIONAL INSURANCE FACILITY Faced with calls for financial assistance from the beleaguered governments of the affected countries in the Caribbean, the World Bank began looking for a mechanism that would allow for an

24 Canadian Underwriter November 2010

effective future response to these catastrophic events that are, unfortunately, common in the region. The solution, launched in 2007, was the Caribbean Catastrophe Risk Insurance Facility (CCRIF).

The CCRIF is the first multinational parametric insurance facility. It is set up like a captive, owned and operated by Caribbean governments.

Its parametric insurance policies provide quick payouts to the region’s governments, based on wind speed and seismic activity, and help offset a government’s disaster-related financial costs. A reinsurance structure, along with its own capital base, is modeled to allow CCRIF to survive a 1-in-10,000-year event.

Participation in CCRIF is voluntary for the regional governments. Coverage and premiums are based on modeled 15-year wind and 20-year earthquake events, with a maximum US$100million policy limit per event. The CCRIF has made several payments over four years to its member countries, the most recent being in September to Anguilla following Hurricane Earl.

In Haiti earlier this year, the CCRIF paid out within days of the earthquake, providing critical emergency funds to keep police on the streets and pay the salaries of civil servants.

Illustration by Shane McGowan/www.threeinabox.com

Canada has helped fund the world’s first multinational parametric reinsurance facility, located in the Caribbean. It’s one example of a publicprivate partnership (P3) model that may serve the Canadian marketplace well as it considers the possibility of offering overland flood coverage.

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The CCRIF is currently planning to introduce a ‘rainfall’-based option to the existing triggers; also, it is exploring specific products for the agricultural and electricity transmission sectors.

Most importantly, the CCRIF has proven insurance tools can help countries plan for and pre-finance natural disasters; this complements a government’s other financial instruments, such as sovereign debt. With this success, many of the facility’s supporters are now working to introduce the concept to other parts of the world.

Page 30

played in the development and launch of the facility. CCRIF funding was raised largely in the form of pledges from various countries; Canada provided one of the largest contributions to the startup capital (US$20 million out of the US$47 million initially raised). Furthermore, the Canadian government’s lead role on issues relating to environmental and climate changes have made Ottawa a lead advocate in establishing the financial mechanisms to absorb the financial impact of natural catastrophes.

LEARNING FROM THE CCRIF CANADIAN-CARIBBEAN RELATIONSHIP Swiss Re in Canada first became involved in the CCRIF’s reinsurance program in 2008. The Canadian operation of Swiss Re has been responsible for underwriting the company’s participation in the English Caribbean reinsurance portfolio since 2001. Reinsurance broker Aon Benfield approached Swiss Re to become a key reinsurance participant on the CCRIF program.

Historically, Canada has had a strong relationship to the Caribbean. In addition to being members of the Commonwealth, banks and insurers from Canada play a critical role in the Caribbean financial system. A large number of expatriates ensure the cultural links between Canada and the Caribbean remain strong.

For Swiss Re in Canada, these cultural and business relationships have deepened as the company increases its underwriting knowledge of the local market conditions and risks. In the case of the CCRIF, given the specialized nature of this parametric cover, the local market expertise was amplified by drawing upon a number of resources from around the globe — including catastrophe modeling and rating and legal contract review. In addition, close coordination between the local client management function and Swiss Re’s global public sector team allow this important client to receive the service that Swiss Re delivers.

Canada plays a critical role in the CCRIF due to the role the Canadian International Development Agency (CIDA)

26 Canadian Underwriter November 2010

This raises the most important question: when will it be Canada’s turn to implement such disaster risk-financing

solutions in its own provinces? The 2010 hurricanes and floods in Newfoundland and British Columbia, as well as the record-setting hailstorm in Alberta, highlight just how exposed Canada can be to Mother Nature. Furthermore, there is a soon-to-be-released discussion paper jointly published by Swiss Re and the Institute for Catastrophic Loss Reduction (ICLR) on flood risk, entitled Making Flood Insurable for Canadian Homeowners.This paper highlights an important distinction between what consumers and insurers define as “flood,” with many homeowners incorrectly believing they have overland flood insurance. This is currently not available in Canada as part of a homeowner’s policy. Most policies cover basement flooding but not overland flooding damage.

The report concludes criticism of flood insurance in Canada can be countered by the bundling of flood coverage in typical homeowner policies. This would spread premiums across a large community to keep rates low and avoid government subsidies. The paper also states continual application of land use regulations to discourage development in floodplains is key. It praises the present floodplain regulation and states any insurance program would supplement it and not replace it.

The report says an insurance system based on risk-based premiums or deductibles can provide greater benefits than the current focus on government relief programs provided by provincial governments in Canada. But it will take a partnership between government, the insurance industry and private homeowners to develop and sustain a flood insurance system in Canada.

Finally, in this era of rising deficits and constrained fiscal options, securing funds before a disaster is a better political and economic solution than waiting for funding from international capital markets or taxpayers after a disaster occurs.This is as true in Canada as it is in the Caribbean.

Recent developments demonstrate options and precedents for Canada.

Swiss Re completed a parametric insurance transaction with the state of Alabama in the United States in July, the first time a government in an industrialized country has used such a solution to “pre-finance” its disaster expenses.

Alabama’s approach was very similar to that of the Caribbean members of the CCRIF since 2007, proving the re/insurance industry has the knowhow to tackle even the big-scale financial challenges of countries like Canada.

Most importantly, the success of the Alabama example proves re/insurers have the appetite to take on this public sector risk. Given Canada’s expertise in this emerging field, perhaps the day will come soon when some of the country’s own catastrophe risk, be it on a provincial or federal level, will be efficiently transferred to the re/insurance markets.

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A Tale of Two Provinces ...

No Longer

The Supreme Court of Canada formulates a national approach to coverage for construction deficiency claims under the CGL policy.

Christopher R. Dunn Dutton Brock LLP

Provinces frequently vary in their approaches to legal issues. But it is rare in the world of Canadian insurance law for two Canadian provinces to express diametrically opposed views over the interpretation of identical provisions of a widely used liability insurance policy such as the commercial general liability (CGL) policy. However, until the Supreme Court of Canada released its decision in Progressive Homes Ltd. v. Lombard General Insurance Company of Canada on Sept. 23, 2010, this very situation existed in Canada concerning the coverage available for contractors under the CGL policy for construction deficiency claims.The appellate courts of British Columbia and Ontario held polar opposite views over the entitlement of contractors to coverage for defects in their work, particularly in circumstances in which subcon-

28 Canadian Underwriter November 2010

tractors performed portions of such work on behalf of the contractor.

B.C., ONTARIO AND THE CGL In British Columbia, perhaps due to the prevalence of leaky condo litigation in the province, judges had enforced the perceived “intention” of the CGL policy to exclude coverage for the defective work of the insured. It was assumed as common ground that a CGL policy was not intended to provide a warranty for a contractor’s shoddy construction. This approach was highlighted in the Supreme Court’s decision in Swagger Construction Ltd. v ING Insurance Co. of Canada. In Swagger, the court found ING owed no duty to defend a contractor against numerous allegations of construction deficiencies by the University of British Columbia in a building constructed by Swagger.

Although the court relied on other grounds as well, it found against coverage primarily on the basis that faulty construction does not qualify as an “occurrence,” as it is not accidental.

Ontario courts have taken the polar opposite approach, finding in favour of coverage.

This was highlighted in the Ontario Court of

CRAWFORD INTRODUCES CRAWFORD CMS PROPERTY ADVANTAGE

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This innovative new system can deliver exceptional client and policyholder satisfaction through a reduced shelf life, reduced claims costs and an increase in consistency and efficiency.

The ADVANTAGE system also gives Crawford a truly mobile workforce. Our property adjusters spend less time on paperwork and more time where they belong – in the field, assessing claims and assisting customers.

The efficiencies, the satisfaction results and the time savings Crawford’s property adjusters will achieve with ADVANTAGE will go a long way in enhancing the customer experience.

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In British Columbia, perhaps due to the prevalence of leaky condo litigation, judges had enforced the perceived ‘intention’ of the CGL policy to exclude coverage for the defective work of the insured. It was assumed as common ground that a CGL policy was not intended to provide a warranty for a contractor’s shoddy construction.

Ontario courts have taken the polar opposite approach, finding in favour of coverage.

Appeal’s decision in Bridgewood Building Corp. (Riverfield) v. Lombard General Insurance Co. of Canada (2006). A housing developer, Bridgewood, supplied homes with defective concrete supplied by a subcontractor. Both levels of Ontario courts found Lombard owed a duty to defend, since the defects in the foundations constituted “property damage” and such damage was caused by an “occurrence.”

Furthermore, the courts found, the CGL policy’s “work performed” exclusion as it applied to completed operations was inapplicable: the exclusion specifically excepted work a subcontractor performed on the insured’s behalf.

To understand the basic coverage issues at play, one must start with the basic principle that CGL policies are triggered by the damage resulting from a negligent act, and not the negligent act itself. In order to fall within coverage, there must be “property damage” alleged. Such damage must be caused by an “occurrence,” defined in the policy as an accident. If these conditions are met, the damage would fall within the policy’s insuring agreement. The question then becomes the applicability of the CGL policy’s various “work performed” exclusions. Since most damage in the construction context occurs after the contractors have left the site, coverage is provided — or excluded, depending on how one looks at it — by the “completed-operations hazard.” The coverage provides as follows, based on the following advisory wording in IBC Form 2100: “This insurance does not apply to: ‘property damage’ to ‘your work’ arising out of it or any part of it and included in the ‘products completed operations hazard.’”

30 Canadian Underwriter November 2010

This exclusion does not apply if the damaged work, or the work out of which the damage arises, was performed on your behalf by a subcontractor.

PROGRESSIVE HOMES: BACKGROUND In Progressive Homes, B.C. Housing sued Progressive as a result of defects in a housing complex Progressive constructed, seeking a defence and indemnity from its CGL carrier, Lombard.

Lombard denied coverage. The matter

The Supreme Court rejected Lombard’s position that the phrase “property damage” necessarily excludes damage to the insured’s own defective construction. Nothing in the policy drew a distinction between damage to the insured’s work and resulting damage to third party property, Canada’s highest court found. ended up before the B.C. Supreme Court and, subsequently, the B.C. Court of Appeal. The Swagger approach was already part of the fabric of B.C. law, and so the court in each case simply followed suit in deciding Progressive Homes. Both the B.C. Supreme Court and the B.C. Court of Appeal supported Lombard’s denial, holding that damage resulting from faulty workmanship cannot be considered fortuitous or accidental and therefore does not qualify as an “occurrence.” The court agreed the

subcontractor exception in the “work performed” exclusion might have some application if the work was performed for the insured by a subcontractor, but the court felt that coverage would exist only if a distinct item was installed by a subcontractor — such as a loss caused by an exploding boiler, for example.

Progressive sought leave to appeal to the Supreme Court of Canada. Presumably given the diametrically opposed approaches in Ontario and British Columbia, the court agreed to hear the appeal.

Ultimately, and in a move that came as a surprise to few commentators outside of British Columbia, the court adopted the Ontario approach.

THE SUPREME COURT’S DECISION The Supreme Court rejected Lombard’s position that the phrase “property damage” necessarily excludes damage to the insured’s own defective construction.

Nothing in the policy drew a distinction between damage to the insured’s work and resulting damage to third party property, the court found. In fact, such an interpretation, if accepted, would render the “your work” exclusion meaningless, since the insured’s own work would never fall within the insuring agreement in the first place and therefore need not be excluded.

Next, the Supreme Court held faulty workmanship can constitute an “occurrence,” depending on the factual circumstances. An “occurrence” only requires the result be unexpected or unintended from the standpoint of the insured. Since no one made any allegations that Progressive’s construction defects were intentional or expected, the allegations qualified as an “occurrence.”

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APPOINTMENT

Philip R. Baker Anne Coppens, President, Creechurch International Underwriters Ltd.,is pleased to announce the appointment of Philip R. Baker to the position of Executive Vice President, Underwriting.

Philip brings several years of management and underwriting experience to Creechurch. He recently held the position of Vice President, Financial & Professional Services for a major global insurance company. Phil’s past experience also includes six years managing Creechurch’s Directors & Officers Liability department from 1997 to 2003. During this time, he was seconded to the Cooper Gay Holdings in United Kingdom to gain experience in the London marketplace.

In his new role, Phil will provide leadership, direction and supervision to the Creechurch underwriting team,as well as oversee all day-to-day underwriting operations. In addition to his extensive management skills, Phil’s underwriting expertise will be an asset to Creechurch as we anticipate emerging market needs and further enhancements to our existing portfolio of products.

Phil holds an MBA from Wilfred Laurier University and a Bachelor in Arts from the University of Western Ontario.

Creechurch International Underwriters is a leading Management General Agent (MGA) company in Canada, offering specialized insurance solutions for independent businesses and trade associations. Creechurch products are distributed exclusively through licensed Canadian insurance brokers through its offices in Toronto and Montreal.

Additional information can be found at www.creechurch.com.

Think Creechurch Intelligent Insurance

32 Canadian Underwriter November 2010

Finally, the Supreme Court addressed the potential application of the policy’s “work performed” exclusion. Various forms of the exclusion appeared in the numerous Lombard policy forms at issue, given the multiple years of exposure. But the court unanimously held none of the various versions of the exclusion applied when the subcontractor performed the impugned work on behalf of the insured or when the damage was solely to work performed by a subcontractor. In the end, the court held Lombard owed Progressive a duty to defend.

Beyond B.C.’s borders, the Supreme Court’s finding that defective construction qualifies as “property damage” will be significant.The court did note, however, that such defects are required to be physical in nature and may have to be visible or apparent. It is also safe to say a duty to defend will likely be owed to a contractor in circumstances in which the subcontractor performed any of the impugned work.

Of greater concern should be the Supreme Court’s acceptance of the notion that an insured’s “work” can be divided into component parts when the

The immediate concern for insurers with open construction matters in B.C. where a defence has been denied is the likelihood that many insureds will now seek recovery for the amounts spent defending such actions. language in the “work performed” exclusion uses the phrase “that particular part” of the insured’s work. The court hinted there might well be coverage for the non-defective components of the insured’s own work when such language is used.

For example, assume a general contractor builds a home. The house is sound, but the windows were installed poorly and leak. If the “work performed” exclusion excludes only “that

particular part” of the insured’s work that is defective, the CGL carrier might well be on the hook to repair all of the damage to the home except the defective windows. I would suggest

The insurance industry is now left to ponder its options. In doing so, it must share some blame. Historically, it has been widely accepted the CGL is far from the ideal policy form for contractor-related liabilities. few Canadian courts would have found coverage in such a scenario prior to Progressive Homes.

The insurance industry is now left to ponder the future and must consider its options. In doing so, it must share some blame. Historically, it has been widely accepted the CGL is far from the ideal policy form for contractor-related liabilities. Nevertheless, there seems to have been no general momentum away from its ongoing use.

Discussion of any policy revisions will no doubt take time. But the immediate concern for insurers with open construction matters in B.C. where a defence had been denied is the likelihood that many insureds will now seek recovery for the amounts spent defending such actions. The insured can generally seek recovery of defence costs incurred by it right up to the date of settlement or judgment and, depending on limitation issues, for some period of time thereafter.

Moving forward, and to the extent insurers are unprepared to accept the often dramatic cost of defending largescale construction defect cases, the only option would seem to be a change in the policy language or the use of a more appropriate contractor’s liability policy.

Insurers will also have to prepare for the application of the Progressive Homes in non-construction related contexts, as the principles from the decision are not limited to construction.

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Shedding

New Light on Age-Old Issues

Insurance Brokers Association of Ontario (IBAO) 90th Annual Convention

David Gambrill Editor

Vanessa Mariga Associate Editor

Underwriting transparency and auto reforms emerged as key themes during the Insurance Brokers Association of Ontario (IBAO)’s 90th Annual Convention in Niagara Falls.

Market misconduct, underwriting transparency, brokers’ E&O exposure in the wake of auto reforms and auto insurance fraud took centre stage at the Insurance Brokers Association of Ontario (IBAO)’s 90th Annual Convention in Niagara Falls.

MARKET MISCONDUCT Ontario’s insurance regulator needs to get tougher on market misconduct, insurance company CEOs told brokers at the IBAO convention.

Suggestions at the IBAO’s CEO panel discussion included: • more transparency in making brokers and the public aware of which companies are not in compliance with Ontario’s Unfair and Deceptive Acts or Practices (UDAP) regulations; and • a new regime for imposing administrative penalties (such as fines) without the need for complicated, quasi-criminal proceedings.

Without naming names, the CEOs alleged not all companies were playing on a “level playing field” in terms of compliance with UDAP regulations.

34 Canadian Underwriter November 2010

Recent changes to UDAP regulations include, among other things, clarifying the ban against the use of credit scoring for underwriting auto insurance lines and requiring group insurers to provide similar rates between each of their companies (affiliates and otherwise).

Panel moderator and CBC journalist Evan Solomon asked CEOs on the panel if they thought the UDAP changes had gone far enough.

George Cooke, president and CEO of the Dominion of Canada General Insurance Company, noted compliance to UDAP was inconsistent between companies.

“There are a number of companies that are adhering to the new rules,” he observed. “There are a number of companies that are not adhering to the new rules.The regulator, for whatever reason, is choosing to keep those private and confidential, so those of us in the marketplace don’t know who is supposedly to be onside, who isn’t, who’s got permission to be offside, and who’s in transition.”

Kevin McNeil, president and CEO of Gore Mutual, said the Financial Services Commission of Ontario (FSCO) needed to be more transparent with the industry and the public about who was in compliance with UDAP and who was not.

“The core issue here is that you get a lot of he said/she said,” said McNeil. “On such issues as transparency, let’s...provide clarity to the issue so that we don’t have some who are fined, some are

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of people involved, and it was clear that a flexible, innovative and creative insurance solution would be required.

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not fined, but some kind of transparency as to who is complying and who is not complying, so that it’s there for the public [to see].”

When companies are not compliant, CEOs agreed FSCO was labouring under 80-year-old legislation that made it hard for the regulator to respond without going through a cumbersome quasicriminal process. It was suggested years ago that FSCO have a more nimble system of administrative penalties.

“Absolutely nothing has happened with it,” Cooke said of the suggestion.

‘BLACK BOX’ UNDERWRITING One consequence of companies using predictive models for underwriting is that it may be more difficult for the public to understand how their premiums are derived, and more difficult for brokers to explain the rating process to consumers.

CEOs of insurance companies discussed the issue, which was raised by brokers, during the IBAO convention.

Referred to within the industry as the “black box” phenomenon, insurance companies are using more sophisticated modeling techniques and individualized ratings variables to price premium more accurately. But as insurers input rating variables into their proprietary algorithms to price their products, it has been more difficult for brokers to explain to consumers how the final output — the consumer’s premium calculation — is derived.

“How does a broker deal with this in the field?” IBAO CEO Randy Carroll asked the CEO panel. “You’ve got these tools, you’ve got the algorithms, so you’re working on your back end. But you haven’t taken into consideration the workers in the front end....

“I don’t think the issue is what you’re trying to accomplish, more than it is the issue of how you’ve accomplished it, because you forgot about [the brokers].”

Carroll’s comment came on the heels of a debate about whether the rating variables themselves needed to be more transparent, or whether more transparency could even be achieved given

36 Canadian Underwriter November 2010

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the fact that companies’ algorithms are proprietary and confidential.

“The transparency part of this is absolutely critical,” said George Cooke, CEO and president of The Dominion of Canada General Insurance Company.

“Not the transparency of the algorithms ... but the transparency of what exactly is being manipulated inside the algorithm.”

Jean-Francois Blais, president and CEO of Axa Canada, said the variables insurers are using are already well-known and “intuitive.” He noted insurers still most commonly use factors such as the age of the driver, how many kilometers a car is driven, the make of the car, etc.

— all of which are easily understood by consumers.

Louis Gagnon, president of Intact Insurance Company, suggested brokers in some way stood to gain by the choice created by the complexity of the premium calculations.

As insurers input rating variables into their proprietary algorithms to price their products, it has been more difficult for brokers to explain to consumers how the final output — the consumer’s premium calculation — is derived.

“Those algorithms make life complicated, I agree, because they are different [between companies],” Gagnon said.

“So when you are talking to a customer, they have different possibilities. It’s difficult to explain all of those things... As a broker, I think that’s the most important thing, to have different choices for people, having different companies and different ways of looking at things.”

BROKERS’ E&O EXPOSURE The higher standard of care owed by brokers to consumers as a result of the auto reforms will result in trial lawyers suing brokers “big-time” for failing to properly explain optional benefits to their clients, according to Richard Halpern, partner at Thomson Rogers LLP.

“You have a problem,” Halpern, a board member of the Ontario Trial Lawyers Association, told brokers at the convention. “You have got to make sure that your consumers are told about the optional coverages [available under the new auto product]. You have to document this properly.You have to encourage people to purchase the optional coverage. And if you don’t, it will come back to bite you. People like me can’t wait to sue brokers over this. It’s going to happen, and it’s going to happen bigtime because the bar for the standard of care owed by brokers is higher than it’s ever been before, in my view.”

Halpern suggested that to avoid E&O claims being brought against them, brokers should be “pushing” the optional coverages on their clientele.

AUTO INSURANCE FRAUD Tim Hudak, leader of the Ontario Progressive Conservative Party, vowed to crack down on fraudsters working in the auto insurance system should he become premier.

“I believe if you want to achieve real savings with auto insurance premiums, you need to first start cracking down on the cheaters and clean up our system,” Hudak told the IBAO conference on Oct. 21. “If the Dalton McGuinty government won’t do it, the PC government will.”

Ontario personal auto premiums are the highest in the country — 34% higher than Alberta's (the second most expensive province in the country) and 91% higher than Prince Edward Island, Hudak noted. Yet, the average cost per claim in Alberta is $4,000 and the average cost per claim in Ontario is $53,000, a figure that has ballooned from $30,000 only five years ago, he continued.

In spite of the increased premium, Ontario auto insurers lost a total $390 million in 2009, the only province to not turn a profit in the line.

“I don’t think there’s anything wrong with Ontario’s drivers,” Hudak told delegates. “I don’t think it’s the condition of our roads. I just think it’s a problem with our system.”

Contents Under Pressure

There is a downward pressure on all profitability drivers, interest rates, exposure growth, loss trends, reinsurance rates, expenses and regulatory capital.

Canada is in fact a reflection of the state of the global reinsurance industry.

38 Canadian Underwriter November 2010

Several

forces are conspiring to change the shape of the Canadian reinsurance marketplace over the next few years.

Whether or not these changes will manifest themselves in 2011 is anybody’s guess.

Naturally, there is a wide spectrum of opinion on the fate of the Canadian reinsurance marketplace over the next year. Picture an industry under pressure from a wide variety of forces. These forces include low interest rates; excess capital; regulatory changes anticipated to shrink capital positions; market consolidation that will make primary insurers’ balance sheets bigger, thus decreasing the need for purchasing reinsurance; a continued shift away from the purchase of proportional or pro rata treaties, with the emphasis instead being on the purchase of comparatively less lucrative excess of loss reinsurance cover; and increased pressure on soft pricing because of the increased frequency and severity of claims related to Ontario auto, D&O and weather-related catastrophes (to name a few).

Will all of these factors, taken together, be enough to squeeze the juice of a hard market out of the fruit of Canada’s current soft market? Canadian Underwriter sought out some educated guesses about what the future might hold. Specifically, we sought the opinions of Canadian reinsurance company CEOs, presidents and chief agents, asking them to answer the following question: “What do you think will be the biggest change in the Canadian reinsurance market in 2011?” Their answers are presented below, in alphabetical order by last name.

November 2010 Canadian Underwriter

39

COVER STORY

Contents Under Pressure

1

Hervé Castella

In this context, is the industry in a phase of levitation preceding the free fall as in the cartoon analogy? I definitely do not think so. Profitability will be low but relatively okay in the current return environment. Also, the reinsurance industry is paying increased attention to return on capital and risk management, which should prevent further softening of the market. Nevertheless the industry should not wait for the next big event to return to better profitability. Instead, it should focus on technical underwriting and gradually improve terms so that it is not faced with more serious problems in a few years time when claims costs may outpace revenues.

size companies by larger companies. Inevitably the larger company has greater retention ability and less reinsurance will be placed after the purchase or merger.

The recovery of the market since 2008 also means primary insurance companies have a stronger capital base to take on more risk. However, growth in a mature market like Canada is difficult with the current competition and low rates.

As a result, more companies are taking back the pro rata treaties they placed in former years back into their net retention. This gives them top line growth on their net premium. This loss of pro rata treaty capacity may be somewhat compensated by purchase of higher levels of per-risk and catastrophe treaties. However, the amount of the premium for the excess treaties will be much less than was placed with the pro rata treaties.

The competing and contradictory forces of both soft rates and market consolidation will put greater pressure on the reinsurance market. Whether this leads to higher rates or even withdrawal of some markets is still hard to say. It may also lead to more of the same conditions for another year. Managing this part of the cycle will be a big challenge to all reinsurers.

2

3

Head of Canadian Operations, PartnerRe

Canadian Underwriter’s November 2009 cover story used a cartoon analogy to describe a reinsurance market that was in a state of motionless suspension — but at a tipping point of continued decline.The situation is similar one year later, with no big change in the marketplace. We still face a challenging environment without complete clarity of how it will end.

There is a downward pressure on all profitability drivers, interest rates, exposure growth, loss trends, reinsurance rates, expenses and regulatory capital.

Canada is in fact a reflection of the state of the global reinsurance industry.

The Canadian non-life reinsurance market has been shrinking for several years.

This reduction is driven in part by the move from proportional to non-proportional cessions, and by consolidation in the primary sector that is likely to continue after a pause of a few years. This will not only affect top line opportunities, but may dampen pressure for price increases even in lines in which such increases are needed to address inadequate profitability.

We have certainly seen some sizeable catastrophes and man-made disasters both in Canada and worldwide, including the record-setting Calgary, Alberta hailstorm in July 2010. But these can generally be described as earnings events rather than capital depletion ones. Although they might lead to modified pricing assumptions in specific segments, we cannot expect these losses to trigger a reinsurance market hardening.

The reform of auto insurance in Ontario will have little to no effect on the reinsurance market. Claims trends will continue unabated for large losses affecting reinsurance programs; the frequency of catastrophic claims may potentially increase. The moderate rate increases in the primary market will not be sufficient to cover the trends.

The effect of increased regulatory demands should not be underestimated either. Capital requirements for the industry are likely to go up and compliance requirements will become an increasingly expensive proposition.

40 Canadian Underwriter November 2010

1

2

3

André Fredette Senior Vice President, General Manager, CCR–Canada

Opposing forces are at play in the marketplace.

On the one hand, underwriting results for reinsurers have not been as buoyant in the past two years as they appear.

On an underwriting year basis, they have suffered from the soft rates in the marketplace, both for primary and reinsurance companies, and are probably in a loss position. The low interest rates on investments have not helped either. These results for the last two underwriting years have been masked by the takedown in incurred but not reported (IBNR) from former years during the hard market.

Thus there is pressure to increase rates in order to improve results.

On the other hand, we see two factors reducing the amount of reinsurance available.

We see mergers and acquisitions of medium

Kenneth B. Irvin President, CEO, Munich Reinsurance Company of Canada

There is much activity on the Canadian insurance/reinsurance landscape these days, none of which will individually cause a sea change in market behaviour, but all of which contribute to an evolving and sustainable business model.

The effect of the repeal of reinsurance regulations restricting unlicensed reinsurance to 25%, and overall reinsurance to 75%, of gross premiums will be muted, since less than a handful of primary companies actually approach that limitation in practice for risk transfer purposes. It may open the door to more intra-group capital management activities, by moving monies to more tax-efficient domiciles, but that will just create an Obama-like headache for the Canada Revenue Agency, not OSFI. There is an abundance of capital in the marketplace, too much for adequate return

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TRANS Tree 2 AD.indd 1

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COVER STORY

Contents Under Pressure on equity. New primary commercial writers have descended upon the market, chasing already underpriced business. Expense monitoring is a big buzz right now, as if cutting costs will somehow improve the loss ratio.

But the one driver that will shift us into a higher gear is the interest rate environment. When the long-term implications of scant investment returns really, truly hit home, we will have no alternative to running our core business better.

4

Henry Klecan Jr. President, CEO—The Americas SCOR Reinsurance Company

Canadian Underwriter’s question about potential market changes assumes a credible crystal ball. I wish I had one. Unfortunately, my crystal ball has been overwhelmed trying to predict with some measure of accuracy the outcome of the various initiatives currently making global headlines.

Reinsurance is a global business often subject to macro socio-economic factors.

The biggest change in 2011 may be the ability of our industry to adapt quickly and effectively absorb future shocks.

In Phase 1 of the global economy in turmoil, 2007–08, our industry faced a financial and economic meltdown in the context of a global recession, a liquidity crisis, low interest rates combined with exploding credit spreads and fiscal and social deficits that required the emergency intervention of governments.

In Phase 2, 2009-10, we face key uncertainties in a stochastic world, be they in the shape of the recovery, monetary policies, interest rates, exchange rates, sovereign debt and/or tax and regulatory debates.

What will Phase 3, 2011, bring us?

Our industry has shown an incredible resilience. Of course, some members of the reinsurance fraternity have been negatively affected by these macro factors. Nonetheless, we remain strong. But we need to remain vigilant as we face the next wave of uncertainties. How do we identify them, quantify them? Can our organizations absorb the shock and continue providing value to our clients and stakeholders? Can we prevent and hedge ourselves against these uncertainties?

Buckle-up for continued turbulence.

42 Canadian Underwriter November 2010

4

5

6

7

5

Sharon Ludlow President, CEO, Swiss Re in Canada

The (re)insurance market is operating in a very challenging environment driven by low interest rates, weak underwriting results in certain lines and excess capital in the market. A significant change in the market is likely only if there is a catalyst; and that means either a natural catastrophe or another dislocation in the financial markets. The Canadian market has suffered record frequency in events recently, with relatively little impact on the overall financial stability in the industry.

The impact of proposed and pending regulatory change should not be underestimated.Although the convergence of accounting, regulatory and capital standards worldwide should ultimately be beneficial, a long journey of debate and compromise must be undertaken before this will be achieved.

Solvency II in Europe will significantly alter companies’ balance sheets and capital positions, which can present both challenges and opportunities for (re)insurers.

Reinsurance can be a powerful risk and capital management tool. In Canada, the proposed accounting and capital standards would have a significant impact.Year 2011 is a time for the industry to continue to shape and influence these future regimes.

6

Cam MacDonald Senior Vice President, Transatlantic Reinsurance Company

Several issues may affect the Canadian reinsurance market in 2011, not the least of which is the proposed elimination of

the 25% limit on unregistered reinsurance. If regulatory changes proceed as planned, primary companies will have the ability to potentially secure unlimited amounts of unregistered reinsurance, thereby removing existing premium from the Canadian reinsurance market.

Couple this with an increase in merger and acquisition activity, a trend towards purchasing excess-of-loss covers and a continued soft market and undoubtedly the premium pie for Canadian reinsurers will continue to dwindle.

Additionally, weather-related events such as the recent Calgary hailstorm are making a big impact on property catastrophe reinsurance programs. On a go-forward basis, the frequency and severity of these storms cannot be underestimated. Clearly current market dynamics have added another layer of pressure on rates for most if not all lines of business. Despite an abundance of available capacity, it is critical to maintain proper technical terms and conditions if we are to achieve any measure of success.

The many challenges ahead for Canadian reinsurers are daunting indeed.

It is only through sound management and adherence to basic underwriting principles and practices that we will emerge from these troubling times.

7

Lambert Morvan Senior Vice President, Chief Agent, Odyssey America Re

Reinsurers’ challenges for the next reinsurance renewal are somewhat similar to those encountered last year. They include a continued struggle to: maintain the pricing discipline on accounts that have good loss experience; address the situation on accounts with challenging loss activity; react where necessary to the increased frequency of weather-related losses; and keep a close eye on the loss cost trends in the auto and casualty business.

However, I believe a longer-term challenge for reinsurers in Canada is how to deal with the steadily decreasing use of reinsurance by insurers. Insurers have enjoyed a large increase in capital in recent years and are now struggling to find profitable growth

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A LOT OF GOOD RATINGS A MAJOR AWARD AND A NEW STRATEGIC PLAN The four rating agencies make positive decisions In just six weeks: Fitch raised the outlook on SCOR’s “A” rating to “positive” (24 August 2010) AM Best upgraded SCOR’s rating to “A” (10 September 2010) Standard & Poor’s raised the outlook on SCOR’s “A” rating to “positive” (1 October 2010) Moody’s raised the outlook on SCOR’s “A2” rating to “positive” (7 October 2010)

SCOR is named “Best Global Reinsurance Company” 2010

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by Reactions magazine

The Group’s performance is saluted as SCOR is named “Best Global Reinsurance Company” at the 2010 “Global Awards*” held on 30 September in New York.

SCOR launches its new plan, “Strong Momentum” Following the success of the “Dynamic Lift V2” plan, SCOR announced its strategic plan for the period 2010-2013, “Strong Momentum”, on 8 September.

This plan aims to increase the Group’s profitability and strengthen its solvency, whilst respecting the four cornerstones of its business model: a strong franchise, a controlled risk appetite, high diversification and a robust capital shield.

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COVER STORY

Contents Under Pressure opportunities. As a result, some insurers have increased their retentions in order to reduce the amount spent on reinsurance, hoping that the bottom line will not suffer.

This trend is troubling because of the perception that the purchase of reinsurance is a cost in an insurer’s operating budget. Long gone are the days when insurers materially relied on reinsurers’ capacity to achieve their underwriting goals.

Growth opportunities are limited in a mature insurance market. If you combine this fact with continued consolidation in the primary insurance industry, these two factors accentuate the importance for reinsurers to provide a better business value proposition to insurers.

Otherwise, in the absence of any significant loss that would impair the insurers’ capital base, the reinsurance premium pie will continue to shrink.

8

G.S. (Steve) Smith President, CEO, Farm Mutual Reinsurance Plan

As we close in on the end of 2010, the forecast for the reinsurance market and results in 2011 is a highly speculative one.

From the perspective of the reinsurance community, two issues — loss severity and lack of investment income — will likely be the primary catalyst to market change during the next 12 to 18 months.

Recent reforms to the Ontario auto product have not addressed severity concerns; at the same time, primary auto rates are under pressure to remain constant. In addition, storm severity and frequency are driving unprecedented large loss numbers and catastrophe activity on residential business. When considering the lack of investment income, the expectation would be to see applied pressure on underwriting profitability and improving ROE. This pressure will undoubtedly come from shareholders and foreign parent companies as they struggle with commitments and expectations of these stakeholders. It is highly unlikely the primary market will move quickly towards pricing correction, so pricing pressure could quite likely be reinsurer-driven.

This expectation, however, may well be delayed or mitigated due to the continued excess capital in the market and companies 44 Canadian Underwriter November 2010

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wanting to maintain market share and fully deploy capital. In the absence of a specific market-changing event or catastrophe, the change may be slow to materialize.

9

Matthew Spensieri Vice President, Reinsurance, Catlin Canada

The biggest change I see happening in the Canadian reinsurance market in 2011 is a major move by cedents from brokers to direct reinsurers. Just kidding. But now that I have your attention, let’s continue.

Although there is continuous and constant change in the market, it will not occur suddenly, and it will not appear as any ‘big’ change at all.

The Canadian market in a general sense continues to contract, mostly due to continuing consolidation. The most recent evidence is the announced purchase of GCAN

by RSA.The deal has not yet been finalized, but the expectation is for GCAN’s current reinsurance purchases to all but disappear from the market as they are combined into RSA’s existing program.

The expectation of a competitive market will mostly translate into renewal ‘as is.’ The lack of further rate reductions is a result of pressure from reinsurers to achieve minimum and adequate returns for the growing volatility of the risks they assume. Reinsurers have been demonstrating greater discipline against putting that risk on the books if target levels of return are not achieved. Some covers will likely see increases due to poor experience but also because of this ‘discipline factor.’ One reinsurer made this observation recently with respect to the Chilean market.

Growing retentions for this year are expected to cause increased activity or interest in aggregate retention covers, underlying layers or ‘carve out’ layers. This will be a means of transferring some of the volatility to reinsurers, while helping to control costs.

Lastly, the relative stability of the insurance market in Canada will continue to attract new entrants in 2011. To stay competitive, reinsurers will need to examine or modify their structure, process and model. Not a ‘big’ change really, just change, even on a personal level.

10

Brian Udolph Senior Vice President, Regional Manager (Canada) XL Re

Both reinsurance and insurance market asset bases continue to strengthen, pressuring companies to employ their excess capital through mergers and acquisitions, buying back their shares or writing additional business and thereby further softening the market. The recent purchase of a large commercial insurer is a good example of this, with more consolidation expected to continue into 2011. M&A activity and switches from proportional to non-proportional reinsurance structures all have the effect of inhibiting growth of the Canadian reinsurance market. With plenty of reinsurance capacity available, it will challenge the market to maintain discipline in accounting for the increasing exposure trends.

The current underwriting year will be extremely challenging for Canadian reinsurers due to the increased frequency of catastrophic losses; greater exposure to large per-risk events; spiraling long-term attendant care costs; and an increasing number of D&O lawsuits filed as a result of Bill 168 and Ontario court decisions, which have furthered the current trend of favouring plaintiffs. Changes to the Ontario automobile product implemented on Sept.

1, 2010 are not expected to bring any meaningful relief to excess reinsurers: all of the reforms are intended to reduce the frequency and magnitude of small losses.

The question of whether or not all of this will be enough for the market to show restraint in 2011 remains unanswered.

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Shifting Domiciles Associate Editor

Captives are shifting from Bermuda to Europe for a variety of reasons, including changing tax laws, incentives, technological evolution and trends in global premium growth.

Bermuda’s sunny shores may have lost their lustre as domiciles for (re)insurers.

An emerging trend has seen (re)insurers turning their eye away from the Caribbean nation and setting up shop in Europe instead. For the better part of two decades, Bermuda has served as a destination of choice for new entrants to the insurance marketplace, or for companies seeking tax advantages. Some experts suggest the move eastward is a sign of changing times. For example, proposed changes to the U.S. tax regime may eliminate some of the advantages of doing business in Bermuda. Others suggest the United States can’t compete with the pace of growth in emerging economies; moving headquarters east locates operations closer to these new market hot spots. Still another theory says the new migration

46 Canadian Underwriter November 2010

pattern has nothing to do with the creation of new (re)insurance epicentres; in fact, the past five years have seen developments in insurancelinked securities and technology that have eliminated the need for epicentres altogether.

MIGRATORY PATTERNS XL Capital Ltd. announced its plans to move its parent holding company from the Caymen Islands to Dublin, Ireland, in January 2010. The parent company would ultimately be re-branded XL Group plc.

XL was not the first to make this kind of move.

The company appears to be riding an eastbound wave that has been rolling for awhile now. Two years ago, in March 2008, ACE Limited announced its intention to move its place of domicile from the Caymen Islands to Switzerland.

Not to be outdone, Willis Group Holdings Ltd.’s board of directors approved the decision to move that organization’s headquarters from Bermuda to Ireland in September 2009. And Flagstone Re announced in March 2010 its intention to move its shop from Bermuda to Luxembourg.

So what has changed?

From the mid-1990s through to 2007, Bermuda was the location of choice for reinsur-

Illustration by Shane McGowan/www.threeinabox.com

Vanessa Mariga

SYMPOSIUM

2011

Insurance Institute Ontario - CIP Society is pleased to present

Change, Advance, Succeed The CIP Society of Ontario is proud to present the seventh annual insurance industry symposium. This year’s one-day forum, Change, Advance, Succeed, will feature dynamic keynote and seminar speakers. These industry leaders will provide invaluable insights and vision needed for those in the insurance industry to navigate the ever-changing environment of today’s economy.

Don’t miss the return of the industry leader panel which will include John Chippindale, Rowan Saunders, Sharon M. Ludlow, Karen Barkley and Lynn Oldfield. This panel of top leaders is a must see for all insurance industry professionals.

SPEAKERS

Breakfast Keynote Speaker

Luncheon Keynote Speaker

Alan Deutschman

Charles Brindamour

Leadership and Change Expert, Author of Change or Die and Walk the Walk

President & CEO Intact Financial Corporation

Alan Deutschman is one of America's most provocative thinkers about leadership and change. In his new book, ‘Walk the Walk’, he presents a compelling new theory of leadership that is changing the way business leaders think and behave. His pathbreaking earlier book, ‘Change or Die’, won universal acclaim both in the business community and outside of it as one of Fast Company's most highly touted cover stories.

Mr. Brindamour began his career with Intact in 1992 as an actuary and held a number of management and executive roles including Senior Vice President of Personal Lines and Executive Vice President, responsible for underwriting, claims, planning, corporate development and investor relations. In 2007, he became Chief Operating Officer until his appointment as President and CEO in January 2008.

Wednesday, April 6, 2011 (Registration begins at 7:30 a.m.)

Toronto Board of Trade, First Canadian Place, 4th Floor, Toronto ACCREDITATION: RIBO: Management & Technical hours will depend upon seminars chosen.

CPD Credits: 10 Points REGISTRATION: Due to a limited seating capacity, we ask that you please register by our early bird deadline, March 11, 2011.

To register, contact Tracy Bodnar at: (e) gtaevents@insuranceinstitute.ca • (f ) 416-362-8081 • (w) www.insuranceinstitute.ca

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ers to establish new business. However, the number of reinsurers moving to set up business in Europe has increased in the past few years, Standard &Poor’s said in a report, Choosing a Domicile Remains a Hot Topic for Global Reinsurance.The report notes Europe accounted for 60% of global net reinsurance last year.

“The prospect of taxation for U.S.sourced business written either directly by a Bermuda-based subsidiary or indirectly by a U.S.-based operating subsidiary with significant quote-share arrangements back to Bermuda could jeopardize Bermuda’s position as the domicile of choice,” S&P’s report says.

“In contrast, some European countries, such as Switzerland and Ireland, offer relatively stable tax arrangements, including long-held tax treaties with the U.S.” Andrew Barile, CEO of Andrew Barile Consulting Company, agrees the proposed changes to the U.S. tax system, in addition to incentives being offered by countries such as Ireland and Switzerland, are definitely forcing companies to re-think Bermuda. But he also finds the new migratory pattern is linked to the fact that premium income in the United States is not growing as fast as it is in the rest of the world.

“The basic concept is that the world is shifting to a global platform,” Barile says. “The volume of business is growing faster outside of the U.S., so your company is going to go where the growth is fastest. Bermuda was never a growth place. Bermuda’s success was access to capital: a company could do a public offering or access to stock offering quite easily, because there are very few regulations and there were some tax incentives.You could raise $1.5 billion by passing the hat; all of a sudden, you had a Bermuda reinsurance company. Now places like Switzerland and Ireland are matching those incentives.

So companies are saying: ‘We have to move globally anyways, so we’ll leave Bermuda and move to Switzerland.’”

HERE TODAY, GONE TOMORROW? Stephen Hitchcock, managing director at Lockton Re, says he’s seen a definite uptick in the number of reinsurers

48 Canadian Underwriter November 2010

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establishing themselves in Switzerland.

But he is not necessarily convinced it will stay that way. “It begs the question, if we have a class of 2011, 12 or 13, where will that be set up?” he says. “The rise of regional insurance — in Dubai or Singapore, for example — are also proving to have attractive tax regimes.”

They also offer an insurer closer physical proximity to emerging markets in China and India, he added. “Where will the epicentre — or second epicentre, because London, I think, will always be

surance linked securities] eliminate all the issues of exit, which summarizes the class of 2005.”

Robert Derose of A.M. Best’s analytical rating unit agrees. “Someone coined the term ‘disposable reinsurance’ when sidecars started forming after Katrina,” he says. “They really served a valuable purpose. It gave investors a very good return on their investment and they were able to take advantage of a market opportunity. So I agree, I don’t think we’re going to see start-ups to the degree we saw in the past. I think capital is going to come in a more temporary way.”

TECHNOLOGY AND MOBILITY

the first epicentre — be? I have a feeling it’s not going to be in Bermuda.”

Christopher Klein is director of reinsurance market management for Guy Carpenter and appeared with Hitchcock in a recent A.M. Best Webinar on reinsurance. Klein echoes Hitchcock’s questions above — assuming, of course, a class of 2012 even emerges. Although events on the order of magnitude of the global financial crisis have caused shifts in the marketplace — Bermuda became attractive following the recession in the early 1990s, for example — Klein is not sure that will be the case this time around. In 2005, the most recent ‘market-changing year’ prior to the financial crisis, the market saw the emergence of access to capital through insurancelinked securities following Katrina.

“I think we’ve got excellent experience with sidecars and other vehicles, which provide all sorts of advantages for investors, especially those with shortterm horizons,” Klein says. “These [in-

Technological advances, as well as the advances in access to capital, are contributing to the mobility of companies, causing them to shift from one domicile to the next and potentially removing the necessity of epicentres altogether, says Barile.

When a company moves its headquarters from one side of the ocean to the other, it doesn’t really affect the operating side of the organization, based on the technological capabilities of the company, he says. “In other words, it’s a lot easier for companies to move because their operating platforms operate the same way, regardless of where they are in the world. It’s not like in the old days, when you would close up a building and put people on a plane and move them.”

When an insurer moves its headquarters, it typically affects only those workers in the upper echelons of the organization. “ACE moved to Switzerland and 15 people were affected,” he says. “It’s not going to change ACE’s platform in Toronto because they moved from Bermuda to Switzerland. The people in Canada are still doing the same work as they were doing already.”

Barile predicts that in the future, the market will consist of “a select hundred or so global insurers that have tentacles all over the world. I see the world changing completely, so that you’ll be operating across boundaries and you’re not going to know where people are operating their laptops.That seems to be the way the world is moving.”

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STOPPING A.M. Best Reinsurance Webinar

Vanessa Mariga Associate Editor

the Freight Train Reinsurance experts fix numbers to the kinds of catastrophes it would take to halt or reverse the current inertia in favour of an ongoing soft market.

A $25-billion loss would stop the global reinsurance market’s downward pricing trend, but an $82-billion loss would be required to turn the market, according to a panel of experts appearing on an A.M. Best Webinar.

In State of the Global Reinsurance Market:Where the Hot Spots Are and Who’s in Them?, a panel of global reinsurance experts said the reinsurance market has the will to stop the downward pricing trend, but not the means.

Stephen Hitchcock, managing director at Lockton Re, said the current market has too much capital chasing too much premium. “It’s a market that wants to harden, but can’t — in the same way the insurance market wants to charge more,

50 Canadian Underwriter November 2010

but the direct buyer has just squeezed a tighter margin, so [the buyers] would prefer to drop cover rather than pay an increased price,” Hitchcock said. “The same is true, I think, of the ceding company. So, the will to harden is there, but the flesh is weak.”

So far, 2010 has been a “tough one” for reinsurers, Hitchcock observed, with plenty of mediumsized cats producing a large number of losses. “I think the market has bruised knees, but we haven’t had enough blood yet to really see a hardening.”

What would it take to shift the market?

According to Brian Ingle, executive vice president at Willis Re, if a “Hurricane Andrew-type event” hit the Florida coast, causing $25 billion in insured losses,“we think that would stop the downward trend, but it wouldn’t turn [the soft market hard].”

Bryon Ehrhart, Aon Benfield’s chairman of analytics and investment banking, said the next major event would have to hit both insurers and reinsurers. He noted a 115% combined ratio [COR] for the insurance industry was required in each of the three most recent market turns.

“To make [2009’s] 101% [COR] a 115%, it would take an $82-billion hurricane, which is a 1-in-150 year event,” Ehrhart said. “It would take a $72-billion earthquake, which is roughly

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a 1-in-250 year event. We do feel some of the ingredients are there, but it’s going to take a significant event to drive it.

There’s not going to be enough momentum from declining returns to turn the market.”

Christopher Klein, Guy Carpenter’s director of reinsurance market management, suggested that, rather than focusing on the dollar sum, re/insurers should think instead of a shock or surprise event that would affect the market.

He pointed to 9/11 and Hurricane Katrina as examples. Both were large losses; more importantly, both exposed deficiencies in the ways in which underwriters understood the accumulation of risks they had had on their books. “I still recall talking to Bermuda reinsurers shortly after Katrina and they were scratching their heads, trying to work out how they managed to lose a quarter of their surplus,” Klein said.

Hitchcock agreed. He added that recently the industry has experienced a high frequency of small- and mediumsized events in areas with high take-up

With plenty of medium-sized catastrophes this year... the market has bruised knees, but we haven’t had enough blood yet to really see a hardening. of insurance and reinsurance. “If this [frequency of] activity carries on, that will change [the market],” he predicted.

MERGERS AND ACQUISITIONS The abundance of excess capital in the marketplace may spur a flurry of merger and acquisition activity, the Webinar panelists suggested.

Ehrhart noted the industry returns for reinsurers average 11.4%. He said the industry works with volatility to earningsper-share that amounts to roughly four times that of the Standard & Poor’s 100.

“It’s a volatile business,” he said. “Seeing the returns nearly get down to the cost of capital is fairly unacceptable to most investors.You will see boards and

senior management come to the conclusion that single-digit returns are not acceptable for the kind of volatility that the market presents, so you will see more mergers. I do think that the credible balance sheet size is around $3.5 billion in order to participate in the casualty business.You’re going to find combinations that get people to that critical level.”

Ingle, on the other hand, suggested size is not necessarily going to be the driving force toward mergers. He predicted companies would be more likely to merge based on whether or not the two organizations complemented each other strategically.

“Of course size is important,” Ingle said. “You need that bulk, mass and ballast to compete in this market. But we expect there will only be mergers between complementary organizations. As a result, we don’t really see that many potential deals out there in which one company has a need and another organization fulfills it. So, we’re not expecting too much merger and acquisition activity in the near future.”

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The role of Chief Information Officers has expanded to include storytelling. Today, boards expect CFOs not only to crunch the numbers, but to tell the story behind those Michelle Ramsay numbers.

Partner, R2 Communications Inc. The Chief Financial Officer (CFO)’s expanding role and the importance of embedding sustainability into insurance operations were key topics at the Canadian Insurance Accountants Association (CIAA)’s 47th Annual Conference in Gatineau, Quebec on Sept. 22, 2010.

CFOS: TELLING THE FINANCIAL STORY The role of the CFO has evolved dramatically from the days when a CFO was expected merely to provide numbers and data, according to Phil Mayers, CFO of Genworth Financial Canada.

He was speaking at a CEO/CFO panel at the CIAA conference.

52 Canadian Underwriter November 2010

Mayers noted today’s CFOs need to partner with their companies’ different business units and act in a mentor/advisor role. A well-rounded CFO keeps the CEO up to speed on potential problems, acts as a risk manager, fosters staff development and works effectively with the company’s board of directors.

“As a CFO, become a business student,” Mayers advised. “Know your business and the issues that drive it so you can become a key contributor. If you don’t understand the drivers of your business, you could panic and make bad decisions. Constantly ask, ‘Why?’” In asking these questions, CFOs can help fellow executives and managers prevent a “group mentality” from forming at the board and management levels. “We need contrarians on management teams, people who are persistent about getting their point across,” Mayers said. “As CEOs and CFOs, we need to encourage this. It’s important to have diversity within an organization. So hire different types of personalities — including contrarians.”

Questioning assumptions is important to a CFO, who is also responsible for making sure everyone in an organization is educated about the benefits of strong capital and risk management. “These are not just the purview of financial and risk people,” Mayers said.

Although CFOs are constantly referred to as “the numbers people,” they are increasingly

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being asked to take on a prominent role in risk management. This means being able to explain clearly the context around the numbers.Thus, the best CFOs are often the best storytellers.When dealing with the CEO, the CFO needs the skill to be able to “tell a story from the numbers,” Mayers said.

Paul Field, CEO and CFO of the Old Republic Insurance Group, agreed. “As a CEO, I’m already bombarded with data,” he said. “Every set of data tells a story, so give me the story. The data is only there to support the story.The CEO needs to understand the key drivers and risks; this is where the CFO comes in.”

Of course the CFO works with corporate executives other than just the CEO. Ross Betteridge, executive vice president and CFO of Travelers Canada,

As a CFO, become a business student. Know your business and the issues that drive it so you can become a key contributor. If you don’t understand the drivers of your business, you could panic and make bad decisions. Constantly ask, “Why?” pointed out the necessity of a strong orientation process for new board members. “Our job is to give them the confidence that they have the basic knowledge to execute their duties,” he said. “The CFO and the financial team can take a lead here and run them through the complete strategic plan and structure of the company and outline their accountability.”

Betteridge said it’s important to do this early on. He suggested the Institute of Corporate Directors (ICD) programs as a good place to start. “Help them manage their responsibility and earn their confidence,” he said. “It takes time to gain it, but you can lose it quickly.

You can never be overly prepared with the board.”

Betteridge suggested it was no coincidence that all three panelists worked outside of finance at some point during their professional careers. Having such a broad base of professional experience is key to a CFO being valued as a business partner who can bring other perspectives to the table.

INSURERS AND SUSTAINABILITY Insurers who don’t integrate sustainability throughout their business activities do so at their own peril, according to Glen Oxford, national property claims manager of The Co-operators.

“The insurance industry is the second-largest asset-based industry in the world and we have sizable clout,” Oxford said at the CIAA’s 2010 annual conference. “The fact is, climate change has a direct effect on our investments and underwriting activities.” He pointed out that global disaster damage has increased 20-fold since the 1970s. Insurance claims related to severe weather have doubled every five to 10 years since the 1950s, even when adjusted for inflation. And yet, even though the industry’s awareness about the cost of climate change is high, the industry is still lagging when it comes to emission reduction plans and risk assessments, Oxford said.

Insurers have two choices, he added.

One would be to “do nothing about climate change and be defensive in the face of disasters, reacting with higher premiums, higher deductibles, lower limits, exclusions, non-renewal and finally withdrawing from markets.” The other option would be to become a catalyst for change through thoughtful, sustainable actions. This would mean working towards improved building codes, disaster preparedness and education; advocating for better public policy; integrating emissions reduction and risk management; and using scientific research to develop more responsive products and services.

Oxford knows first-hand what goes into creating a sustainability policy de-

signed to benefit the company and society. The Co-operators initiated its wide-ranging Climate Change Strategy in 2007. “We wanted to manage our own footprint and become an industry leader in sustainability,” Oxford said of the plan. “We started by targeting energy use in our buildings, business air travel, paper use and the corporate vehicle fleet. We began tracking our carbon emissions in those areas and set a reduction target of 10% by the end of 2010.

By the end of 2009, we’d already reached 12%. Last year, we adopted a new claims system that will be completely paperless by 2014.”

Implementing the strategy’s mandate involves researching safety, life and health risks and developing sustainable products and services for the company’s clients. As examples, Oxford cited The Co-operators’ hybrid vehicle discounts and Enviroguard, a product that encourages policyholders to replace their damaged property with more eco-friendly and sustainable products.

Climate change continues to resonate with the public as a pressing issue despite the economic downturn, Oxford said. This is a plus for insurers promoting a sustainability policy. “Insurers will see their reputation enhanced and appeal to the growing legion of consumers who chose to do business with socially responsible organizations,” he said. “We have a direct link to most homeowners and business, and we have the ability to change behaviour and policies by communicating with our clients.”

And just like consumers want to do business with socially responsible companies, employees and potential employees want to work for these kinds of companies. Becoming an employer of choice means aligning the company with a strong sustainability policy, Oxford said.The payback will be more motivated employees, better staff retention and the ability to recruit the best employees. Other benefits to the policy will be improved risk management, cost savings and eco-efficiencies.

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A Bird? A Plane? it’s an

Jennifer D. Pereira

Partner, Robertson Stromberg Pedersen LLP

No,

Automobile

A Manitoba Court of Queen’s Bench decision that a golf cart is an automobile for the purpose of determining nofault benefits is limited in scope, but it does call into question statutory definitions of the word ‘automobile’ in insurance regimes throughout Canada.

Jeff Hruska suffered an injury to his right leg Robertson Stromberg Pedersen when it came into contact with a golf cart driven LLP is a member firm of The by his friend at a Manitoba golf course on Apr. ARC Group Canada.

26, 2003. Seven years later, Manitoba’s Court of Queen’s Bench considered whether Hruska was entitled to no-fault benefits pursuant to the Manitoba Public Insurance Corporation Act (MPICA) or alternatively whether he was entitled to sue the golf course in negligence. At issue was whether or not the golf cart met the definition of the word “automobile” under the act.

The consequences of Hruska are not far-reaching in Canada, since the decision focused on definitions specific to Manitoba’s no-fault insurance scheme. However, Hruska serves as a helpful

54 Canadian Underwriter November 2010

reminder to governments and insurers in nofault provinces to ensure that their contractual or legislative definitions accord with the realities of modern transportation.

Part I of the MPICA defines “automobile” as “a motor vehicle.” In Part II, “automobile” is defined as “a vehicle not run upon rails that is designed to be self-propelled or propelled by electric power obtained from overhead trolley wires.” On a plain reading of the sections, a golf cart fits into the definition of an “automobile” under Part II. Even if one were led to the definition of “vehicle” in Part I of the MPICA, and thereby to the Highway Traffic Act, that definition would not exclude a golf cart or other novel devices such as a segway. In Hruska, the court held a vehicle “is a device by which a person may be transported on a highway and is not designed to be moved solely by human muscular power, or used on tracks; nor is it a motorized mobility aid.” As such, a golf cart was determined to be an automobile.

One wonders whether Manitoba’s legislature intended a broader definition of “automobile” to be used for the calculation of no-fault benefits rather than for purposes of registration and insurance. In particular, the definition of “motor vehicle” was changed in the Highway Traffic Act in 1988 to conform to the passing of The Off-Road

Illustration by Shane McGowan/www.threeinabox.com

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Vehicles Act. Arguably it was the legislative intent in 1988 to eliminate off-road vehicles from the insurance scheme under the MPICA, but it was clear this objective was not achieved with respect to other vehicles such as golf carts.

In Ontario, the struggle to determine the relationship between the definitions of “automobile” in the Insurance Act and within contracts of insurance was resolved in Regele v. Slusarczyk in 1997. In Regele, the Court of Appeal held the operative definition of automobile is found at s.224(1) of the Insurance Act. As a result, in Ontario, when determining the issue of whether a vehicle is an “automobile,” one must review the following definition: “In this Part, ‘automobile’ includes a motor vehicle required under any Act to be insured under a motor vehicle liability policy.”

The Regele and then later the Morton decisions also describe a two-part analysis.

First, does “automobile” in ordinary parlance include the vehicle at issue? If so, the vehicle is an “automobile” within the meaning of Part VI of the Insurance Act. If not, a second question is posed: Does the vehicle qualify as an automobile under an expanded definition in the policy or the Insurance Act? In determining the meaning of “automobile,” the courts have not demanded specific evidence about the general use or understanding of the term. Instead, judges have exercised their own opinion. For example, in Regele, the issue was whether a farm tractor was an automobile. Ontario Court of Appeal Justice George Finlayson (as he was at the time) simply stated that “[i]n ordinary parlance, an automobile does not include a farm tractor.” The Morton decision dealt with two separate incidents involving backhoes. In applying the ordinary parlance test, Ontario Court of Appeal Justice Marvin Catzman (as he was the time) determined an “automobile” does not include a backhoe. One might speculate that, as technology changes, ordinary parlance would exclude personal transportation devices such as segways, podcars and golf carts as meeting the definition of “automobile.” However, since the Insurance Act lacks precise definition, the first part of

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the test leaves the decision at the discretion of the judiciary.

If a vehicle is not found to be an “automobile” in ordinary parlance, the analysis must then focus on whether the vehicle fits within the enlarged definition in 224(1) of the Insurance Act or the definition found within the policy.

The question then becomes whether the vehicle required motor vehicle insurance at the time and in the circumstances of the accident. If it did not, the vehicle will not be an “automobile”

In determining the meaning of “automobile,” the courts have not demanded specific evidence about the general use or understanding of the term. within the scope of the Insurance Act or contract of insurance.

Interestingly, Saskatchewan has avoided the debate about the definition of “automobile” related to the provision of no-fault benefits.This is likely due in large part to the comprehensive exclusion sections set out in Part II of the Automobile Accident Insurance Act (AAIA).

Saskatchewan’s AAIA is similar to the legislation in Manitoba, in that it defines a motor vehicle as “any motor vehicle propelled by any power other than muscular force and adapted for transportation on highways, but not on rails.”

However, the AAIA specifically provides that no-fault benefits do not apply to bodily injuries caused by an automobile while the automobile is not in motion; by or by the use of a device that can be operated independently and that is mounted on or attached to the automo-

bile; by a self-propelled agricultural implement; by a wheelchair; by a special mobile device; by a snowmobile; by an all- terrain vehicle; caused by the autonomous act of an animal that is part of the motor vehicle's load; by an action performed by the victim in connection with the maintenance, repair, alteration or improvement of the automobile; caused while putting a load on or taking a load off the motor vehicle or caused as the result of a motor vehicle contest, show or race on a track or other location. Further there are exclusions for accidents caused by motor vehicles in specified situations.

Saskatchewan’s AAIA deprives all insureds a right of legal action for “bodily injuries caused by an automobile,” except for those who have chosen the option of being able to sue for tort damages. Therefore, the case law in Saskatchewan surrounds whether or not the motor vehicle was the dominant feature leading to the damages, not whether the motor vehicle was an “automobile” as defined by the legislation.

In Hruska, the Manitoba Court of Queen’s Bench focused on the plain meaning of definitions set out in the MPICA to determine that a golf cart was indeed an automobile, entitling the plaintiff to obtain no-fault benefits. Its legislative framework lacked the precision found in Saskatchewan’s legislation to avoid the debate altogether. In Ontario, the legislation — and sometimes the insurance policies —lack precise definition.This has required courts to develop a two-part test to determine whether or not damages were in fact caused by an “automobile” and if coverage applies.The lesson, of course, is to ensure that definitions of “automobile” found within contracts of insurance and legislation are specific enough to reflect the evolving nature of personal transportation. As gasoline becomes more expensive, electric transportation devices (i.e. segways) will be increasingly seen in our communities. Inevitably, accidents will occur. In order to avoid litigation, legislation must be amended and insurance contracts be made more precise to ensure that only licensed or defined vehicles will be considered “automobiles” in the future.

November 2010 Canadian Underwriter

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CU Seminar ad November 2010

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CIP Society Events and Seminars Vancouver - PROedge Seminar: Advanced Business Interruption . . . . . . . . . . . . . Nov. 16

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London - Annual Speakers Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Nov. 23

Charlottetown - CIP Society Annual Meet and Greet . . . . . . . . . . . . . . . . . . . . . . . Dec. 16

Kitchener - PROedge Seminar: Finance for Non Financial Professionals . . . . . . . . Nov. 23

London - Knights vs Sarnia Sting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jan. 1

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O s d Pulling Hea of the Sand Even the most ardent ostriches in the world of underwriting D&O insurance must be aware of a trend in which the U.S. plaintiff’s bar is taking an active interest in Canada’s approach to class action litigation.

Jay A.R. Cassidy

Senior Vice President, Co-chair of FINPRO (Financial and Professional) Liability Claims Advocacy Practice, Marsh Canada Limited.

Franklin Delano Roosevelt once spoke of the “tragic errors of ostrich isolationism.” Although he was speaking of a tyranny much greater than that inflicted by the plaintiffs’ class action bar, many in Canada have for years taken the approach that the experiences of corporate directors and officers and the companies they lead south of our border would never find their way into Canada. At this point, even the most ardent of ostriches have pulled their heads out of the sand.

INCREASING LIABILITY The legal liability of directors and officers of publicly traded companies in Canada has increased with the passage of Bill 198 and similar legislation. In fact, it has become more closely akin to the liability confronting directors and officers of publicly traded companies in the United States. The last 18 months specifically have seen enormous challenges within the financial industry, largely driven by the credit crisis, which has resulted in a surge of securities class action filings south of the border. Canada has also seen an increasing number of class actions.

Shareholders in Canada have commenced multiple class action lawsuits since 2006, invoking the secondary market civil liability amendments to provincial securities legislation and claiming hundreds of millions of dollars in damages. According to court documents, there have been at

least 24 “Bill 198” actions since its inception.

Damages claimed are between Cdn$16 million and Cdn$1.7 billion, with the average amount in the hundreds of millions of dollars.

Silver v. IMAX Corporation, which commenced in Ontario in September 2006, is the first case to consider the leave to proceed and class certification tests set forth in Bill 198. In IMAX, Ontario Superior Court Justice Katherine van Rensburg set a low standard for plaintiffs to pass the twoprong test for leave, ruling that plaintiffs only have to show there is a reasonable possibility for the action to succeed and that it is brought in good faith.

In terms of class certification, in IMAX, Justice Van Rensburg allowed for a global class of investors to be captured by the Ontario proceeding.

This has caused great debate as to whether Canada — and specifically Ontario — will now become a venue of choice for plaintiffs’ attorneys.

IMPORT OF IMAX It should be noted IMAX is appealing this decision. That said, at a recent industry event, a lead U.S. plaintiffs’ attorney said he thought Canada was likely to become the next major business expansion area for plaintiffs’ firms. This was in part due to IMAX, and also because of the recent Morrison decision from the United States Supreme Court, which made it harder to sue extraterritorial companies.

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INSURANCE INTERNET DIRECTORY ASSOCIATIONS Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca

Informco Inc. Integrated Graphic Communications Specialists. www.informco.com

CONSULTING FIRMS

INSURANCE COMPANIES

Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com

Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com

Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

CONSTRUCTION CONSULTANTS Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org

MKA Canada, Inc. Providing creative solutions to the Construction, Legal and Insurance Industries. www.mkainc.ca

CLAIMS ADJUSTING FIRMS

DAMAGE COST CONSULTANTS

ClaimsPro Inc. Committed to providing leading-edge claims management services. www.scm.ca

SPECS Ltd. (Specialized Property Evaluation Control Services) Providing Innovative Solutions to Control Property Claim Costs www.specs.ca

Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters Doing What Is Right®. www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors. www.mclarens.ca PCA Adjusters Limited Adjusting to Meet your needs™ www.pca-adj.com

58 Canadian Underwriter November 2010

GRAPHIC COMMUNICATIONS

Quelmec Loss Adjusters Identifying, Investigating, Resolving...for over a quarter century! www.quelmec.ca

EMPLOYMENT ONLINE I-HIRE.CA Canada's Insurance Career Destination. www.i-hire.ca

ENGINEERING SERVICES Giffin Koerth Forensic Engineering and Science Investigate Understand Communicate www.giffinkoerth.com Rochon Engineering Inc. Forensic Consulting Engineers & Code Consultants. www.rochons.com

Catlin Canada Underwriting Ambition. www.catlincanada.com Chartis Insurance Company of Canada Your world, insured. www.chartisinsurance.com FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com RSA Leading car, home and business insurer. www.rsagroup.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

INSURANCE LAW Walters Forensic Engineering Inc. Providing scientific answers to complex engineering incidents. www.waltersforensic.com

The ARC Group Canada Inc. Your Partner in Insurance Law & Risk Management. www.thearcgroup.ca

INSURANCE SOFTWARE APPLICATIONS Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

REINSURANCE Guy Carpenter & Company The world’s leading reinsurance intermediary. www.guycarp.com Munich Reinsurance Company of Canada Complete reinsurance coverage from Canada’s largest reinsurer. www.mroc.com Swiss Reinsurance Company Canada The leading P&C reinsurer in Canada. www.swissre.com Transatlantic Reinsurance Company For all your reinsurance needs. www.transre.com

RESTORATION SERVICES Winmar Property Restoration Specialists Coming Through For You! www.winmar.on.ca

RISK MANAGEMENT The ARC Group Canada Inc. Your Partner in Insurance Law and Risk Management. www.thearcgroup.ca

SPECIALTY INSURANCE William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

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There has been a great deal of discussion on IMAX, but we shouldn’t place too much importance on it. It is only one decision — the first of its kind in a novel area of law. It is naïve to think it will forever be the standard by which these cases are judged. The law is a living tree, ever growing and changing.

Many more decisions will come on secondary market liability.

Aside from IMAX, most actions are at a preliminary stage; they have yet to receive court approval to proceed or even argue the application for leave. Still, consider some early settlement figures in proposed secondary market liability cases (all figures are in Canadian currency unless otherwise noted): • a mining organization with a $320million claim settled for $15.5 million; • a mining organization with a $16million claim settled for $2.1 million; • a pharmaceutical company with a $110-million claim settled for $7.1 million; • a natural and organic food company with a US$110-million claim settled for US$11.3 million; •∑a mining organization with a $55million claim settled for $2.2 million; • a mining organization with a $210million claim settled a global class action for $28 million; and • a consumer goods company with a $500-million claim tentatively settled for $22.5 million.

Given the small sample size, it is difficult to give much significance to the numbers above. However, it will be interesting to see if the settlement range as a percentage of the amounts claimed — about 8% on average in the above examples — holds true. Settlement averages are somewhat valuable to a defendant, but the real number that can drive settlement behaviour is the cost of defence, which at times can mirror the actual settlement amount.

Complicating the matter further are the added defence costs if the case is multi-jurisdictional, as well as the fees associated with electronic discovery, which alone can run in the millions of dollars.

Only one case has proceeded to the test for both certification and leave to proceed. But two other decisions related to procedural matters are of concern.

PEEKING AT D&O LIMITS In both Sharma v. Timminco Limited et. al. and Szuszkiewicz v. European Minerals Corporation et al. (known as “Orsu Metals”), the courts allowed potential plaintiffs to view the companies’ directors and officers (D&O) liability insurance policy at very early stages in the proceedings — in both cases, before either was granted leave to proceed.

Plaintiffs’ firms understand that D&O policy limits are important considerations in evaluating litigation. The problem with early policy production is that it arguably sets a number for the floor in settlement negotiations, before there is any evaluation of the merits of the case.

Imagine from the perspective of a defendant, your directors and officers are distracted from their regular jobs in

Recently, a pre-eminent plaintiff’s firm in Canada spoke of how it “reverse engineers” class action litigation to find out if the cases are worth pursuing. order to focus on litigation. There is a prospect they may be deposed, which can prove perilous for both the individual and the company. The prospective plaintiff is allowed to see what level of insurance money you may have available before being declared an actual plaintiff.

Your stock is already down in value, which is what brought on the class action in the first place.

You would probably be asking yourself at this point: How much worse will it get if you let it drag on for years, all the while paying millions of dollars in defence costs? You might be tempted to say to defence counsel: “Just give them the insurance money and make it go away now.”This is a legitimate response, but it can cause high-level tension between the insurance company and the insured, which in theory are supposed to be on the same side.

The profitable nature of class actions has led to competition between plaintiffs’ firms for carriage of the action. A

novel concept in Canada, this leads to concerns about the ability of a successful defendant to seek costs against the unsuccessful plaintiff if the is in fact indemnified by a party outside Canadian jurisdiction and without commensurate costs provisions. Furthermore, it is interesting to note the law firm that prevailed in the Timminco case is being backed by a well-known and well-funded plaintiffs’ firm in the United States.

Recently, a pre-eminent plaintiffs’ firm in Canada spoke of how it “reverse engineers” class action litigation to find out if the cases are worth pursuing.

Counsel spoke of looking to financials and the insurance available, among other variables, as determining factors in whether the firm would pursue a class action.

BIG BUSINESS OF CLASS ACTIONS Counsel didn’t mention shareholders.

Plaintiffs’ firms are much more cavalier today in speaking about their true intentions for bringing forth a securities class action. Gone are the references to the alleged wrongful acts, the damage to capital markets or to individual shareholders and the need to protect the small individual investor. Rather, plaintiffs’ counsel speak about increasing the size of settlements and adjusting their business models to maximize their firms’ returns in an ever-changing environment.

Moreover, with the U.S. plaintiffs’ bar creeping into Canada, and given its stated intention to stay, perhaps it is time for the courts to revisit the all-apparent truth behind securities class actions.This is a business for the plaintiffs’ attorneys, not some glamorized version of a David-versus-Goliath struggle of Erin Brockovich legend from toxic tort cases.

With this in mind, the courts may want to turn their attention to whether a better balance is needed between the applications of rules for disclosure and the intent of the leave test under the secondary market legislation. Unfortunately, until this happens, plaintiffs’ firms will continue to view class action litigation as a very profitable business — which for them will remain booming.

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MOVES & VIEWS

UPCOMING EVENTS: FOR A COMPLETE LIST VISIT

www.canadianunderwriter.ca

AND CLICK ‘MY EVENTS CALENDAR” ON THE HOME PAGE

1

The Law Society of Upper Canada (LSUC) is recognizing Bruce Thomas [1], a founding partner of Thomas Gold Pettingill LLP, for practicing law for 50 years. Thomas specializes in insurance law and will be granted a lifetime membership in the LSUC. “Bruce’s love for practicing law makes him as effective today as ever before,” said Chris Schnarr, another founding partner of Thomas Gold Pettingill.

“After 50 years of practicing, Bruce’s passion for the law is stronger than ever. He has no intention of slowing down.” A former managing partner at Cassels Brock LLP, Thomas founded Thomas Gold Pettingill with lawyers he had previously mentored. In addition to specializing in corporate and commercial related matters (with a particular focus on insurance), he inspires and leads the practice, devoting energy to the mentorship of the younger members of the firm.

2

Compu-Quote has launched an update to its residential replacement cost valuation tool, ezITV. The ezITV 2010 tool accesses the eValue-EVS cost engine through a Web service, reducing the need for users to process updates. The program interface and func-

60 Canadian Underwriter November 2010

tionality is similar to its predecessor, but the update includes more options: additional building types, exterior siding choices, enhanced garages and more help files. The options will be continuously updated.

Compu-Quote will host a series of seminars across Canada in Fall 2010 and early 2011, which will be accredited in all provinces.

3

Catlin Canada has added reinsurance to its underwriting appetite, hiring Matthew Spensieri [3] as vice president of reinsurance. Spensieri will lead the reinsurance team. Prior to this post, Spensieri led the Canadian treaty underwriting at Gen Re Canada. Catlin Canada will be writing reinsurance business, both treaty and excess of loss, from its Toronto office. Also, the company has expanded its presence across the country with the opening of two new offices, one in Montreal and one in Vancouver. Pat Bruzzes, will lead the Montreal office. Prior to his new post, he headed the Montreal office of GCAN Insurance. The rest of the Montreal team will consist of Flavia Di Girolamo, property manager, Quebec; Robert Foster, senior underwriter, property and casualty; and

1 Lucy Martinello, office manager. Ian Rutherford will head up the Vancouver office. He served most recently as a branch manager for GCAN Insurance. In addition to Rutherford, Catlin's Vancouver team includes senior underwriters Rory O'Donoghue and Lawrence Quan. The new offices will target business complementary to the key classes already written in the existing network, but they will allow Catlin Canada to expand its distribution.

4

The Guarantee Company of North America has increased its investment and is now a full partner in the Insurance Brokers Association of Canada (IBAC)'s Broker Identity Program (BIP) for 2010.

Launched 22 years ago, the BIP program promotes the value and professionalism of the insurance broker to consumers, insurers and governments. It is a branding

3 campaign for more than 33,000 insurance brokers.

Bob Dempsey, president and chief operating officer of The Guarantee Company of North America, said the move “categorically reinforces our commitment to the independent broker distribution system within Canada.” The Guarantee Company of North America joined IBAC at the “Supporter” level in 2009.

5

Canada’s federal government has named Monique Leroux, board chair, president and CEO of Desjardins Group, to an expert panel created to support business research and development in Canada. Leroux joins a six-member panel that will solicit advice from Canadians and businesses on how the federal government can better support business research and development. A member of Desjardins’ senior management since 2001, Leroux was president of Desjardins Financial Corporation

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MOVES & VIEWS

5

7a

a past president of Liberty Insurance Company of Canada, have been appointed to Granite’s board. Duncan Smith [b] is the new chief financial officer of Granite and Will W. Chang is vice president, general counsel and corporate secretary. Smith most recently served as CFO of EISI. Chang's previous post was head of legal services for Transat Holidays.

8 7b and CEO of the subsidiaries, including Desjardins Financial Security (personal insurance) and Desjardins General Insurance Group (property and casualty insurance).

6

Marsh Canada Limited has teamed up with Readysmith Advisers Limited to launch a service helping Canadian organizations develop business continuity programs. Through ReadyMarsh, Marsh will assist clients perform specialized risk assessments and develop procedures for emergency response, crisis management, business continuity and information technology

8 disaster recovery. ReadyMarshSM is designed for small and medium-sized organizations and combines the advisory services of Marsh with Readysmith's 24/7, Web-hosted and Wiki technology-based business continuity planning environment.

7

Granite Global Solutions Inc., the holding company of McLarens Canada, Sibley & Associates, King Reed & Associates and Rochon Engineering, has announced a series of board and executive appointments.

John Chippendale, vice chairman of HKMB Hub International, and Richard Evans [a],

Chesterfield Canada Inc. has announced its sponsorship of Ontario Hockey League Player Dalton Smith [8]. In his second season with the Ottawa 67s, Smith has scored 21 goals and added 23 assists in 62 games. “What attracted us to Dalton is his offensive punch,” said Steve Kilrea, managing director of Chesterfield Canada. “But the strongest asset of his game is perhaps his physical and aggressive nature. He is not known for taking bad penalties, he sticks up for his teammates on a regular basis and is great at using his body to open up space on the ice for teammates. At Chesterfield Canada, we are only too pleased to start the CCI Youth Sponsorship Programme by supporting this raw talent in the Canadian Youth league. We wish Dalton every success.”

9

ACE Canada observed the 25th anniversary of its parent company, ACE Group, by participating in a global day of service.In Canada, ACE employees volunteered with the following organizations: • East Scarborough Boys and Girls Club: Assisted the agency in implementing its High Five activities day.

• ACCES: Coached job-seekers who are principally new immigrants to Canada, by providing consultative advice on effective interview techniques and resume review.

• Horizons for Youth's ‘Revitalize 2010' initiative: Cooked, painted and cleaned at the agency's facilities.

• The Good Neighbour's Club: Assisted the chef in creating a four-course meal for the agency's members.

• Mid-Toronto Community Services: Helped seniors and adults with disabilities, by assisting the agency's staff with transportation to and from a planned group activity.

• University Settlement Recreation Centre's ‘Out of the Cold' program: Prepared and served dinner for University Settlement's homeless clients.

• Sistering-A Woman's Place: Helped to prepare lunch for Sistering's more than 200 homeless and under-housed clients.

November 2010 Canadian Underwriter

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

Simmlands held its 4th Annual Pro-Am for the CPGA Women’s Championship on Aug. 16.

Twenty-five teams, each consisting of three amateurs and a top woman professional, participated at Burlington Golf & Country Club in a scramble format. This year’s event boasted four women from The Golf Channel’s Big Break series. Proceeds went to Women in Insurance Cancer Crusade (WICC).

John Simmonds, chairman of Simmlands Insurance Services, confirmed the event next year would be held at Bayview Golf & Country Club.

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

Assured Automotive held their Annual Charity Golf Tournament on Aug. 26 at the Royal Woodbine Golf Club. Through the generous support of their sponsors and attendees, a total of $15,000 was raised in support of the MS Society of Canada and the Michael Pinball Clemons Foundation.

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

The Toronto Insurance Women’s Association (TIWA) held its annual charity golf tournament on Sept. 8 at Cardinal Golf Club in Newmarket, Ontario. Hundreds of industry golf enthusiasts helped raise more than $10,000 for the East Scarborough Boys and Girls Club and Camp Oochigeas.

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CNA Canada

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Crawford & Company (Canada) Inc.

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Creechurch International Underwriters Limited

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FM Global

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The Guarantee Company of North America

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Guy Carpenter

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Great American Insurance Group 83 (IBC) GroupOne Underwriters

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instouch.com

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McLarens Canada

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PartnerRe

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Pencross Financial Corporation RSA – Royal & Sun Alliance Insurance Company of Canada SCOR Canada Reinsurance Company

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2 (IFC)

Transatlantic Reinsurance Company

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

CCR celebrated 10 years in Canada with a cocktail reception at the Art Gallery of Ontario on Sept. 7. Special guests from CCR Paris included Thierry Masquelier, chairman and CEO, as well as Marc Hannebert, executive vice president.

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

Fire Underwriters Survey (FUS) subscribers met at the Metropolitan Hotel in Toronto on Sept. 15 to discuss significant developments taking place in the areas of response time studies, Superior Tanker Shuttle Service Accreditation and fire hall grading details, in addition to enhanced data and delivery mechanisms. Sixty members of the insurance industry attended the presentation, which highlighted the importance of the fire insurance grading system provided by FUS, as well as how this critical information assists underwriters in their daily decision making process. Speakers also introduced the integration of geo-spatial FUS data — such as the distance of a risk to the nearest responding fire hall and hydrant protection — into RMS iClarify services.

November 2010 Canadian Underwriter

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GALLERY

DAS Legal Protection Insurance Company Limited (DAS Canada) held its launch celebration on Sept. 23 at Jamie Kennedy at the Gardiner Museum in Toronto. The launch of DAS Canada marks the first specialty legal expense insurer in the country. DAS policies will be sold through the property and casualty broker channel.

Industry guests enjoyed a special appearance by ‘DASman.’

Insurance brokers supplying DAS products and services will help ‘DASman’ provide affordable justice to Canadian consumers and businesses.

DAS made a $500 donation to WICC in honour of the occasion.

66 Canadian Underwriter November 2010

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APPOINTMENT

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

Rhonda Palmer John Tagle, Senior Vice President of National Sales & Business Development, is pleased to announce the appointment of Rhonda Palmer as the Vice President of Sales - Western Canada, ClaimsPro, an SCM Company.

"Our growing breadth of services and scale of operations across the country has thrust us into a position of leadership.

The establishment of Rhonda's new role further solidifies our commitment to our Western Canadian customers," explains Mr. Tagle.

In this new role, Rhonda will be responsible for overseeing sales in Western Canada. Rhonda joined ClaimsPro in 2007 and has successfully led Sales in BC to revenue growth through superior customer service. Rhonda began her career in Alberta after graduating from Grant MacEwan University. She has more than 10 years experience in the industry and holds CRM and FCIP designations. Prior to joining ClaimsPro she worked for an insurer, holding management roles in operations, claims and personal lines.

SCM Insurance Services is Canada's largest independent supplier of claims management services. Established in 1986, SCM's commitment to innovative technology, expert staff, and solid customer service, has allowed us to grow from a single office to a national company.

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Canadian Underwriter November 2010

Commonwealth Insurance Company welcomed more than 100 brokers and staff to an Open House Cocktail Reception on Sept. 22, held in the newly expanded premises on the 12th floor of 150 King Street West. The event featured hors d’oeuvres, desserts, and beverages as well as door prize draws for iPads.

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The RIMS Canada Council along with visiting RIMS executive, met during the RIMS Canada Conference in Edmonton, Alberta to discuss the progress of its Strategic Plan. The plan includes: developing a risk management standard and a strong, broad membership base; gaining recognition that RIMS is the pre-eminent risk management organization in Canada; and increasing the offerings of programs and services to members. This year marks Tino Brambilla’s first year as chair of the committee.

Pictured from Left to Right: Kim Hunton, Gwen Tassone, Richard Roberts, Phil Corbeil, Terry Fleming, Mary Roth, Glen Frederick, Michel Turcotte, Thomas Oystrick, Bonnie Wasser, Tino Brambilla, Elizabeth Clarke, Roman Parzei, Sue Mepham, Dave Jackson, Jill Levy. Absent: Robert Barker, Marley Drainville

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

McLarens Canada, King-Reed Investigations, Rochon Engineering and Sibley & Associates (Granite Global Solutions companies) held a RIMS Canada Edmonton Conference ‘Kick-Off’ reception on Sept. 25 at the Rose & Crown Pub in Edmonton, providing delegates with an opportunity to mingle and kick-start the conference.

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Cunningham Lindsey held its annual RIMS Canada dinner on Sept. 25 at Lux Steakhouse & Bar in downtown Edmonton.

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

Crawford & Company (Canada) Inc. held its annual RIMS Canada dinner on Sept. 25 at Sorrentino’s restaurant in downtown Edmonton.

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SCM Insurance Services held a BBQ dinner event as its launch to the RIMS Canada Conference on Sept. 25, hosted at the ‘Shumka Ranch.’ Guests enjoyed live entertainment, including music by the industry’s own ‘The Accidental Benefits.’

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

GCAN’s annual GCAN Casino Night was a RIMS Canada Conference kick-off event on Sept.

25 at the Sutton Place Hotel in Edmonton. It provided a chance for delegates from across the country to connect early in the conference agenda.

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Roughly 50 delegates of the Risk and Insurance Management Society (RIMS) Canada Conference Edmonton laced up their running shoes for the William H. McGannon Foundation’s annual Fun Run-Walk early on Sept. 13. Sponsored by FM Global and the RIMS Canada Council, the event raised more than $2,500 for the foundation, which provides learning and networking opportunities for students considering a career in risk management.

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

Zurich Canada hosted a dinner at the Edmonton Art Gallery on Sept. 26 to mark the opening of the RIMS Canada Conference.

The dinner featured food from around the world, expressing Zurich’s “international capabilities” theme in a culinary manner. Attendees were treated to spectacular sleights-of-hand by magician Pat Perry, who travelled all the way from Switzerland for the occasion.

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Chartis hosted its annual RIMS Canada cocktail reception on Sept. 27 in the Empire Ball Room at the Fairmont Hotel McDonald. Given the ‘balmy’ Edmonton weather the week of the conference, guests were able to enjoy the panoramic views of the North Saskatchewan River valley from the hotel’s spacious terrace.

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

Catlin Canada hosted a reception at the RIMS Canada Conference at the Hundred Bar Kitchen in downtown Edmonton on Sept.

26. The event featured a night of drinks, appetizers and networking.

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At the official Opening Reception of the RIMS Canada Conference Edmonton, sponsored by Allianz Global Risks and Integro Insurance Brokers, guests mingled and enjoyed the melodies of one of North America’s premier saxophonists and Edmonton’s own P.J. Perry.

At the Sept. 26 event, RIMS president Terry Fleming and conference co-chairs David Buzzeo and Gwen Tassone officially declared the conference ‘open,’ welcoming all to Edmonton.

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Willis hosted its ‘Chocolate Decadence’ reception on the evening of Sept. 26. It gave RIMS Canada Conference delegates, attendees and exhibitors a chance to spend some sweet time together after various conference dinners and outings.

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During the RIMS Canada Conference’s opening ceremonies, the Ontario Chapter of RIMS named Tina Gardiner, manager of insurance and risk at the Regional Municipality of York, as the 2010 recipient of the Donald M. Stuart Award. Gardiner’s involvement with RIMS spans nearly 20 years. “I can’t believe I am standing up here,” Gardiner said upon receiving the award. “I am humbled and I am honoured to be given this award and to be in the company of those that have been honoured before me.”

Conference delegates were also treated to a keynote address by controversial and famed author Salman Rushdie.

He spoke of the importance of realizing there is no such thing as 100% security, only degrees of security. Acceptance of this fact allows individuals to go on to achieve great things. "If you want to open the universe a little bit more, you cannot do that sitting safely in the middle of a room,” he said. “You have to go out to the borders and push out."

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ARC Group Canada hosted a reception at the RIMS Canada Conference in Edmonton at Lux Restaurant on Sept. 27, including entertainment and a networking opportunity for guests and delegates.

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

AEGIS policyholders, brokers and underwriters attended a reception the insurer hosted during the RIMS Canada Conference at “The Hat� in downtown Edmonton on Sept. 27.

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More than 70 companies and organizations filled the Exhibit Hall at the 2010 RIMS Canada Conference in Edmonton.

Exhibitors worked the show and showed their work, as delegates networked with colleagues and checked out the latest company offerings.

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Transatlantic Reinsurance Company held a celebration on Oct. 7 to mark the occasion of 30 years in Canada. A few hundred guests from all segments of the insurance industry were greeted for this milestone celebration by Cam MacDonald, senior vice president, and Robert Orlich, president and CEO, at the historic Grand Banking Hall at One King West in Toronto.

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APPOINTMENT

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

Cindy LeBlanc Mr.Murray Goertzen,Vice President of Insurance Operations and Mrs. Donna Bee, Assistant Vice President Claims for the Sovereign General Insurance Company are pleased to announce the appointment of Cindy LeBlanc to the position of Central Regional Claims Manager.

Cindy began her career with Sovereign General on February 18, 2002 and prior positions include Senior Examiner and Regional Claims Specialist. In addition to her strong technical claims abilities, she maintains excellent working relationships with company and industry personnel and has contributed towards the success of the Central Claims Team. Cindy recently attained her Fellow, Charter Insurance Professional designation and we look forward to the new ideas and enthusiasm she will contribute to the department and the Sovereign.

The Sovereign General Insurance CompanyisaCanadian-ownedproperty and casualty insurer headquartered in Calgary, Alberta with full service offices from coast to coast. Sovereign distributes its products exclusively through independent brokers. With 270 staff throughout our 10 regional and service offices, we believe that open minds create better solutions. Our experienced insurance professionals across Canada are empowered to create innovative solutions to your specialized insurance needs. When you’re facing a complex challenge, our knowledgeable team is committed to solving it.

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The CIP Society GTA – Annual Fellows’ Golf Tournament was held on Sept. 20 at Wyndance Golf Club in Uxbridge, Ontario.

One hundred and forty-four golfers enjoyed a beautiful day on the course, raising $2,100 for The John E. Lowes Insurance Education Fund.

We understand the coverage needs of Canadian contractors and property owners.

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“The process was

open,

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- Terry, Customer

Around 2PM on July 12th, an epic hailstorm ripped through Calgary and the lives of Calgarians like Terry. Within hours our Catastrophe Response Team was starting the process of helping customers get back on track. Terry wrote to tell us about his experience, “I just wanted to say how pleased I was with the outstanding service I received from your employees.”

At Intact Insurance we know it’s people that make Calgary such a great place to live. Like the members of our Claims Team who worked so hard to provide your customers with a fair, easy and respectful claims experience during a time of profound disruption.

Judging by Terry’s comments, they certainly did their job, and some. Thanks for the note Terry.

You made our day.

HOME • AUTO • BUSINESS Certain conditions, restrictions and exclusions may apply. 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.

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