Canadian Underwriter July 2012

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

JULY 2 0 1 2 A Business Information Group Publication #40069240

Grazing with Elephants

BY DAVID GAMBRILL

When to Sponsor Cat Bonds

BY GEOFFREY LUBERT

More Than Arbitration

BY DAVID WILMOT

MDJP12-087 • DESJARDINS • ANNONCE • CORPORATE KNIGHTS • INFO: MR/FS PUBLICATION: CANADIAN UNDERWRITER MAGAZINE • VERSION: ANGLAISE • FORMAT: 7’’ X 10’’ • COULEUR: CMYK • LIVRAISON: 14 JUIN • PARUTION: TBC

CANADA’S COOPERATIVES TOP THE CORPORATE KNIGHTS RANKINGS DESJARDINS GROUP NAMED TOP CORPORATE CITIZEN

BY CORPORATE KNIGHTS We are honoured to be recognized as Canada’s top corporate citizen, and this honour is all the more meaningful given that 2012 is the International Year of Cooperatives. We would like to congratulate our fellow cooperatives Vancouver City Savings Credit Union, The Co-operators Group Limited, and Mountain Equipment Co-op for making it into the top 10.

As cooperative organisations, we are rooted in our communities, are dedicated to our people and the environment, and make sustainable development a priority in our management policies.

Desjardins Group is the leading cooperative financial group in Canada with assets of $196.4 billion. In fact, Desjardins has been ranked the fourth safest bank in North America by Global Finance. Every day, close to 6 million Canadians rely on Desjardins for financial expertise, through its credit union network in Quebec and Ontario, and through its nationwide services, including: Wealth Management and Life and Health Insurance; Property and Casualty Insurance; Personal Services; and Business and Institutional Services. Companies under the Desjardins Group banner include: Desjardins Financial Security, Desjardins General Insurance, Desjardins Securities, The Personal, Western Financial Group, and MGI Financial.

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VOL. 79, NO. 7, JULY 2012 CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY

Grazing with Elephants

24 FEATURES

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38

Cat Bonds

Credit Scoring

Catastrophe bonds offer a compelling supplement to traditional reinsurance programs. But in the Canadian market, traditional reinsurance programs have been a more cost-effective option thus far.

One of the most accurate and powerful indicators of risk is the way customers manage their finances.

BY GEOFFREY LUBERT

BY SYLVIE PAQUETTE

46

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BY DAVID GAMBRILL

12 Slave Lake

42 Captives Conference

Drawing on lessons learned from responding to earlier disasters, FirstOnSite catastrophe responders developed a self-sufficient command-andcontrol model to respond to the wildfire catastrophe in Slave Lake, Alberta.

The 8th Annual Canadian Captives & Corporate Insurance Strategies Summit in Toronto offered a number of creative ways to use your captive insurer.

BY DAVID GAMBRILL AND ANGELA STELMAKOWICH

BY BILLY SHORT II

18 New ADR Recent advances in alternative dispute resolution (ADR) represent an opportunity for Canadian insurers to exercise greater control over resolving reinsurance disagreements while reining in potential costs.

48 Expanding Business Brokers with excellent track records may be tempted to branch out into other areas of business, raising a duty to tell clients that they are travelling in unfamiliar territory.

BY THE CIP SOCIETY

BY DAVID WILMOT

Consumer Focus

Flood mitigation efforts must account for differences in each individual home, neighbourhood and municipality.

The Insurance Corporation of British Columbia has partnered with Autoplan brokers in B.C. to offer a program that focuses on broker efforts with consumers at the point of sale.

BY DAN SANDINK

BY JOHN DICKINSON

Flood Mitigation

Reinsurers are carefully watching consolidation among primary insurers in the Canadian P&C market.

As larger, consolidated primary companies retain more risk and buy more excess of loss cat cover, reinsurers are turning to the primary market to make up for shrinking assumed premiums.

34 Water Damage Preliminary insured costs for recent flooding in Thunder Bay and Montreal show that these microburst storms are proving expensive.

BY ANGELA STELMAKOWICH

July 2012 Canadian Underwriter 3

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VOL. 79, NO. 7, JULY 2012

PROFILE

10 Steadfastly Independent John Seyler, incoming CIAA president, has made a career out of being an independent adjuster, a vocation he pursued by design rather than by happenstance.

BY ANGELA STELMAKOWICH

SPECIAL FOCUS

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Editorial

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Marketplace

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

Account Manager Elliot Ford eford@canadianunderwriter.ca (416) 510-5114

Editor Angela Stelmakowich astelmakowich@canadianunderwriter.ca (416) 510-6793

Art Director Gerald Heydens

Senior Publisher Steve Wilson steve@canadianunderwriter.ca (416) 510-6800 Associate Publisher Paul Aquino paul@canadianunderwriter.ca (416) 510-6788 Account Manager Michael Wells michael@canadianunderwriter.ca (416) 510-5122 Account Manager Christine Giovis christine@canadianunderwriter.ca (416) 510-5114

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EDITORIAL

Flights of Fancy

New Brunswick says its proposed reforms won’t result in higher premiums.

But we all know this is a fairy tale politicians tell policyholders to make them sleep better at night.

David Gambrill, Editor david@canadianunderwriter.ca

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Canadian Underwriter July 2012

We live in a mythical land, where politicians tell fantastical tales to people eager to believe that they will get money for nothing and their insurance for free.

Which brings us to the land of New Brunswick, where politicians want to triple the province’s minor injury cap from $2,500 to $7,500, and change the definition of minor and serious injuries so that 10% fewer claimants would fall under the minor injury cap.

The government says its proposed reforms won’t result in higher premium. But we all know this is a fairy tale politicians tell policyholders to make them sleep better at night.

These fairy tales are fortified by actuarial data that make the stories seem credible. But the bean-counting is based on assumptions, which, like unicorns, are fantastical creatures and are more fun when they are not real.

The government’s recommendations are currently the subject of a public consultation. They appear to go above and beyond those contained in an auto insurance working group report to the province in November 2011.

In proposing its changes, the government assumes that increasing the cap on minor injuries and re-defining both minor and serious injuries will not lead to increased claims frequencies. This is based on a further assumption that the government’s proposed definition of minor injuries is unassailable in court, which appears not to give trial

lawyers in the province enough credit.

Certainly the government’s proposed definition of minor injuries is tighter in some ways than the working group’s definition. But in other areas, it seems incomplete. For example, where do “concussions” fall? Are they minor or serious injuries?

The government notes its assumptions are based on unwavering post-reform claims frequencies witnessed thus far in Nova Scotia. New Brunswick points out that Nova Scotia raised its cap to $7,500 last November and the first six months of its claims experience has been flat.

Well, recall that Ontario’s accident benefits claims experience looked pretty flat — if it didn’t decrease — for the first six months after the province’s 2010 reforms.

Alas, tort figures have subsequently started to climb.

And in Ontario, a gigantic case backlog is partly the reason for the suppressed claims experience, not necessarily the reforms.

The point is, various factors are at play in claims frequency patterns, and perhaps New Brunswick has simply not waited long enough to gauge the true impact of the reforms in neighbouring Nova Scotia.

The real magic carpet ride happens when New Brunswick crunches the numbers in support of its contention that premiums will stay the same even after proposed reforms roll out.

The province calculates that insurers currently require an average policyholder premium of $691 to cover expected claim costs and loss adjustment expenses, operating expenses and after-tax Return on Equity. The government argues the average amount insurers are currently charging — the “street premium” — is $782.

The province figures that its proposals would lead to a maximum average required premium of $768. Since this falls under the street premium currently charged, no premium increases are required.

Nice story. Alas, it seems a fantasy to suggest no correlation exists between required premium and street premium. Does it seem reasonable to assume that street premiums would not increase in accordance with an expected hike in required premium? Required premium, after all, is based on the government’s expectations of a reasonable return on investment, for example, rather than those of the company’s shareholders. And frankly, when have the claims experiences projected by politicians ever fallen in line with the actual claims experiences of insurers?

The numbers supporting the government’s case seem real enough, but the assumptions on which they are based are somewhat more fantastical — like unicorns. Who knows?

Maybe unicorns are real, although I wouldn’t want to bet the house on it.

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MARKETPLACE

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Canadian Market FEDERALLY REGULATED CANADIAN P&C INSURERS BOOST RESULTS IN 2012 Q1 Federally regulated property and casualty insurers in Canada posted improved financial results in 2012 Q1, recording a collective quarterly profit of $1.048 billion this quarter as opposed to a $721.7-million profit in the same period last year.

Figures from the Office of the Superintendent of Financial Institutions (OSFI) show that insurers wrote net premiums of $8.2 billion in 2012 Q1, up from $7.5 billion for the same quarter in 2011. Despite this increase in premium revenue, insurers saw their quarterly investment income sink from $815.2 million last year to $753.8 million in 2012 Q1.

OSFI FIGURES SHOW AUTO AB LOSS RATIOS DOWN, LIABILITY LOSS RATIOS UP 2012 Q1 claims figures from the Office of the Superintendent of Financial Institutions (OSFI) indicate that although quarterly claims ratios in the private passenger personal accident category — encompassing accident benefits — have shown a dramatic improvement, auto insurance liability figures are taking a turn for the worse.

8 Canadian Underwriter July 2012

In the auto insurance personal accident category, Canadian P&C insurers saw quarterly claims ratios decrease from 78.34% in 2011 Q1 to 56.87% in 2012 Q1.

Foreign insurers saw claims ratios in the same category drop from 123.34% during the first quarter last year down to 84.01% in 2012 Q1.

On the flip side, auto liability claims ratios have reached the unprofitable territory for some.

Canadian P&C insurers reported a first quarter claims ratio of 71.68% on the auto liability side last year. This year, the ratio has escalated to 80.69%.

Foreign insurers have seen their auto liability claims ratio jump from 91.89% in 2011 Q1 to 116.71% in 2012 Q1.

OLIVER WYMAN AND IBC RECOMMEND DOUBLE-DIGIT RATE INCREASE FOR 2012 Oliver Wyman, the actuary for the Alberta Automobile Insurance Rate Board (AIRB), and Insurance Bureau of Canada (IBC) are 2.2% apart in their respective recommendations for annual industry-wide rate adjustments to the AIRB, with each suggesting a double-digit increase.

Oliver Wyman is suggesting an industry-wide rate adjustment of 10.9% for 2012, whereas IBC is recommending a 13.1% rate adjustment.

The AIRB has not made a final decision.

Last year, Oliver Wyman suggested a 9% adjustment,

but the board opted to hold the line on adjustments, with no increase or decrease. In 2010, Oliver Wyman called for a flat rate adjustment and the board ordered a 5% decrease.

The annual industry-wide rate adjustment is based on the difference between the estimated required average premium and the estimated average street premium (what is currently being charged).

Claims

definition of minor injury as opposed to 81% under the current definition.

New Brunswick’s Auto Insurance Working Group recommended in November 2011 that the government increase its minor injury auto cap to between $4,000 and $6,000, and index the cap annually to the Consumer Price Index (CPI).

The government’s full response can be found at: http://bit.ly/nbminor

NEW BRUNSWICK PROPOSES TO TRIPLE CAP FOR MINOR AUTO INJURIES

FSCO PROPOSES CAT DEFINITION THAT DOES NOT COMBINE PHYSICAL AND PSYCHIATRIC IMPAIRMENTS

New Brunswick is proposing to increase its $2,500 cap on minor auto injuries up to $7,500 and come up with a new definition for minor injuries that would see fewer people come under the cap.

The government tabled its response to the Auto Insurance Working Group with the legislative assembly on June 28. The government is currently seeking public input on its proposal.

“The new [minor injury] definition would mean that fewer New Brunswickers would be limited by the cap,” said New Brunswick Justice Minister and Attorney General Marie-Claude Blais. “Our recommendation of a $7,500 cap exceeds the working group’s suggested cap.”

The government’s response says actuaries have calculated that 71% would come under the proposed

Ontario’s regulator is recommending to the finance minister that physical impairments should not be combined with psychiatric or mental/behavioural impairments for the purpose of determining a catastrophic injury.

Ontario’s regulatory superintendent has thus adopted the recommendations of an expert medical panel in a report to the government posted on Financial Services Commission of Ontario’s (FSCO) website on June 12.

It is up to the government whether or not to adopt the report recommendations.

FSCO’s long-awaited review of the catastrophic impairment definition was part of the government’s auto insurance reform package implemented in 2010.

The superintendent recommended that a combination of requirements be used to

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Sign-up to receive Canadian Underwriter’s free Insurance Headline News Email Alert: http://bit.ly/cuenews determine a psychiatric catastrophic impairment.

However, psychiatric and physical impairments should not be combined for the purpose of determining a catastrophic impairment of the whole person, the superintendent writes in his Superintendent’s Report on the Definition of Catastrophic Impairment in the Statutory Accident Benefits Schedule.

The full contents of the report can be found at: http://www.fin.gov.on.ca/en/a utoinsurance/si-report.html#co

SCIENTIFIC PRECISION NOT NECESSARY TO FIND ‘BUT FOR’ CAUSATION Scientific precision is not a necessary condition to find “but for” causation on a balance of probabilities, the Supreme Court of Canada has found.

The court ordered a retrial in the motorcycle accident case Clements v. Clements, in which the trial judge found that the victim could not prove “but for” causation to explain her injuries because of the limits of scientific reconstruction evidence.

“As a general rule, a plaintiff cannot succeed unless she shows as a matter of fact that she would not have suffered the loss ‘but for’ the negligent act or acts of the defendant,” the Supreme Court ruled in a 7-2 decision.

“In this case, the trial judge committed two errors.

“First, he insisted on scientific reconstruction evidence as a necessary condi-

tion of finding ‘but for’ causation. Scientific precision is not necessary to a conclusion that ‘but for’ causation is established on

a balance of probabilities.”

Second, the court determined, the trial judge incorrectly substituted a “material contribution” test for the

“but for” causation test.

The full decision can be found at: http://scc.lexum.org/ en/ 2012/ 2012 scc32/2012 scc32.html

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PROFILE

Independent to the Core Angela Stelmakowich Editor

John Seyler, incoming president of the Canadian Independent Adjusters Association (CIAA), has worked as an independent adjuster for more than 20 years.

Ask John Seyler what he wanted to be when he was a kid: Firefighter? Police officer? Tinker, tailor, candlestick-maker?

No, Seyler’s choice of career was clear from the get-go.

“Quite frankly, I’ve always wanted to be an adjuster,” he says, adding with a hearty laugh, “which is sad, but true.”

The incoming president of the Canadian Independent Adjusters’ Association (CIAA) acknowledges the lure of adjusting may not be everyone’s siren’s song. But Seyler, also a partner with ProFormance Specialty Claims Inc., comes by his love of insurance honestly.

Seyler’s father, long since retired, was an auto appraiser.

Both men opted for the same professional destination but, sons being sons, Seyler added a twist to his route. “I always remember as a kid my father

10 Canadian Underwriter July 2012

grumbling: ‘The adjuster told me to do this, the adjuster told me to do that.’ I thought, someday when I grow up, I want to be that guy,” he says, again laughing.

Seyler’s first job was as a trainee at a large, national adjusting company in downtown Toronto, where he did the “usual run of work — getting statements and doing scene investigations.” Seyler stayed there for 22 years, moving up into progressively higher positions, including branch manager and director of the specialty division.

Last year, he met Tammie Norn, who Seyler describes as “one of the smartest women I’ve ever met in my life.”

Together, they formed the ProFomance Group of Companies, which combines ProFormance Adjusting Solutions and ProFormance Specialty Claims.

Why leave the company where he had worked for two decades? “I really felt the urge to build something that had my stamp,” Seyler says.

TO THE CORE Independent adjusting is at the core of Seyler’s stamp.

“I’ve always been an independent adjuster,” he says.

“I’ve never worked on the company side.”

His new business partnership with Norn keeps that independence intact.

“We’re small and we’re agile,” Seyler says of the business, which specializes in handling transportation, commercial auto, casualty, errors and omissions (E&O) and director and officer (D&O) claims. “The two of us can make a decision to do something or to go off in a another direction, and we can.”

Seyler’s vigour contributes to the company’s flexibility and ability to respond quickly. “I just love to come to the office

Seyler cites a few personality traits wellsuited to working as an adjuster: Being honest, credible, open-minded, compassionate, precise, organized and a self-starter. and can’t wait for the next claim to come in, for the next challenge to be presented, to deal with people,” he says.

“I love the people I work with, my partner is terrific and the business has become fun again,” he says.

Of course, it’s not always about fun and games. Seyler recently attended an accident scene within about 45 minutes of one of his client’s trucks colliding with another

vehicle. Upon arriving, he could see that the police were reconstructing the accident.

Although his client was not liable, he was nonetheless stressed and upset.

Seyler had to comfort the driver — “this poor guy is literally crying in my car because he’s so upset about what’s happened” — but at the same time his adrenaline was ratcheted high and he had to complete an assessment of the scene. Later, he was “sitting, grinding through policy wordings and trying to find the answer.”

Seyler cites a few personality traits that are well-suited to working as an adjuster: Being honest, credible, open-minded, compassionate, precise, organized and a self-starter would indeed be a good start, he says.

“We deal with a lot of people in stressful situations. By no intent of their own did they want to find themselves in situations in which their house burned down, they were injured in a car accident or they slipped and fell in the grocery store,” Seyler says.

Serious incidents can be traumatic for all who attend, he suggests. It is important to understand “what people are going through and try relate to it. It’s almost like it’s a little cut on you every time you go to one of these events. You

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PROFILE

have to deal with it because it’s very stressful situations in which you’re going to find yourself,” Seyler says.

LEARNING CURVE There is still some work — perhaps even salesmanship — to be done to raise the profile of adjusting specifically and insurance generally, he says.

Seyler recalls bringing his daughter to a school function when she was about eight years old. At a Canadian government display, a young student asked passing children what they wanted to be when they grew up.

The person running the program asked Seyler’s daughter, “What does your daddy do?”

Seyler recalled.

“Oh, he’s an insurance adjuster,” his daughter said.

Seyler said the person running the program had a blank look on her face.

“Well, I’m sure that’s secure,” she replied.

“She had no idea what goes on during the day,” Seyler says.

Early on in his career, Seyler was “always the guy asking the questions, trying to seek out somebody to help me,” he says. Now, in contrast, Seyler finds it “very flattering” that people call him for answers.

Seyler says monthly staff meetings at ProFormance are held to ensure employ-

ees are trained and educated so they can handle the demands of the job. He is very keen on CIAA launching continuing education to benefit members and their employees, believing that Ontario should mandate continuing education for adjusters.

As long as it is not mandated, adjusters should be taking advantage of program information being made available, he adds.

“I wouldn’t want to go to a dentist or a doctor or a chiropractor who didn’t belong to their professional organization,” Seyler says. The same holds for using an adjuster who doesn’t belong to a professional association like the

CIAA. “I think that what we stand for speaks volumes about the type of individual we’re hiring,” he says.

At ProFomance Group, Seyler says he and Norn support efforts to ensure employees feel like they’re contributing to their community as a whole. “I think that builds character in people and I think that builds a better employee,” he says.

Building character is certainly something the CIAA can get behind, he adds. “It’s very important for the profession to have an organization that represents its interests.”

During his presidency, expected to become official on Aug. 25, Seyler intends to focus on ensuring small firms survive in this economic environment. He also wants to make the CIAA viable for multinationals. “It’s very important to be accessible and affordable, whether it be to the one-man office in Alberta or to the company in downtown Toronto on Front Street that has hundreds of adjusters.”

Ultimately, the business is not about insurance policies and insurance companies, Seyler says. It’s about people.

“I think you can’t ever forget that behind a policy number is actually a family or a person who’s found themselves in a difficult position and they’re relying on you to help guide them through it.”

July 2012 Canadian Underwriter 11

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ommand and ontrol

Drawing on lessons learned from its experience at previous disasters, FirstOnSite catastrophe (CAT) responders developed a self-sufficient command-and-control model that was employed at the wildfire catastrophe in Slave Lake, Alberta.

Billy Short II

Vice President, Large Loss Operations, FirstOnSite Restoration

This past May marked the one-year anniversary of the fires that devastated the Town of Slave Lake in Alberta.The month was filled with news stories looking back at the disaster, the calamitous loss in the town and the challenges faced by responders. The town has made a great deal of progress, but continues to rebuild more than one year later.

Insurance Bureau of Canada data indicate insured damage caused by the wildfires amounted to more than $700 million, making it the second most expensive insured disaster in Canadian history. As insurance and restoration professionals, we are an integral part of the response to any event of this scale. It is a demanding environment in which we are asked to work quickly and efficiently, navigate any particular challenges presented and perform due diligence to help keep costs down. Slave Lake was no different.

Wildfires burning outside the Town of Slave Lake on May 15, 2011 were initially contained to an area approximately 15 km outside of town.

Winds in excess of 100 km-h caused the flames to jump the fire barriers. After that, nothing was able to stop the fire from sweeping through the community, destroying 40% of the town and forcing the evacuation of almost all of its 7,000 residents. For days, the highways were blocked 70 km south of the town, and residents weren’t

12 Canadian Underwriter July 2012

allowed to return. The fire damaged more than 700 homes and businesses, including the RCMP detachment, grocery stores, the library, a local radio station and the Town Hall.

Slave Lake is a remote community, located about 280 km northwest of Edmonton. Its location presented a number of challenges to those arriving to help the immediate recovery effort.

The first challenge was dealing with basic logistics.The fire destroyed and damaged nearly half of the buildings in the town. Facilities for coordinating efforts and lodging for the dozens of insurers, adjusters and support staff coming in from out of town were therefore scarce, to say the least.

Drawing upon lessons learned from previous disasters, FirstOnSite catastrophe (CAT) responders have developed a command-and-control model, which includes a central command centre. This self-sufficient model was applied to Slave Lake, where a camp was built on a 10-acre plot of land approximately five kilometres outside of town and equipped with power, running water and wireless Internet.

For weeks following the fire, the camp fed and slept a team of 150 people, including supervisors, insurance adjusters and other personnel.

The command centre model provides a highly efficient central location from which to coordi-

nate restoration efforts. Stakeholders responsible for different aspects of the response process were able to meet, share information and coordinate efforts effectively. Working within this tightly knit community was extremely helpful in informing and managing the expectations of clients and stakeholders.

The efficiency generated by this model is also very effective in keeping logistical costs to a minimum despite complications associated with working in a remote location.

Support for the command centre is drawn from a national network of branches. In the instance of Slave Lake, the network provided restoration personnel from six Canadian provinces, from British Columbia to Quebec. Any additional support was obtained by hiring extra hands locally through ads or job fairs.This not only controlled costs, it helped to build a rapport with people living in the community.

The command and control model was applied to Slave Lake, where a camp was built on a 10-acre plot of land about five kilometres outside of town.

Personnel at the command centre included mobilized restoration professionals and local hires. In addition, staff members were brought in to liaise with insurers who couldn’t immediately make it to Slave Lake.These coordinators scouted sites and took pictures so that insurers had enough information to prepare for their arrival, thereby saving time and money.

One of the main concerns of insurers deployed to Slave Lake was the possibility of a “demand surge” — a spike in demand over a short period of time in an area with scarce resources. This can potentially drive up the costs of restoration efforts, including labour and material costs, to unanticipated levels.

In Slave Lake, any cost increases were a byproduct of the location — for example, costs related to shipping, trans-

portation, lodging, etc. Materials, labour and other direct costs were kept in line by a national procurement strategy, an extensive employee base, and existing client agreements. Each of these characteristics is an essential part of any CAT business model.

Responding under pressure is a challenge in any situation, but particularly when the volume of work needed is so extensive and the stakes so high. By building strategic systems to respond to large-

scale disasters, pre-planning can take place and resources can be secured for an organized response. These systems must take into account the unique demands of all stakeholders, and continually work towards refining the response.

Deploying tested models optimize the efficiency of a CAT response, which results in a consistent delivery model where costs are controlled and expectations are properly managed, even under the most stressful circumstances.

e r i W a n o s d r i B Property & Casualty Insurance Newswire inswire.ca is a real-time information stream for the property and casualty insurance market.

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July 2012 Canadian Underwriter 13

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Geoffrey Lubert Senior Vice President, Guy Carpenter & Company Ltd.

Catastrophe bonds offer a compelling supplement to traditional reinsurance catastrophe programs when capacity is difficult to obtain and multi-year solutions or hard collateral are needed, given a company’s own strategic risk management plan. However, despite a closing price gap, traditional reinsurance remains the more cost-effective option for Canadian insurers in the current environment.

Although reinsurers faced challenges in 2011, underwriters have demonstrated resiliency and remain well-capitalized. Most balance sheets are markedly stronger now than this time a year ago, following a very quiet first two quarters of 2012 in terms of global natural catastrophes.

The gap in the perspective of risk is growing.

Reinsurers are becoming increasingly sophisticated with respect to deconstructing models, making adjustments and even creating their own models so as not to be dependent on a third party’s changing view of risk. A thorough understanding of a company’s risk profile from many perspectives and analyses, accompanied by candid dialogue with reinsurers on understanding the risk and its drivers, is essential to creating a valuable bespoke reinsurance program.

This type of “customized” risk solution offers reinsurance that responds to management’s specific goals and the company’s unique risk profile rather than to an industry loss event.

THE CURRENT LANDSCAPE The (re)insurance sector experienced historic catastrophe losses in 2011, many in areas not previously considered “peak” risks. Devastating earthquakes in Japan and New Zealand, floods in

14 Canadian Underwriter July 2012

Thailand and Australia and a record-breaking tornado season in the United States contributed to insured losses in excess of $100 billion.

Many reinsurers undertook a comprehensive review of modelling methodology and implementation to assess analytical adequacy after the loss activity of 2011. Most reinsurers are now making customized adjustments to model outputs, blending results from multiple models and, in some cases, building their own model view.

Given loss experience and significant model version changes affecting the property catastrophe space, balanced by a healthy capital environment, reinsurers were in a position to undertake a major review of pricing and underwriting going into the renewals.This approach led to significant market fragmentation in the market’s assessment and pricing of risk at Jan. 1, 2012.

While the market historically has tended to respond to loss activity or model change in a relatively uniform fashion, there was far more customization in reinsurers’ responses at this renewal. As the level of sophistication increases, reinsurers are tailoring pricing and capacity decisions to adhere to their own unique perspectives. This can lead to idiosyncratic capacity shifts, with some reinsurers increasing capacity in certain regions while others are pulling back.

ALTERNATIVE CAPACITY SOURCES The outcome of the Jan. 1, 2012 reinsurance renewal was a 9.5% increase in global catastrophe rates. However, there were wide-ranging rate movements at national and provincial levels that depended on both loss experience and exposure perceptions. Reinsurance rate

Illustration by Sandy Nichols/www.threeinabox.com

When to Sponsor a Cat Bond

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increases and dislocation of capacity naturally encourage the sector to assess non-traditional reinsurance products with growing interest in capital markets solutions. This trend is expected to continue in 2012, with significant growth anticipated from alternative capacity sources, including the catastrophe (cat) bond, the industry loss warranty (ILW) and the collateralized reinsurance markets.

So, when are these nontraditional solutions right for a Canadian client?

CATASTROPHE BONDS A stand-alone Canadian-peril catastrophe bond has never been placed, although Canadian earthquake risk has entered the catastrophe bond market on a combined basis with other perils.

(Blue Danube Ltd., a $240-million transaction that closed in April 2012, included all Canadian provinces in its covered area.) To explore the reasons why Canadian perils have not been securitized more frequently, we examine the four critical factors to the purchase of a cat bond: risk transfer cost, risk period (single year versus multi-year), basis risk and industry impact.

Risk Transfer Cost The easiest explanation for the lack of Canadian perils-only catastrophe bond activity is the discrepancy in minimum rates on line between the traditional reinsurance market and the catastrophe bond market. Canadian insurers historically have been successful in achieving top-layer traditional catastrophe rates on line (premium/coverage purchased) below 2%.

On the other hand, cat bond investors — particularly in recent years, with inexpensive financial leverage being less available — traditionally required minimum returns of 3% to 3.5%, resulting in 50% to 75% premiums for the cat bond market relative to traditional reinsurance catastrophe capacity.

In the aftermath of significant “cold spot” area losses in 2011, reinsurers applied a hard 2% minimum rate on line to most Canadian cedents at Jan. 1 renewals. In the catastrophic bond mar16 Canadian Underwriter July 2012

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ket, however, capacity providers continue to reduce minimum return thresholds for perils that allow them to diversify away from U.S. wind, which is the market’s peak exposure.

Accordingly, as minimum rates on line increase for Canadian risk in the traditional market while decreasing in the capital markets, the capital markets are becoming comparatively more attractive from a price perspective.

Risk Period While both traditional reinsurance and catastrophe bonds offer multi-year fixed price protection options, the cat bond market typically offers better rates and larger capacity for multi-year options.

Catastrophe bonds predominantly carry a three-year risk period, though transactions with a risk period of four or even five years also have been completed —

often with little or no increase in the required rate on line. Increasing a transaction’s risk period (all else equal) reduces annualized burden of issuance expenses, as the bulk of these expenses are fixed and one-time expenses are incurred at the inception date of each transaction.

Related to both price and limit are the frictional costs involved in catastrophe bond issuance. As mentioned, the impact of issuance expenses on the annualized “all in” cost of catastrophe bond is highly dependent on transaction size.

However, as the technology of the cat bond market has become more standardized, these costs are continuing to decline. In addition, repeat sponsors often can achieve reduced issuance expenses on second and subsequent issuances relative to initial offerings.

In general, the minimum reasonable size for a catastrophe bond transaction is US$50 million to US$75 million, with

more typical transactions in the region of US$150 million to US$200 million.

Significantly larger limits are also possible. For example, Everglades Re Ltd., a US$750-million transaction, was completed in May 2012 for Citizens Property Insurance Corporation.

Basis Risk Basis risk is the risk inherent to the cat bond’s triggering when funds are not required, or not triggering when funds are needed.There is nothing worse than paying millions of dollars for a risk management solution that doesn’t recover when surplus is needed.

New developments in catastrophe bond sophistication are doing an excellent job of reducing or eliminating the basis risk from catastrophe bonds.

Traditional reinsurance layers that are stripped of the main catastrophe peril covered by the bond can be “wrapped around” the bond to eliminate basis risk and provide an effective overall risk management solution. These solutions are particularly effective when traditional reinsurance capacity cannot be found at any price.

Indemnity-based triggers are also on the rise (accounting for more than 60% issuance during 2012 year to date) and would no doubt be worth careful consideration for the Canadian stand-alone market as well.

Industry Impact The final major consideration for the catastrophe bond market over traditional reinsurance is an assessment of industry impact on the peril and return period being managed. If a company wants to cover its 1-in-1,000-year B.C. earthquake event, it is prudent to consider the overall industry impact. When managing against remote events, it is comforting to have access to the hard collateral of a catastrophe bond.

The ability to provide access to highquality collateral in trust is one of the most important — and appealing — features of the catastrophe bond product to protect buyers seeking to effectively address particularly remote scenarios at manageable cost levels.

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ADR: More Than

Arbitration David Wilmot

Senior Reinsurance Executive (SemiRetired), Industry Consultant, Arbitrator

Recent advances in alternative dispute resolution (ADR) represent an opportunity for Canadian insurers to exercise greater control in resolving reinsurance disagreements while reining in potential costs in time and expense.

Insurers and reinsurers generally get along, but disputes do occur, and they can be costly, disruptive and time-consuming. Recent advances in alternative dispute resolution (ADR) represent an opportunity for Canadian insurers to exercise greater control in resolving reinsurance disagreements while reining in potential costs in time and expense.

Arbitration has long been the insurance industry’s method of resolving reinsurance disputes.

The earliest record of reinsurance arbitration dates to 1793, and we see surprisingly little change in the procedure two centuries later.

The aggrieved party signals its intention to arbitrate by appointing a disinterested past or current industry executive as the arbitrator. The other party appoints, or has appointed for it, a second arbitrator, and these two then choose a third arbitrator who acts as tie-breaking umpire.

These three individuals constitute an arbitration panel with the power to review documentary evidence, hold hearings if necessary, question witnesses, rule on contested factual issues, direct costs if appropriate and present an award that is both binding and enforceable by the courts.

18 Canadian Underwriter July 2012

Arbitration is an effective dispute resolution mechanism when disagreements arise from complex commercial transactions — particularly in industries of an international nature. For Canadian insurers, the advantages over litigation are considerable. Arbitration can operate to a much shorter timetable than the courts. With the will of both parties, the duration of a dispute can be measured in weeks rather than years.

Equally important, with this speed comes a dramatic reduction in costs. Deliberations are made by industry experts appointed because of their familiarity with the nuances of insurance.

Less time is spent bringing parties up to speed and none is spent introducing judges to the arcane world of reinsurance.

The parties are able to operate with greater flexibility in venue, language, procedural formalities and contractual interpretation.The resulting arbitration award is almost always final, with little inclination on the part of the courts to appeal arbitrations. Awards are enforceable in court and, because of international convention, they are easier to enforce across borders than are court decisions.

Finally, arbitrations are conducted out of the public eye. When the parties so wish, the proceedings and award remain confidential.

However, as good as arbitration may be, ADR has moved into the 21st century. Over the last few years, insurance markets such as the United Kingdom and organizations such as construction and government have adopted a more modern approach to dispute resolution.

Instead of limiting the process solely to arbitration, newer dispute resolution agreements employ a three-stage process of negotiation,

mediation and, only when necessary, arbitration. This approach draws on greater participation by key decisionmakers and it has proven very effective in reducing expenditures of time and money, often while achieving more amicable resolution of differences between potentially ongoing business partners.

Canada’s Reinsurance Research Council (RRC) has introduced a Canadianized version of this new dispute resolution agreement as part of its recent review and overhaul of standard recommended treaty articles. Bulletin 9 – Dispute Resolution is available on RRC’s website, rrccanada.org.

Any company seeking greater control over its own dispute resolution process should consider this agreement.

THREE STAGES OF ADR 1) Negotiation As a precondition to arbitration, the parties agree to “attempt in good faith to resolve the dispute by negotiation between executives… who are sufficiently senior to take a dispassionate view…” Negotiation is non-binding and, realistically, this step is unlikely to resolve truly complex issues. However, it often identifies concerns that arose merely as a result of error, oversight or misunderstanding.

Expensive and unnecessary arbitration may be avoided or, at the very least, reduced to fewer key issues.

nate many extraneous issues while clarifying key points of conflict. Experience has shown that, even when the additional stages of negotiation and mediation conclude in arbitration, the total experience is often far faster and less costly than arbitration alone. Moreover, the process is less litigious and more open to communication at the highest levels, with the disputes tending to be resolved more amicably.

Insurers should consider this threestage approach and discuss available wordings with their reinsurers and reinsurance intermediaries. Even if something like the RRC agreement is not adopted, or is adopted after disputes arising from past contracts, involved parties who wish to retain greater control of the dispute resolution process can seek mutual consent to non-binding negotiation and mediation.

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July 2012 Canadian Underwriter 19

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Dan Sandink

Manager of Resilient Communities and Research, Institute for Catastrophic Loss Reduction (ICLR)

Flood mitigation efforts need to account for individual differences in each home, neighbourhood and municipality.

Retrofitting homes to mitigate water damage brings to mind an old clichĂŠ: easier said than done. Anyone who has undertaken major home improvement projects would likely be all too familiar with this concept, and basement flood retrofits are no different. Indeed, each home to be retrofitted has its own idiosyncrasies that may increase the complexity of the retrofit.

Over the past few years, the Institute for Catastrophic Loss Reduction (ICLR) has retrofitted 10 Canadian homes to exemplify measures that homeowners can take to reduce risk from hazards that affect communities across the country, including severe wind, wildfire, earthquake and basement flooding. These retrofits were undertaken as part of ICLR’s Designed for Safer Living Showcase Homes series, in which we conduct a

20 Canadian Underwriter July 2012

home retrofit and invite the media and insurers to view risk reduction measures during National Emergency Preparedness Week.

Dozens of insurance professionals attend the events each year and often comment on the benefits of seeing on-the-ground application of homeowner mitigation options. Because of the localized nature of natural hazard impacts and differences in home design, all of the retrofits were undertaken as collaborative efforts with local municipalities.

The most important lesson learned is that every home, neighbourhood and municipality is different; mitigation measures must be tailored to suit these differences. Complications underscore the need for full understanding of home drainage systems before retrofit measures are installed and the need to communicate with a range of professionals, including municipal staff, plumbers and contractors.

However, any complexities should not detract from the importance of homeowner-level basement flood mitigation. Lot-level mitigation

Illustration by Sandy Nichols/www.threeinabox.com

Customizing Home Retrofits

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continues to be an absolutely necessary piece of the basement flood risk reduction puzzle.

EXAMPLES OF MITIGATION ICLR has retrofitted three homes since 2009 to reduce basement flood risk as part of this program. Our experience with basement flood retrofits highlights the complicated nature of home drainage systems and also the need to customize retrofits for each individual home.

Toronto, 2009 The first house ICLR retrofitted to reduce basement flood risk was in the North York area of Toronto. This home was located in an area that had suffered severe and widespread flooding during an extreme rainfall event on Aug. 19, 2005 and was at risk of future flood events.

One of the first steps in any flood retrofit project should be a plumbing inspection by a licensed plumber, including a camera inspection of the home’s sewer laterals. In this instance, the camera inspection revealed that a backwater valve had been installed without proper disconnection of the foundation drains from the sanitary sewer. This type of arrangement can cause “self flooding” in the home: when the backwater valve closes during an extreme rainfall event, water from the foundation drainage would not be able to exit the home and may backup into the basement through floor drains or bathroom drains and flood the basement. Thus, disconnecting the foundation drain from the sanitary sewer and installing a sump pump system to pump foundation drainage to the surface of the lot were necessary measures that we incorporated into the home.We also rearranged downspout drainage outlets, including installing a French drain system on a downspout that was discharging directly onto the home’s driveway.

Hamilton, 2011 The home we retrofitted in Hamilton in 2011 had experienced a severe sewer backup flood on July 26, 2009 and was serviced by a combined sewer system.

The homeowner had taken advantage of the City of Hamilton’s basement flood retrofit financial assistance program, and had a mainline backwater valve and sump system. Downspouts were also disconnected from the foundation drain before ICLR conducted its work.

The existence of a driveway catchbasin complicated this retrofit, necessi-

Figure 1

tating installation of additional measures to reduce risk.This catch-basin was connected to the home’s foundation drainage; surprisingly, it served to drain the neighbour’s driveway, which was sandwiched between the two homes (See Figure 1 above). The catch-basin essentially transformed the neighbour’s driveway into a huge funnel that directed massive quantities of rainwater into the foundation drainage and risked overloading of the sump pit and pump during heavy rainfall events.

This arrangement was a relic from a time when property developers did not fully appreciate and understand property drainage issues.

ICLR installed a second, large-capacity sump-pit and pump, as well as re-graded a part of the front yard to direct as much water away from the driveway catchbasin as possible. An automatic natural gas generator that could power the pumps in the event of a power outage

was also installed. Had the catch-basin not been there, a simple backwater valve/sump pump arrangement would likely have been sufficient for the home, along with other relatively simple measures, including window well covers and disconnecting downspouts.

Moncton, 2012 ICLR’s Moncton retrofit was conducted on a home that had experienced a severe sewer backup event when tropical storm Danny dumped heavy rain on the city in late August 2009. In this case, the home was serviced by a separated sewer system and sewage had backed up into the basement from the storm sewer. This home’s plumbing arrangement necessitated the installation of backwater valves on the storm and sanitary sewer laterals, as well as a sump-pump system with a battery backup. A small part of the back yard was also re-graded to direct water away from the foundation, and window wells and window well covers installed on two basement windows.

Two surprises were waiting for us in this home. First, when the plumbers conducted the camera inspection of the laterals on the day that the backwater valves were to be installed, they found that both laterals were full of standing water and sewage. Normally, sewer laterals are graded in a manner that directs

Figure 2

water away from the home quickly; they should never have any standing water.

Based on the camera inspection, and before the backwater valves were installed, the laterals had to be torn up and replaced, requiring the excavation of the front yard (See Figure 2).

Second, when installing the window

July 2012 Canadian Underwriter

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The most important lesson we learned is that each home, neighbourhood and municipality is different. Mitigation measures must be tailored to suit these differences. wells, the landscapers found that the foundation drains were plugged with silt and were not properly draining groundwater away from the home’s foundation. Before the window wells could be installed, we had to clear out the foundation drainage using a large vacuum truck.

LESSONS LEARNED Failure to disconnect the foundation drainage in the Toronto home meant the backwater valve would have provided little flood protection: the home could have still flooded from its own foundation drainage had the valve closed during a heavy rainfall event.

Further, in the Moncton home, backwater valves would have been ineffective — and may have even increased flood risk — if they were installed in the laterals when the laterals were full of standing water. In this case, replacement of the laterals was absolutely necessary to ensure the backwater valves would work properly.

Both of these examples illustrate the complex nature of basement flood risk reduction.A seemingly simple, straightforward installation of a backwater valve on the sanitary sewer lateral is not always an effective or meaningful risk-reduction option.

22 Canadian Underwriter July 2012

The Hamilton case study shows the need to balance the cost and benefits of mitigation measures, since it is sometimes difficult to implement perfect or ideal mitigation options in homes. For that home, ICLR explored the possibility of re-grading the neighbour’s driv way and installing a permeable pavement system. This would have allowed us to eliminate the need for the catch-basin.

However, to implement this approach, huge quantities of fill would have had to be brought in to re-grade the driveway, causing significant disruption for the homeowner and neighbours. It would have also resulted in a cost in the tens of thousands of dollars.

We decided a second sump, a powerful pump and generator system, was a reasonable compromise.

Generally, plumbers and contractors with whom we worked to retrofit the homes were knowledgeable and did the work within a reasonable period of time. However, it was more difficult to find contractors and plumbers who were knowledgeable and willing to complete this type of work than expected. In some instances, it was necessary to convince contractors that certain flood reduction measures were necessary.

For example, we experienced pushback when we requested that the contractor locate the foundation drainage connection in the Toronto home. The contractor cited difficulties in locating the connection and the possible need to tear up several spots in the basement floor as reasons not to complete this measure. In the end, we insisted that the work be performed.

However, the contractor could have persuaded homeowners who were not confident in their knowledge of basement flood risk reduction that this measure was not worth the aggravation.

The retrofit process can be intimidating to homeowners who are not armed with clear, consistent information from authorities and who are not confident in their knowledge of what needs to be done to address basement flood risk. Some municipalities publish lists of plumbers who are knowledgeable about basement flood risk-reduction measures; others provide assistance in the form of home inspections to identify necessary flood-reduction options.

These are useful tools for homeowners who are interested in starting the retrofit process, but don’t know where to begin.

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Grazing with Elephants Consolidation in Canada has caused reinsurers to look at new ways to share premium in a marketplace filled with hungry elephants. Reinsurers here point to a gradual, growing imbalance fed by the increasing demand for excess of loss reinsurance and a dwindling supply caused in part by a lack of premium growth. In response, reinsurers are looking to sate their appetite for more premium by moving into Canada’s primary insurance market.

DAVID GAMBRILL

24 Canadian Underwriter July 2012

A

Canadian reinsurance company shares a park bench with a large direct insurer, an elephant that retains a lot of premium for its lunch. The reinsurer looks longingly at the premium consumed by the direct insurer, but the hungry elephant isn’t sharing. As the elephant feasts, it becomes larger and larger, until its size leaves scant room on the park bench.

What will the reinsurer do? One answer is to move to greener pastures, where premium dollars are more plentiful and accessible. In other words, the reinsurer could choose to seek premium sustenance in exactly the same place where the elephants graze — Canada’s primary insurance market.

July 2012 Canadian Underwriter 25

COVER STORY

Grazing with Elephants GRAZING WITH ELEPHANTS Ongoing consolidation in the Canadian primary marketplace this year has reinsurers pondering how best to adapt to the increasing number of “elephants” that are grazing in Canada’s primary insurance market.

Intact Insurance, for example, became an even bigger animal in May 2012 when it paid $530 million to purchase JEVCO Insurance Company from The Westaim Corporation. JEVCO provides specialty and niche products to individuals and businesses in Canada and wrote direct premiums worth approximately $350 million in 2011.

The JEVCO deal happened roughly a year after Intact Insurance announced it would be acquiring AXA Canada for $2.6 billion, a deal now closed.

RSA Canada also continues to be active in the mergers and acquisitions space. The company announced in June 2012 that it had agreed to acquire L’Union Canadienne from parent company Co-operators General Insurance Company (CGIC) for $150 million, pending regulatory approval. L’Union Canadienne is Quebec’s third largest intermediated personal lines insurer, employing more than 300 people across offices in Quebec City and Montreal. It distributes through a network of more than 150 brokers across the province.

The deal makes RSA Canada the country’s third-largest insurer. RSA Canada vaulted into fourth place last year with the $420-million acquisition of GCAN. That deal was expected to increase RSA Canada’s premium base from $1.9 billion (in 2009) up to $2.2 billion.

In addition to the aforementioned high-profile M&A activity, it remains to be seen exactly how Economical Insurance proposes to demutualize, with two options, including an initial public offering (IPO) and a “sponsored demutualization” that would see all or some parts of the company sold. The company will not assess which route it will take until after the federal government comes up with regulations allowing P&C insurers to demutualize.

26 Canadian Underwriter July 2012

Suffice to say, reinsurers have watched a number of primary insurers in the Canadian marketplace get bigger over the past two years. And they don’t believe the trend will soon end. The number of federally and provincially licensed insurers has dropped from 395 in 2002 to 316 in 2011.

We cannot necessarily afford to reinsure only the top catastrophe layer. We also need a bite from primary insurers’ casualty writings or from their property per risk portion. And that is likely to slowly drift away from the reinsurance end because insurers are getting bigger.

“There is still more opportunity for some continued consolidation to happen in personal lines,” says Hervé Castella, head of Canadian operations at PartneRe. “There are still a lot of regional players that are viable targets for larger players. On the commercial side, it’s really a matter of competition, though I’m not sure how it will play out. Will some of the larger primary players come together or, like Intact and JEVCO recently, will some of the smaller niche players be acquired? Either way, I think consolidation will continue.”

PRO RATA TO EXCESS OF LOSS As reinsurers’ clients get bigger through consolidation, what does that mean for reinsurers? For one thing, the type of business is changing.

Reinsurance companies are frequently defined as “insurers of the insurance companies.” They offer different forms of coverage, including: • Pro rata treaties, in which premiums and losses are divided between primary insurers and reinsurers based on stated percentages.

• Excess of loss treaties, in which a primary insurer accepts losses up to a certain amount, and pays a premium to reinsurers to divide any losses exceeding that amount.

Pro rata treaties are typically associated with insurers’ casualty and property per risk business. Property per risk covers things such as single large commercial losses — for example, the Chapman creamery fire in 2009, sawmill explosions, mining losses, etc.

Excess of loss treaties are commonly associated with large-scale natural catastrophe losses. Reinsurers are looking for a well-balanced premium diet, including both pro rata and excess of loss business. “We cannot necessarily afford to reinsure only the top catastrophe layer,” suggests Frank Rueckert, senior vice president of the Canadian treaty department of Hannover Re. “We also need a bite from [primary insurers’] casualty writings or from their property per risk portion. And that is likely to slowly drift away from the reinsurance end because insurers are getting bigger.”

As the behemoths in Canada’s primary insurance market get bigger, they can afford to accept more risk, thus keeping more premium and paying more claims themselves. Their appetites for pro rata reinsurance and the lower layers of excess of loss reinsurance are therefore shrinking over the long term. There are signs of this already happening.

The Reinsurance Research Council of Canada (RCC) is an organization representing a majority of professional property and casualty reinsurers registered in Canada (it had 18 members in 2011).

COVER STORY

Grazing with Elephants Each year, RCC posts financial statistics for its members; collectively, they reported $1.99 billion in premium ceded from their primary insurance company clients in 2011. The assumed premiums were $2.1 billion for 2010, and slightly higher than that in 2009. Generally, the amount of premium ceded from primary insurers to reinsurers has declined by about $100,000 per year on a comparable basis for the last three or four years.

Premiums assumed by reinsurers are not only declining gradually, they are increasingly coming under the excess of loss category. This is often described as a “volatile” area of business. “An excess of loss treaty by its very nature tends to mean you have less premium, but you could be on a bigger loss,” notes Andre Fredette, senior vice president at Caisse Centrale de Reassurance (CCR). “The pro rata treaties we write tend to be a little less volatile, a little more balanced and have a similar loss ratio from year to year.”

Assuming larger companies can pay for more claims themselves, theoretically they do not need to share the risk with reinsurers in the form of pro rata treaties. “At the moment, companies have excess capital,” Fredette says. “That means they tend to keep a larger net retention. That translates into fewer pro rata treaties being placed. A lot of companies — not all, but the bigger companies — have cancelled their pro rata cessions and they’re just buying excess of loss, which means ultimately there is less premium for the reinsurance market.”

SUPPLY AND DEMAND To some extent, the laws of supply and demand govern the reinsurance market.

Recently the demand for excess of loss reinsurance has increased, while the supply of reinsurance capacity has decreased. Castella sees a gradual, growing imbalance between supply and demand in the Canadian reinsurance market.

“Last year we saw the balance of supply and demand begin to shift,” he says. “It wasn’t very significant, but there was a noticeable increase in demand for excess of loss reinsurance, while the reinsurance market reduced its appetite for peak earthquake risks.”

28 Canadian Underwriter July 2012

Increased Demand The increase in demand for excess of loss reinsurance was a byproduct of a record catastrophe year globally in 2011, causing catastrophe reinsurance rates to increase anywhere between 5% and 15% this past renewal, depending on the program and the primary insurer’s catastrophe exposures. Globally, research by Swiss Re notes that natural

in claims for a wildfire that destroyed much of the Town of Slave Lake, Alberta in 2011. Hurricane Irene caused an estimated $6 billion in insured losses in the United States, and although it weakened to a tropical storm as it crossed through Quebec and the Maritime provinces, it still managed to knock out power and damage properties. A tornado destroyed much of the downtown area of Goderich, Ontario, causing upward of $75 million in damage. And hailstorms battered Saskatchewan and Alberta.

All told, Canadian P&C insurers paid between $1.5 billion and $1.7 billion in claims in 2011 — significantly higher than the $860 million they paid for claims in 2010, MSA Research Inc. president and CEO Joel Baker told the 2012 CIP Society Symposium in Toronto.

Reduced Supply

A lot of companies — not all, but the bigger companies — have cancelled their pro rata cessions and they’re just buying excess of loss, which means ultimately there is less premium for the reinsurance market. disasters last year — including earthquakes in Japan and New Zealand, and flooding in Australia and Thailand — saw the highest economic losses in history, at $370 billion. Of this, $116 billion in damages were insured. Sharon Ludlow, president and CEO of Swiss Re Canada, notes that insurers are working with governments around the world to figure out a way to close the widening gap between economic losses due to natural catastrophes and insured losses.

Canada was not immune. The country’s property and casualty insurance industry paid out more than $700 million

Demand for reinsurance — the excess of loss variety, anyway — may have increased last year, but the supply of capacity in Canada has decreased somewhat this year, reinsurers observe.

Based on the significant global and Canadian loss events last year, global reinsurers faced some tough choices this year when determining where to deploy their capital. Anecdotally, reinsurers say, the argument for geographical diversification of risk didn’t favour Canada this past year, as it often does (and still does, to a degree).

“What really played a role [in obtaining pricing increases this past renewal] was the fact that capacity is becoming scarcer,” says Rueckert. “It used to be quite chic for U.S. players to say they should diversify into Canada.

With cats happening on a worldwide basis in 2011 — New Zealand, Australia, Thailand — it became the top of the priority list to look at diversification. But all of a sudden you saw reinsurers saying: ‘Oops, it’s not only a nicely diversified premium, but now you are getting the losses from all sides.’ So it seemed like people were significantly reducing capacities in countries that are not their main priorities,” he adds.

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Grazing with Elephants Related to this observation, Farmer’s Mutual Reinsurance Plan president and CEO Steve Smith notes: “I think the big issue that’s still hovering out there is the cost of capital. I think [capacity] is withdrawing from the Canadian market for two reasons. One, it’s withdrawing because the cost of capital isn’t being supported — reinsurers can’t get the premium adequacy that they need.

I think the other part of it is that they can’t grow.”

Smith says reinsurers typically look to write $2 or $2.50 for every dollar they have of capital surplus. In other words, for every $1 million of capacity a reinsurer brings to the market, it is looking to write $2 million or $2.5 million worth of premiums. But, as noted above, premiums ceded from primary insurers to reinsurers in Canada have remained flat — if not diminished — over the past three years. If reinsurers can’t get the premium adequacy they need to support the cost of capital, they might consider pulling it out of the Canadian market and deploying it elsewhere.

Smith further observes that if foreign owners of reinsurers are looking for a return on equity (ROE) of up to 15%, they need to be able to write enough premium to support it. But Canadian reinsurers are not getting that type of premium adequacy, Smith notes, citing casualty lines in particular.

“So if you’re a foreign investor and you’re coming into the Canadian market and can only get a 2% or 3% return, what’s the point?” Smith suggests.

“When I have this conversation with other people, they say: ‘Yeah, right now it’s true for Canada, but the rest of the world is going to follow suit. It’s going to be the same globally.’ But I think what’s different globally is the ability to grow. In emerging markets, there’s ability to write more premium for every dollar of surplus.”

Castella sees the disparity between supply and demand getting slightly bigger each year, with a number of factors contributing to an increased demand for reinsurance capacity. For example, Canada’s solvency regulator, the Office 30 Canadian Underwriter July 2012

of the Superintendent of Financial Institutions (OSFI), has made proposals recently that would effectively require primary insurers to assign more capacity for earthquake coverage. The proposals could potentially drive more demand for reinsurance, thus contributing to the current imbalance between supply and demand.

Last year we saw the balance of supply and demand begin to shift. It wasn’t very significant, but there was a noticeable increase in demand for excess of loss reinsurance, while the reinsurance market reduced its appetite for peak earthquake risks.

“There’s a growing imbalance in the marketplace between the need for capacity — for quake, for example — and the premium in the market,” Castella says. “Every year, the gap gets bigger, due to regulatory reasons and also due to consolidation, where the combination of substantial primary books leads to an increase in demand for reinsurance catastrophe coverage. At the same time, the reinsurance market is contracting as primary insurers retain more risk on non-cat programs.”

GREENER PASTURES And so what do Canadian reinsurers do when demand for capacity is increasing at the very same time the supply is shrinking? “If reinsurers are not able to diversify or get to the business that they need to write on the reinsurance side, you start becoming active on the primary side,” Rueckert observes.

For a reinsurer, that may mean establishing a property and casualty company in the primary insurance market. It could also mean acquiring or establishing a managing general agent (MGA), a type of brokerage that can help place business with the parent company’s insurance and reinsurance operations.

This is in fact part of a global trend, says Bob DeRose, vice president and head of A.M. Best’s reinsurance group.

“Over the past five years, no question cedents have been retaining more for their own account, because they themselves have benefited from excess capacity,” he says. “So reinsurers’ opportunities have been declining. They haven’t had much opportunity to expand their writings. No question that they’ve gone to primary businesses.”

Canada has witnessed several examples of this phenomenon over the past five years. The Munich Re Group now backs Temple Insurance Company, a primary insurer that underwrites large industrial and commercial risk management accounts. Westport Insurance Corporation, a primary insurer that underwrites errors and omissions (E&O) business, is a member of the Swiss Re Group. Everest Re Group in 2011 acquired Premiere Underwriting Services, an MGA that specializes in entertainment, sports and leisure risks. Also, some hybrid global re/insurance parent companies have entered the Canadian primary marketplace, including Arch Insurance Canada and Axis Insurance.

Global reinsurers might adopt this strategy in part because of limits placed on their participation in a reinsurance program. A broker, for example, might limit a reinsurer to 25% participation in a primary insurer’s program so that the risk is distributed evenly among the

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Grazing with Elephants

Over the past five years, cedants have been retaining more for their own account because they themselves have benefited from excess capacity, so reinsurers’ opportunities have been declining. Reinsurers haven’t had much opportunity to expand their writings.

No question, they’ve gone to primary businesses. reinsurers. In this way, it is easier to replace a reinsurer that decides to drop from the program. Also, brokers have more control over the placements and the pricing of the program when a reinsurer doesn’t dominate the program.

But once reinsurers reach the proverbial “glass ceiling” of 25% reinsurance, they might turn to a primary insurance company as a supplement to the reinsurance they receive.

At first glance, this move by reinsurers into the primary insurance market appears to be counter-intuitive. In doing this, reinsurers might be viewed as competing for business with their clients, the primary insurers.

Rueckert says the aim is for the reinsurance-backed primary insurers to find niches in the primary market that are not cannibalizing business from reinsurers’ own clients. “The last thing we want to do is to establish a relationship over decades with client XYZ and then turn around and start an insurance operation and take its business,” Rueckert says. “From what I understand, that is not the intention of the big players. You need another leg to stand on if your main leg, straightforward reinsurance, is starting to get cut over time. Reinsurers are trying to place themselves into niches in which primary insurers might not be interested.”

Thus far, the establishment of reinsurance-backed primary insurers appears to be the strategy of the larger global reinsurers such as Munich Re, Swiss Re and Everest Re. This could be for any number of reasons. Among 32 Canadian Underwriter July 2012

them, larger reinsurers have the financial wherewithal to cover the costs associated with the strategy. For example, a direct company writing in the automobile space would be subject to the same “take all comers rule” when it comes to writing risks. Also, significant management and compliance costs are associated with establishing and maintaining an insurance operation.

A more cost-effective option may be to acquire or establish an MGA. An MGA is more of a broker operation for arranging a re/insurance placement, as opposed to a directly and wholly owned insurance subsidiary. The MGA might have agreements in place in which primary companies agree to accept certain insurance risks and then cede some portion of the insurance risk to the reinsurer. The reinsurer would have some flexibility in determining how much of that insurance it would accept.

The overall idea is that the MGA will actively solicit business specifically for the reinsurance-backed organizations.

One potential pitfall with MGAs is that they are loosely regulated, thus subjecting them to the scrutiny of insurance regulators. The Canadian Council of Insurance Regulators (CCIR) recently issued a paper with a number of recommendations for MGAs on the life insurance side, and it intends to follow up with a paper in the future regarding MGAs on the property and casualty side. Among its concerns, the CCIR cites contracts with MGAs that are too vague about the role of the MGA; inadequate supervision of MGA representatives; the

potential for conflict of interest between the clients’ needs and those of the MGA; and regulatory responsibility for MGAs (“Who’s watching over MGAs?”).

Its recommendations include making life insurers accountable for their MGAs; supervising agents; doing regular market conduct reviews of MGA activities; and establishing a program for providing information about the MGAs to regulators.

It is unknown if an adaptation of these recommendations will be proposed for P&C MGAs and, if they are, what kinds of compliance costs they will entail. In the meantime, Canadian reinsurers expect the practice of getting into the primary market to be an attractive option in the future.

“There are very few ‘pure’ resinsurers in the market anymore,” DeRose says. “If you look at anybody that’s in Bermuda, most have insurance and reinsurance.… I think it’s going to play out through the market cycle. In periods in which reinsurance opportunities are shrinking, reinsurers will attempt to do more primary business. On the other hand, if there’s a major event somewhere in the world, if reinsurance capacity dries up all of a sudden and pricing goes through the roof, I think organizations will re-allocate some of that capacity back to reinsurance where they can make a more profitable return.

I think it’s a matter of being nimble. It’s being nimble and allocating capital between primary and reinsurance, and it’s also being nimble in allocating capacity between property and casualty.”

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Building

a o N h’s Ark Angela Stelmakowich Editor

Flooding in Thunder Bay and Montreal have shone the spotlight on the adequacy of municipal infrastructure and if it can handle increasingly frequent storm events.

The promise of spring showers turned into a sodden reality when intense rainfall in Thunder Bay, Ontario and Montreal, Quebec overwhelmed city infrastructure, resulting in widespread flooding and a raft of insurance claims.

The initial estimate is that the flooding caused $200 million in insured damage, reports James Geuzebroek, vice president of communications for Insurance Bureau of Canada (IBC), referencing figures from PSC-Canada. Over four days, the swath of rain touched various parts of Ontario and Quebec, with the Lake Superior region and areas in and around Montreal experiencing the brunt of the storm.

Environment Canada reported that the May 29 deluge in Montreal — the city was battered by 47 millimetres of rain, about two-thirds of that in 15 minutes — had a return period of 1 in 100 years. Days earlier, on May 26-27, Thunder Bay

34 Canadian Underwriter July 2012

was pelted by 91 mm of rain over a period of about 18 hours.

In Montreal, overwhelmed systems resulted in flooding of residences, businesses and roadways.

In Thunder Bay, flooding arising from a severe sewage backup prompted the city to declare a state of emergency.

“There were a lot of homeowners with really nasty sewer backup issues and they were upset, understandably,” says Geuzebroek, who was in Thunder Bay as part of IBC’s deployment of its Community Assistance Mobile Pavilion. IBC set up camp in an especially hard-hit area beside the sewage treatment facility.

“At first glance, it looked like everyone was having a yard sale,” Geuzebroek reports. Homeowners had retrieved their belongings from flooded basements and piled them up at the curb. “You could see hoses coming out of many of the basements where they were working on draining the water out,” he says.

SAME OLD STORY Canada’s home and business insurers are seeing more water-related claims, notes Telling the Weather Story, a report prepared for the IBC by Professor Gordon McBean and colleagues at the Institute for Catastrophic Loss Reduction (ICLR). “These

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losses are driven in part by Canada’s aging sewer infrastructure, which is often incapable of handling the new, higher levels of precipitation.”

The tale of the two floods may be spun into a yarn of future woe if municipalities do not take steps to get their infrastructure houses in order. Extreme rain events may not be the norm, but they are decreasingly an exception.

Many municipalities have systems that “are not adequate for increased precipitation that we’re already getting as a result of climate change and that we can expect to get in the future,” Geuzebroek says.

“Return periods that we use for infrastructure may not reflect actual return periods for storms we’re seeing,” adds Dan Sandink, ICLR’s manager of resilient communities and research.

“In that case, we’re not prepared in a lot of ways.” If the goal is to design systems for a 1 in 100 year event, he advises that “we need to take into account the changing frequency of extreme rainfall in order to provide that public protection.”

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Return periods that we use for infrastructure may not reflect actual return periods for storms we’re seeing. In that case, we’re not prepared in a lot of ways.

Montreal’s mayor was quoted as saying no sewer collector network would have been able to manage the water that pummelled the city over so short a period. Sandink would likely agree. “It would cost too much money to design these systems to handle every single [rainfall] event.”

Geuzebroek says the Municipal Risk Assessment Tool (MRAT), which is now being piloted in several municipalities, may be able to help. MRAT collects municipal infrastructure data, claims data and climatic data to create maps and identify infrastructure weaknesses, including areas that are most vulnerable to sewer backup and water damage.

Unfortunately, “usually communities and individuals don’t take very substantial action until after they’ve experienced events,” Sandink says.

BEYOND PHYSICAL Action certainly happened too late for a group of plaintiffs who have filed a claim against the Corporation of the City of Thunder Bay. Part of the claim, which contains statements that have not been proven in court, turns on the state and management of municipal infrastructure.

The claim filed with the Ontario Superior Court of Justice on June 21 names plaintiffs representing a class of persons who owned or occupied property in the city on or after May 28, 2012, and who suffered damages and injuries as a result of flooding and sewer backup.

The plaintiffs are seeking “$320 million in damages, plus any costs, and may well be increased as the true extent of this disaster becomes known,” Alexander Zaitzeff, a lawyer with Watkins Law Professional Corporation, notes on the firm’s website.

A large loss

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It is alleged the city is strictly liable for damages resulting from its activities, including but not limited to, its defective sewage system, and the operation and maintenance of sewage treatment facilities and related infrastructure. A court must approve the claim before it can proceed as a class action.

Sandink says that it will be interesting to see what comes from the lawsuit since one contention being reported is that the system failed, not simply that a system was overwhelmed.

“Insurers have seen a very definite increase in water damage,” Geuzebroek observes, citing $1.7 billion in water damage claims for insurers for last year. “Our message to federal, provincial and municipal governments is that they need to invest more in that invisible infrastructure.”

The allegations contained in the plaintiffs’ action move beyond physical damage to potential harm to health. The discharge of sewage resulted in “contaminating their homes, personal property and the atmosphere of the plaintiffs’ homes with offensive, nauseous,

Insurers have seen a very definite increase in water damage, with $1.7 billion in related claims in 2011. The message to governments is that they need to invest more in infrastructure. unhealthy and potentially toxic odours, bacteria, parasites and mould,” the statement of claim notes.

Mould was on the radar for adjusters from Cunningham Lindsey Canada Claims Services Ltd. who responded to Thunder Bay. Adjuster investigations “will include identifying any possible mould implications that may result,” Mike Morris, the company’s vice president of national operations, said at the time.

SHUTTING DOWN Measures can be taken at both the municipal and homeowner levels to try to mitigate damage in the event of sewer

backups. A properly installed backwater valve automatically closes if sewage back ups from the main sewer, thereby preventing sewage from reaching residential basements, notes an information sheet from IBC. Backwater valves must be placed so that “sewage backup will be stopped short of other water outlets in the basement, such as sinks, toilets, showers and laundry tubs,” the information adds.

That seems to have been an issue in Montreal, where there were reports of water bursting up through toilets and sinks, and certainly in Thunder Bay. “Everybody loses if the mess stays for any extended period of time,” Geuzebroek says.

One positive from the recent events, Sandink suggests, may be that “there is generally a window of opportunity after flood events occur when both political and public interest is high, when people are looking for solutions, when the disaster event is still on their minds.

That period can be leveraged to implement risk reduction measures.”

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The Case for Credit Scores One of the most accurate and powerful indicators of risk is the way customers manage their finances.

Until widespread use of vehicle telematics and usage-based insurance (UBI) provides a reliable real-time stream of customer driving informaSylvie Paquette tion, insurers are going to have to rely on the old President, Chief Operating Officer, tried-and-true method for determining a customer’s risk profile — the educated guess, based Desjardins General on proxies like age, gender, type of car and so on.

Insurance Group There’s no equivalent to UBI on the property side of the business (at least not yet), so the educated guess — based on proxies like neighbourhood crime rates — is likely here to stay for home insurance.

That doesn’t mean insurers shouldn’t use every available tool to help make their guesses as accurate as possible. Customers expect their insurance providers to charge according to the risk, and good risk customers do not want to subsidize bad risk customers.

One of the most accurate and powerful indicators of risk is the way that customers manage their finances. There’s a large body of research linking credit behaviour and claim losses.

38 Canadian Underwriter July 2012

A 2003 Texas Department of Insurance study, for example, looked at data for 2 million policyholders. It found that insurance customers with the lowest credit scores had claim losses that were 53% higher than the expected average, while those with the highest credit scores had claim losses 25% lower than the expected average.

Here in Canada, a study last year by Barons Insurance Services for the Canadian Association of Direct Response Insurers (CADRI) that used solely Canadian insurance data found the same strong correlation between credit score and insurance losses.

Given all of the evidence, it’s not surprising that most insurers in Canada and the United States now use insurance or credit scores (where allowed), a practice endorsed by both the American Academy of Actuaries and the Insurance Information Institute.

Why then is the use of credit information in insurance still controversial?

IT’S NOT ABOUT INCOME One argument that keeps coming up, even though it has been largely disproven, is that the use of insurance or credit scores unfairly penalizes low-income consumers. In fact, these scores

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do not evaluate income, assets or liabilities — and they don’t include any personal data. Instead, they focus on the consumer’s credit behaviour. Consumers who manage their finances well by paying their bills on time and who don’t abuse their access to credit will have a high score, regardless of how much or how little money they make.

The correlation with insurance claims is fairly easy to understand. People who manage their finances well tend to also manage other important aspects of their lives responsibly.This includes properly maintaining and driving a vehicle and keeping a house in good repair, which, in turn, will generally result in fewer and less costly claims.

Major U.S. studies have consistently rejected the idea that using credit information penalizes the poor. In Canada, TransUnion, one of two major credit rating agencies in Canada, matched 2010 credit data to Statistics Canada income data by postal code and determined that the percentage of people with poor scores was roughly the same in each income band. In other words, there was no correlation between credit score and income level.

Whether or not we like it, credit information is routinely used in a variety of sectors because it is widely acknowledged as a meaningful indicator of risk.

If you are looking for an apartment or a new job, or signing up for a cell phone plan, it helps to have a good credit score.

IT HAS CONSUMER SUPPORT Another common argument is that consumers oppose the practice. If you ask a simplistic question in a survey, you’ll get a simplistic answer. But if you take the time to explain how and why credit scores are used, including the benefits to the consumer, you get a very different response.

At Desjardins General Insurance Group (DGIG), the rate of consent from consumers who contact us online or by phone is around 99%. When an agent clearly explains why and how we use the information, the vast majority of consumers feel strongly that there is an advantage in providing consent.

40 Canadian Underwriter July 2012

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It’s not difficult to figure out why.

Most people in Canada have a good credit score and, thus, would benefit from an insurance discount. Even consumers who have a low credit score can take steps to improve their credit rating and consequently reduce their insurance premium.

In a submission last year to the New Brunswick government, the Consumers’ Association of Canada pointed out that any restriction on the use of credit scores “is contrary to the principle that good public policy should reward — not punish — those… who have, through responsible credit management, earned the chance to reduce the cost of their premiums and save their hard-earned money.”

CONSUMERS ARE PROTECTED A third argument used against insurance or credit scores is that insurers have acted improperly in how they have used the information. This was true of some companies when insurers first began using credit information. Unfortunately, the actions of a few hurt the reputation of the entire industry.

However, this market conduct issue has since been corrected. In the United States, a number of regulators have established rules to ensure that credit information is used fairly. Here in Canada, the Insurance Bureau of Canada’s (IBC) Code of Conduct for Insurer’s Use of Credit Information addresses virtually every significant concern that has been raised about the use of credit information.

These range from how you deal with new immigrants and young people who don’t have credit profiles, to the re-

quirement to obtain the customer’s explicit consent before accessing their credit file.

The Code of Conduct provides an effective approach that protects consumers while allowing the industry to continue to use what is a very powerful rating and underwriting tool. In that sense, it’s a win-win.

DGIG and the majority of the major insurers who use credit information — representing 85% of the market — have provided their written commitment to IBC to adhere to the code. We all recognize that this is in our best interests and, more importantly, the best interests of our clients.

IT IS FAIR In the final analysis, the strongest argument supporting the use of credit information is that it is fair.

As the Consumers’ Association states: “Credit history is the one variable over which consumers [have] control and [can] leverage to reduce the cost of their premiums. When consumers allow insurance providers to access their credit reports, they are able to give an accurate depiction of their insurability risk, thereby allow companies to fairly price polices, compete for customer’s business and offer discounts.”

When regulators are pressured to ban the use of credit scores, they penalize the majority of consumers who manage their finances responsibly. These consumers end up paying higher premiums, whereas higher risk consumers who don’t pay their bills on time, don’t keep their homes in good repair, don’t maintain their cars or drive safely see their rates reduced.

Clearly this isn’t fair. It hits low-income consumers with good credit scores particularly hard for the simple reason that they are less able to afford the higher rates.

Insurance is an expensive product. All of us in the industry should be using every tool available that can help us to better match premiums with risk, thus reducing the cost for the majority of consumers. That includes the appropriate use of credit information.

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Creative Use of

Captives 8th Annual Canadian Captives & Corporate Insurance Strategies Summit (Toronto)

David Gambrill Senior Editor

Angela Stelmakowich Editor

Canadian corporations are taking a second look at captives, which can offer a number of creative opportunities for furthering an organization’s business objectives.

Canadian corporations are taking a second look at a captives strategy, and delegates attending the 8th Annual Canadian Captives & Corporate Insurance Strategies Summit, held in Toronto on May 16-17, heard a number of creative ways captives can be used to further business ends.

The 2012 conference had a decidedly practical bent, with speakers sharing insights on how exactly they were able to use captives to advance their organizations’ corporate objectives. The conference opened with a positive outlook for the creation of captives by Canadian companies.

CANADIAN CAPTIVES EXPECTED TO INCREASE “The reality is that for the vast majority of Canadian companies, their captives are well-capitalized,” Trevor Mapplebeck, managing director of alternative risk solutions for Marsh Canada, said in his opening address to the conference.

“They’ve been financially quite strong. Canadian corporates are going to be creating captives as opposed to shutting them down.”

Captives can help provide a cushion in a hardening, firming or tightening marketplace, he suggested. “There’s general appetite for risk, of financial willingness and ability for the organization to accept risk on the balance sheet,” Mapplebeck said. “There’s an opportunity for you to internally insulate the organization from some

42 Canadian Underwriter July 2012

of the impact of the changing markets.”

In particular, the energy, agriculture and base metals/minerals sectors are expected to generate the most activity in the captives area, given the state of the market and the strength of commodities, Mapplebeck said.

And even though 2011 was a rough year for captives in the financial, construction and real estate sectors, investment returns for captives were about 3% overall. “Captives undoubtedly are a very favourable and effective tool in the risk management arsenal for Canadian corporations,” Mapplebeck said.

Still, he cautioned “the larger the organization or the captive, the more opportunity it has to diversify its investments. A lot of the smaller, less-insured captives will still need to focus on safety and liquidity of the investment.”

Most Canadian companies with captives are multinationals that have operations outside the country, he noted.

CAPTIVES HELPING TO ADVANCE BUSINESS OPPORTUNITIES Frequently formed to ensure sufficient capital during hard insurance markets, captive insurance companies can also be used creatively to facilitate business opportunities, noted Paula Gentile, senior vice president of risk management and general counsel for MGM Resorts International.

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formed its captive in 2001, when hijacked commercial aircraft slammed into the World Trade Center buildings in New York.

At the time, MGM could not find insurers willing to insure its buildings for damage arising from terrorism. Also, domestic insurers were squeamish about underwriting property coverage for MGM, since U.S. legislation required them to insure fire following terrorist acts.

The company’s real estate holdings were worth $10 billion. “At the time, I was just a market saying, ‘I need at least $2 billion of all types of coverage in order to sleep at night,’” Gentile said. “I have to be able to replace my property if something catastrophic happens.”

MGM created a captive so that foreign, non-admitted insurance capacity could be used to insure the company’s property holdings without any commitment to terrorism coverage. Once formed, MGM used its captive creatively to promote business opportunities. This included providing surety bonds for the purpose of releasing money held in escrow accounts, thus saving money for MGM. For example, Gentile cited MGM’s City Center Project, a 76-acre, mixed-use, urban complex in Las Vegas that includes 2,500 condo and condo-hotel units measuring a total of almost 17 million square feet. At the time, real estate values were such that people were paying $1,800 per square foot.

Under contracts with MGM, the condo unit buyers put 10% of their money down in escrow, representing tens of millions of dollars. MGM could not touch the money held in escrow until either: 1) the escrow was fully closed and the money was completely transferred to the seller; or 2) a surety bond was posted with the escrow.

“It occurred to us that it would be a very good idea if the company, the developer, could get the use of that [escrow] money in advance to apply towards the construction costs, which could save money,” Gentile said. “It saves you money on your loans, interest and your carrying costs.”

With the approval of the state insurance regulator, MGM’s captive provided

44 Canadian Underwriter July 2012

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surety bonds for the escrow deposits.

“We saved a few million in fees,” noted Gentile. “We saved a lot more money than that in carrying costs and interest on our construction loans. That proved to be a great, money-generating activity.”

SHORT-TERM BUDGETS, LONG-TERM CAPTIVE PROGRAM How do you establish and operate a multi-year government captive insurance program within the context of a government’s annual budget appropriation cycle?

This was the biggest challenge in establishing the British Columbia government’s risk-pooling programs through a captive, said Phil Grewar, executive director of the risk management branch and government security office for the provincial government.

B.C. self-insures its entire healthcare sector, the Kindergarten to Grade 12 public school sector, 12 Crown corpo-

The reality is that for the vast majority of Canadian companies, their captives are well-capitalized. They are going to be creating captives as opposed to shutting them down. rations and approximately 10,000 service providers. The province sought to self-insure when healthcare costs began to rise in the 1980s.

One major challenge was the inability to accumulate funds to pay for increasing costs over a multi-year timeframe.

Government policy at the time was that unused funds would be appropriated at the end of the fiscal year.

Grewar gave the example of a government department needing insurance to cover a $10-million risk exposure. The captive insurance program would establish a $5-million premium, and find an understanding multinational broker.

At the request of the government captive, the broker agreed to invoice the captive for $5 million.The captive paid the invoice, so the broker received $5 million.

The captive then invoiced the broker for $5 million, which the broker paid back to the government. Since the money from the broker emanated from outside of the government, the $5 million the captive received from the broker entered the government’s books as “deferred revenue,” which is allowed to accumulate beyond fiscal year-end.

To keep the auditor general from being concerned about a long-term increase in deferred revenue, the captive program sought and achieved a longerterm solution — a statutory amendment that allowed the captive to move ahead with self-insurance initiatives.

PLANNING FOR BLACK SWANS Captives would be wise to plan for “black swan” events, cautioned William Montanez, director of risk management for Ace Hardware Corporation.

These worst-case scenarios are characterized as high-impact, rare and unpredictable events. Taking these into account, and to ensure viable and sustainable captive growth, Montanez said the captive should: • quantify asset, credit, reserve and underwriting risks; • determine the overall health of the captive; and • develop a road map to strategically grow the captive.

At Ace Hardware, it initially appeared the captive had $24 million in capital surplus. “We asked the experts what would happen if everything went south on us on the claims side?” Montanez said.

Based on the answer,Ace Hardware adjusted its total to about $12 million. And then, once an actuary considered other risks as part of the captive’s dynamic risk modelling — underwriting risk, reserve variability, interest rate, credit risk and equity investment volatility — the number fell to about $10 million.

Going through this process allows the captive to determine excess capital available “to grow the business,” Montanez said.With this number, the captive can explore options such as underwriting coastal coverage, providing a rate decrease or underwriting umbrella coverage for retailers.

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Focus on Consumer Service

John Dickinson Director, Centralized Broker Services, ICBC

The Insurance Corporation of British Columbia (ICBC) has partnered with Autoplan brokers in B.C. on an innovative program designed to improve customers’ experiences and perceptions of auto insurance. The program includes enhanced measuring, monitoring, training and recognition of broker efforts with customers at the point of sale. It may also positively influence other aspects of broker performance such as customer loyalty and retention, better coverage for customers and less price sensitivity.

We all know expectations of customers are increasing everywhere. In industries and businesses outside of insurance, the most successful companies are ones that deliver more than just an efficient and satisfactory transaction: they leave their customers with an emotional connection to their purchase and the company.

The difference is clear when considering successful companies in other industries. Consider Apple, for example. Customers have unparalleled excitement surrounding any new product announcement or enhancement. When the new

46 Canadian Underwriter July 2012

product comes out, they’re willing to wait in line for hours with the hopes of being the first to have what is coveted by so many.The patience required to go through this experience demonstrates a strong emotional connection to Apple and keeps customers loyal and coming back for more.

Disney is another great example of a company that is successful because of its focus on the customer experience.The company is renowned for an experience far more memorable than an assortment of exciting rides, as I personally discovered on a recent trip to Anaheim with my pre-teen daughters and their friends.

We found ourselves waiting eagerly outside the gates prior to the park opening. Disney’s operations manager, sensing the excitement amongst my crew, waved us into the park before the gates opened to the hundreds that had assembled behind us.

“You’re going to open the park today,” she told my girls, now speechless for the first time in days. “You’re going to lead the countdown to

Illustration by Sandy Nichols/www.threeinabox.com

The Insurance Corporation of British Columbia has partnered with Autoplan brokers in B.C. to offer a program that focuses on broker efforts with consumers at the point of sale.

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opening, then turn around and have first crack at any ride you want in the park.” What a thrill it was for my family, and I forgot about the incoming credit card bill immediately!

Disney earns its reputation as the happiest place on earth with their attention to the customer experience. It cost them virtually nothing to create that magical moment; for the rest of the day, I spent freely on souvenirs and five-dollar churros knowing that I was in the hands of true professionals.

The purchase of insurance will not elicit the same excitement as Disneyland or Apple. But why not borrow the concept of creating experiences for our customers and apply it to our business to help improve the perception of our industry?

Since 2008, ICBC has talked to thousands of customers through surveys, focus groups and online panels to determine what customers expect when they purchase insurance. Customer satisfaction scores indicated that, on average, 95% of customers are satisfied with their auto insurance purchase, reflecting great work by brokers. Even so, scores for more emotional elements — such as how a customer wants to feel about a purchase — left room for improvement.

Therein lies an opportunity for ICBC and brokers to do more to create better experiences for customers and to meet customers’ increasing expectations in this area.

We know from our research that all customers expect to feel certain emotional attributes — trusted, respected and valued, for example. They want to know they are getting good value for their money and that when they walk out the door, the product they have purchased is right for them. They want to know their loved ones are protected and have nothing to worry about in the event of a claim.

We dug deeper to identify behaviours that are key to delivering on those elements and what we can do to exceed customers’ expectations.

We found that activities such as reviewing the needs of the customer and

providing advice were key drivers shaping customers’ experiences.This should come as no surprise, since this is the core of what brokers do. Most brokers in B.C. have been pleased to see ICBC confirm and recognize what brokers have known and been doing well for so many years.

With this information in hand, a task force formed to bring the concept of customer experience to life. Representatives from ICBC and the two broker associations in B.C. — the Insurance Brokers Association of B.C. and the Credit Union Insurance Services Association — worked together diligently to determine training and coaching support for brokers. ICBC implemented an award program, called the Broker Customer Experience Award, to reward and recognize brokers for their efforts in improving customers’ experiences.

The program is unique in that it considers broker performance in part by customer outcomes. This is opposed to measuring broker performance by profitability, which is impractical in a “takeall-comers” universal system. Award amounts are a nominal part of brokers’ overall remuneration package; they are based on the transaction volume of each individual office.

Annual customer experience targets are established. The targets are achievable, and are also considered “stretch” targets. The target is the same for both the broker and ICBC. The program involves a training component for brokers, consisting of three online, on-demand learning modules

that communicate and test understanding of what we want to achieve in improving customers’ experiences. A small portion of the performance award is allocated based on how many customer service representatives within a broker’s office complete the course.

Everyone is encouraged to do so.

ICBC staff coach brokers on an ongoing basis to help them improve their service to customers. They encourage brokers to learn from each other by sharing tips that are prominently placed on the ICBC online portal for brokers.

Monthly reports of customer survey results are made available to brokers so they can monitor their progress throughout the year and make any necessary adjustments to improve their service.

One broker, Lorne Perry of Port Moody Insurance, was disappointed with his early results. Consequently, he rearranged the office’s desk configuration and changed how his staff greeted customers. Many other Autoplan brokers have made changes, including handing out “claims cards” at the end of each visit. The cards outline the claims process that customers might undertake in the event of an emergency.

These may seem like small changes, but they show customers are valued and respected. As a result, clients may be more likely to trust a coverage recommendation, for example. As in our family’s experience at Disney, sometimes the little things make a big difference.

The tips and concepts brokers are implementing and sharing are not new.

But the focus on improving customers’ experiences represents a shift, leading to our participation in being measured, monitored and rewarded through this program. It has generated conversation in B.C., encouraging brokers to see the purchase of insurance through their customers’ eyes as both insurer and broker work together toward a common goal. Given this enhanced focus and additional training and coaching, brokers like Lorne Perry are actively changing the way they interact with customers to create better experiences for them in all aspects of business.

July 2012 Canadian Underwriter

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The Road to Greener Pastures The CIP Society Ethics Series

Brokers with excellent track records may be tempted to branch out into other areas of business, raising a duty to tell the clients when they are travelling in unfamiliar territory.

The CIP Society

An energetic broker established an excellent track record and reputation for advice and service in Insurance Institute personal lines insurance. But he was also conof Canada templating the notion of expanding his business The CIP Society represents in the area of volume, product offering or both. more than 16,000 A loyal client suggested that the broker congraduates of the Insurance sider commercial lines insurance, offering his Institute of Canada’s Fellow company’s policy as a starting point. The client Chartered Insurance provided his existing policy contract in order to Professional (FCIP) and allow the broker to shop around and make an Chartered Insurance “apples-to-apples” comparison. Fortunately, the Professional (CIP) Programs.The CIP Society, broker was able to compete on price and provide the same coverage for a lower premium. through articles such as But the broker felt uncomfortable. He didn’t this, is working to bring feel as though he provided any value or advice to ethical issues to the forefront the client about coverage and other consideraand provide learning tions.

Then again, he felt he wasn’t equipped to opportunities that enhance do so because he lacked experience in this aspect the professional ethics of of the business. all insurance professionals.

The broker was also concerned because he recalled a casual conversation with the client in the recent past, in which the client mentioned he was expanding his business and investing heavily in automation and technology.

48 Canadian Underwriter July 2012

What are the ethical considerations of this broker dealing with an account that is beyond his level of expertise? Has the broker acted unethically, and if so, in what ways? Should he have handled this case differently? What should he do now?

Amber Johnson, CIP, CRM Senior Account Executive, HUB International, Phoenix Insurance Brokers One of the most important aspects of the broker role is to be a trusted advisor. As such, there will be occasions in every portfolio when we are asked to provide advice on a risk outside of our experience or expertise. In these circumstances, our responsibility is to advise the client we will be researching their prospective needs to encompass alternate solutions best suited to his or her requirements, by finding and using resources within and outside our industry.

Fortunately our industry is well-equipped with resources, including seasoned underwriters, claims adjusters, inspectors, appraisers, risk managers, loss prevention specialists, insurance institute consultants and insurance lawyers. Best’s

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CLAIMS ADJUSTING FIRMS ClaimsPro Inc. Committed to providing leading-edge claims management services. www.scm.ca Crawford & Company (Canada) Inc. Enhancing the customer experience, every day. www.crawfordandcompany.com

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Underwriting Guide and reputable internet resources can also serve to understand a risk.

As for the example cited, no broker should quote a policy “apples to apples.”

It’s the broker’s role to ensure that there are no mistakes.The broker should do all of the necessary homework, including reviewing, among other things, all the exposures and solutions as well as changes to operations, inflation, market conditions, contracts, assets, construction and security information, risk management procedures, leases and loss experience.

By finding and using the expertise of others, a broker can write a risk outside their experience.

Sara Runnalls, FCIP, CRM Vice President, Associate, BFL CANADA Risk and Insurance Services Inc. In my experience, most brokers aspire to write larger and more complex accounts as they progress through their careers, so the above scenario is certainly common.

It would appear from the scenario presented that the client was well-aware of the broker’s inexperience in the field of commercial lines insurance. However, I would expect the broker to have warned the client at the beginning of the process that there are major differences between personal lines and commercial lines products, and that he is not experienced enough to detect potential gaps in the client’s insurance program as it currently exists.

As such, I would also expect the broker to have aligned himself with a more experienced commercial lines broker to act as “mentor” during this process to help him identify problems with the existing coverage. If he has done these two things, in my opinion, he has acted ethically and can sleep with a clear conscience. Having said this, the broker has an ongoing responsibility to provide his client with knowledgeable advice regarding his insurance program, especially as the client expands its operations. He can’t continually rely on other people to provide this advice for him.

The broker should be able to achieve this goal by means of completing any

or all of the following: • Going back to school. These days, almost every brokerage is keen to support the education of its employees. There are many resources offering courses, seminars, workshops and more on just about any topic you can imagine. The broker can’t go wrong by extending his formal education to include insurance-specific or industry-specific teachings, especially those that cater to his new client’s needs.

• Learn from his underwriters and the underwriting process. In marketing the account, the broker would have had to collect detailed information to pass along to underwriters. Chances are the underwriters had questions that necessitated going back and forth with the client. A good broker will pick the underwriter’s brain and find out the reason behind the questions, in order to understand how the answers affect the coverages offered.

The broker can also use the underwriter as a valuable resource by asking his own

Before venturing into new areas, brokers should anticipate that it will require new knowledge and training, and that gaining necessary experience will take time. questions about how coverage could be improved for the client being quoted.

Underwriters can be very helpful if they know you want the help: all you have to do is ask.

• Learn from his fellow brokers. Chances are, someone in the brokerage — be it the principal broker or simply someone with more commercial lines experience — would be willing and able to help this broker through the marketing process and provide advice throughout the policy term. If the brokerage really is focused on personal lines, and a commercial lines “expert” is not available, then the broker needs to expand his network to include brokers from other offices. The insurance community is just that — a community. Even though we are competitors, many of us are colleagues, friends and mentors. The vast

majority of us are eager to embrace and enhance the professional image of the insurance broker, so helping colleagues is second nature.

In short, there is nothing wrong with a broker taking on more advanced accounts, provided that he is committed to learning how to properly protect his clients and has the support and resources necessary to help him through this learning process and maintain the client’s best interests. After all, we all have to cut our teeth somehow.

LAST WORD. . .

According to the Insurance Institute’s Code of Ethics governing all CIPs and FCIPs: “Institute graduates shall use due diligence to ascertain the needs of their client or principal and shall not undertake any assignment if it is apparent that it cannot be performed by them in a proper and professional manner.”

The broker in this scenario, and all industry professionals, should be providing the appropriate and necessary products and services to their clients in a professionally ethical manner.

The insurance contract is all about utmost good faith and full disclosure on both sides of the relationship. In this scenario, the key to success is for the broker to be honest with himself and the client about his past experience and his limitations. If he takes on business he doesn’t fully understand, he could be doing more than just taking a calculated risk: if he’s led the client to believe he understands something that he does not, he is acting unethically.

When a broker wants to grow his or her business and expand into new territory, that is usually a good thing.

We should all be striving to learn new things and grow, both personally and professionally. However, before venturing into new areas, brokers should anticipate that it will require new knowledge and training, and that gaining necessary experience will take time. By making the most of his or her network of insurance industry professionals, and by accepting new learning opportunities, the broker can continue to provide the best counsel to his or her clients.

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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

Crawford & Company (Canada) Inc. has announced the promotion of three current officers.

James Eso [1a] is the new senior vice president of property and casualty. Over his 26 years in insurance, 23 at Crawford, Eso has gained experience in accounting and commercial property construction project management. He holds a chartered insurance professional designation and last served as vice president of property and casualty. Greg Smith [1b] has been promoted to senior vice president of key account management. He has 14 years of experience with wide-ranging expertise, including executive relationship management, operational performance, contract compliance and customer services delivery for Crawford’s national programs. Heather Matthews [1c] is assuming the position of senior vice president of the National Claims Management Center.

Matthews started at Crawford as an adjuster, but has worked in sales, where she specialized in the risk management and U.S. markets, as well as in the healthcare division, which she went on to lead in 2009.

She has been crucial to the development of the Crawford Sales Institute, the key account management program and various strategic planning committees, the company notes. Eso and Smith will report to chief operating officer Pat Van Bakel, while

52 Canadian Underwriter July 2012

Matthews will report to Stephen Anderson, senior vice president of corporate markets and administration.

2

Gail Sheepway [2] has accepted a new position as Zurich’s specialty products Canada business lead, effective July 1. She joined Zurich in 2001 and has held various roles in product underwriting. Most recently, she was head of the accident and health business in Canada. In her new role, she will be involved in making plans for growth in Canada in conjunction with the existing growth strategy in the United States. In addition, she will take part in workstreams related to connecting Canadian business into specialty products’ existing special business units. Based in Toronto, Sheepway will report to Dan Riordan, president of specialty products. “By aligning all specialty business under one Zurich North America umbrella, we can best pursue our opportunities for growth of the specialty lines,” Riordan says in a statement.

3

David Huebel is the new CEO of Catlin Canada. He joined Catlin Canada in 2009 as chief underwriting officer, notes a statement from Catlin Group Limited, an international specialty property/

1a

1b

6

8

casualty insurer and reinsurer.

Huebel brings 25 years of experience to the position, having started his career in 1987 at Gerling Global General Insurance Company (now RSA), where he held various management roles. He succeeded Mike Hansen, who continues as global leader of the company’s aerospace product group and remains as a Toronto-based director of Catlin Canada. Also at the company, Greg Joyce will move from deputy chief underwriting officer to chief underwriting officer in July, succeeding Huebel, and Deborah Moor will join the team this September as chief operating officer, a new position. Moor most recently was president of Lloyd’s Canada.

4

Jeffrey Burke is the new president and CEO of Western Financial Group (Network) Inc. He is currently responsible for leading the company’s network of 120 insurance brokerage offices across western Canada. “Jeff’s proven ability to enhance the customer experience while increasing market share and profitability is truly impressive,” said former president and CEO Scott Tannas, who stepped down to pursue a Senate seat.

"Western is well-positioned to harness the strength of the fast-growing western market, and I’m truly excited by this unique opportunity,” Burke says. He has more than 15 years of executive leadership experience in Canada and the

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MOVES & VIEWS

1c United States, including a stint as senior vice president at Allstate Canada. He has held increasingly responsible sales and marketing positions with both American Family Insurance and Allstate in the United States.

5

Ken Tucker is the new CEO of Disaster Kleenup Canada (DKC). With 48 years in the property restoration business, Tucker “has been an influencer, mentor, adviser and one of the founding members of DKC,” notes a statement from the company. “His history in the business, knowledge of the industry and insight into the needs of customers will help push DKC ahead of the pack.” DKC also welcomes to the executive team Ken Zardo, who has 15 years of experience in the property restoration industry. Zardo has worked with property restorers, franchisees and industry software developers. “Previously working as competitors, [Tucker and Zardo] have come together to share experience and innovation to better DKC,” notes the

2 company statement. DKI is establishing locations in Ireland and has set its sights on Australia and Europe.

6

Alister Campbell [6] has been appointed CEO of The Guarantee Company of North America, effective early September.

Most recently, Campbell was president and CEO of Zurich Insurance’s Canadian operations. “Happy to announce that I will be assuming a new position as CEO of a wonderful Canadian insurance icon, The Guarantee Company of North America,” he wrote on his LinkedIn profile. “Have spent some months deliberating on a series of excellent opportunities and am quite convinced that I have picked the one where I can have the greatest impact and have the most fun!”

7

Jeff Houston has been appointed as director of business development in Canada for iPipeline, a provider of on-demand software that supports marketing, selling

and processing solutions for insurance carriers, distributors and agents. Houston will develop and manage relationships with all Canadian carriers and distributors, with the intent to leverage iPipeline’s platform for the marketing, selling and processing of insurance.

“The Canadian marketplace continues to be a key strategic marketplace for iPipeline,” company president Bill Butler says in the statement. “[Houston’s] years of experience as a regional vice president in Ontario and Atlantic Canada at RBC provide him with a rare carrier-sided view of the industry and first-hand understanding of the business challenges. We are excited to have Jeff leading our business development efforts in Canada,” Butler adds.

8

Sean Forgie [8] has joined Cunningham Lindsey’s commercial risk division (CRD) team as national director of casualty/liability. In the new position, Forgie will oversee the handling of complex liability claims conducted by the executive general adjusters, senior general adjusters and general adjusters that make up the CRD team in Canada.

Forgie has worked within the independent adjusting arena over the past eight years, most recently as vice president. Prior to his independent adjusting career, he was a staff adjuster for various national and

international insurance carriers.

Forgie has expertise in product liability, environmental and professional indemnity losses in particular. “He is currently assigned to the Elliot Lake mall collapse, an example of the high-profile and multi-faceted type losses that insurance professionals trust Sean to handle,” Cunningham Lindsey adds in a statement.

9

FirstOnSite Restoration has opened a new branch in Cranbrook, British Columbia, where the company will provide disaster restoration, construction and renovation services to businesses and residents in the surrounding area. The branch is FirstOnSite Restoration’s sixth in British Columbia.

“This new location not only extends our services in British Columbia, but it will support our efforts in Alberta as well,” Doug Irwin, senior vice president and managing director for western Canada, says in a statement. The new branch will be led by Kevin Smith, a nine-year year resident of Cranbrook who has been leading construction and home renovation efforts for more than 15 years.

Follow @CdnUnderwriter on

http://twitter.com/CdnUnderwriter

July 2012 Canadian Underwriter 53

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

The Ontario Pond of the Honourable Order of the Blue Goose International held its annual initiation on Mar. 28, 2012. Most Loyal Gander Jamie Dunn gathered the flock for the annual initiation ceremony for the Goslings (new members). The event took place at Modus Restaurant in downtown Toronto. It was the Pond’s largest initiation event to date, with more than 40 Ganders and 30 Goslings entering the Pond.

ADVERTISERS’ INDEX ACE INA Insurance

7

Aviva Canada Inc.

68 (OBC)

Brovada

5

canadianunderwriter.ca

41

Canadian Underwriter magazine

55

Cunningham Lindsey Canada Desjardins Group Elliot Special Risks FirstOnSite Restoration Great American Insurance Group

9 2 (IFC) 39 36, 37 43

The Guarantee Company of North America

15

Guy Carpenter

27

Insurance Institute of Canada

17, 47

Insurance Internet Directory

50

inswire.ca

13

Ontario Mutuals

57

Paul Davis Systems

19

Plant Hope Adjusters Ltd.

35

RIMS Canada Conference - Saskatoon

45

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

67 (IBC) 31

The Sovereign General Insurance Company

23

The Toa Reinsurance Company of America

33

Transatlantic Reinsurance Company

29

54 Canadian Underwriter July 2012

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APPOINTMENT

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

The 1st Annual League of Ordinary Gentlemen Ice/Ball Hockey Tournament saw an excellent turnout on Apr. 12. Event organizer Troy Bourassa said the first instalment of the hockey tournament was exactly what he envisioned, including fun, camaraderie and competitive play. The event was held at Twin Rinks at the River Cree, in Enoch, Alberta. Approximately $11,000 was raised for Project Bolivia, a program that helps Bolivian street kids. The program works through Street Kids International, in partnership with The League of Ordinary Gentlemen (www.theleague ofordinarygentlemen.org).

Elliot Ford Steve Wilson, Senior Publisher, Canadian Underwriter magazine – Insurance Media Group, is pleased to announce the appointment of Elliot Ford to the position of Account Manager within the Canadian Underwriter magazine group of products. Elliot replaces Christine Giovis while she is away on maternity leave.

Elliot joins Canadian Underwriter from his previous position at Tridel an industry leader in condominium development. As a Home Orientation Specialist, a position which he had held since 2010, Elliot conducted predelivery inspections within the Tarion Construction Performance Guidelines, coordinated restoration functions of affected properties in accordance with the Ontario New Home Warranties Plan Act and maintained a superior level of customer service.

Elliot attained an undergraduate degree from the University of Waterloo which focused on Legal Studies & Business with a certificate in the French Language.

Since 1934 Canadian Underwriter magazine, Canada’s leading insurance and risk journal has provided insurance professionals with an award-winning package of articles, features, news and events. The Canadian Underwriter group of insurance industry media products has grown and developed to cover a wide range of information vehicles, both in print and online. Canadian Underwriter’s Insurance Media Group is committed to providing the most timely and relevant news, information and resources to insurance professionals from all segments of the property and casualty insurance market.

INSURANCE MEDIA GROUP www.insurancemediagroup.com July 2012 Canadian Underwriter 55

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The Insurance Brokers of Toronto Region (IBTR) held its annual Friendship Night at Le Parc in Thornhill, Ontario on May 3. The new venue hosted the annual mix-and-mingle for brokers, CSRs, TSRs, producers, support staff, insurers, underwriters, claims adjusters and a spectrum of industry vendors and suppliers.

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GALLERY

CSN Collision & Glass hosted its third annual Date Night on May 23 with food, cocktails and a private screening of the new release, What to Expect When Expecting.

The CSN Team and its members invited insurance adjusters and industry partners to join them for a night out.

The festivities began in Jack Astor’s at Square One in Mississauga, Ontario, where everyone enjoyed an after-work cocktail and nibbled on great food. The evening then continued at the Mississauga Coliseum, where the movie was on the big screen for the private audience of 140.

58 Canadian Underwriter July 2012

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The 12th annual Ontario Pond Blue Goose Scotch Nosing took place on May 31, 2012 at the Ritz Carlton in Toronto. More than 180 Ganders and guests attended raising funds for WICC (Women in Insurance Cancer Crusade) and Starlight Children’s Foundation.

This year saw the return of Ed Patrick, president and founder of the International Order of the Companions. Patrick led tastings from Dalmore, The Balvenie, Macallan and the very rare Aberlour Abunadh.

July 2012 Canadian Underwriter 59

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More than 100 young brokers attended the 8th Annual IBAO Young Brokers Council (YBC) Conference held June 6-8 in Niagara Falls, Ontario. YBC Exhibitor Casino Night on June 7 provided an evening of games, fun and networking. YBC attendees played at various company and vendor exhibitor-hosted gaming tables. This year's annual YBC Conference was the largest yet.

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Burns & Wilcox Canada held a client and partner appreciation event on June 1 with a baseball game as the entertainment. Guests enjoyed an evening in a private box watching the Boston Red Sox versus the Blue Jays in Toronto.

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The GTA Fellows and their guests gathered for the CIP Society’s annual Fellows’ Golf Tournament on June 11, 2012 at ClubLink’s Wyndance Golf Club in Uxbridge, Ontario. Everyone had a fabulous time on a beautiful day. A $3,450 donation to the John E. Lowes Education Fund capped off a wonderful evening of cocktails, dinner and prizes.

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The first combined McCague Borlack LLP/Canadian Litigation Counsel (CLC) Golf Tournament took place at the Bond Head Golf Club in Bond Head, Ontario on June 13. Clients, friends and staff enjoyed an early-morning shotgun start at both the south and challenging north courses, followed by prize giveaways and lunch. A raffle at the event raised $2,700 for DAREarts — a charity devoted to providing access to the arts to empower at-risk children.

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The Ontario Risk and Insurance Management Society (ORIMS) held its annual golf tournament on June 19 at Deer Creek Golf Club in Ajax, Ontario.

Two hundred and eighty golfers attended the event, which included a raffle that raised $3,640 in support of the Junior Achievement Risk Management Student Day Seminar.

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CARSTAR Collision & Glass Centres across North America raised $101,340.01 for Cystic Fibrosis Canada and local fundraising groups in the ninth annual Soaps It Up National Car Wash Fundraiser on June 9. CARSTAR thus reached its $2-million milestone in funds raised for Cystic Fibrosis Canada. There were more than 70 events throughout Canada and more than 40 events in the United States, where funds are raised for the Make-A-Wish foundation.

CARSTAR has supported Cystic Fibrosis Canada since learning that a granddaughter of a franchise partner had been

66 Canadian Underwriter July 2012

diagnosed with cystic fibrosis (CF). The story of Victoria Whitaker, who lives in her home in Smithville, Ontario, inspired the Soaps It Up campaign. “We would also like to thank all of the CARSTAR employees and volunteers that share in the achievement of this goal,” said Sam Mercanti, president and CEO of CARSTAR Automotive Canada. “This isn’t the work of just a few individuals: hundreds of CARSTAR employees and local volunteers over the years have dedicated their time to support this milestone event, and we truly appreciate their support.”

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Designed with the most esteemed client in mind, RSA’s Private Client Insurance makes every effort to provide your clients with the brilliant service, expert advice and superior coverage to suit their complex needs, all while ensuring their most treasured items – and the moments they create – are well protected.

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©2012. RSA is a registered trade name of Royal & Sun Alliance Insurance Company of Canada. “RSA” and the RSA logo are trademarks used under license from RSA Insurance Group plc.

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