Canadian Underwriter November 2008

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

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NOVEMBER 2008 A Business Information Group Publication PM #40062940

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Crash Course in Investment REINSURANCE 2009 OUTLOOK

Choppy Waters, Part XIII

BY J. BRIAN REEVE

Insurance to Value (ITV) Uproar

BY CRAIG HARRIS

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VOL. 75, NO.11, NOVEMBER 2008

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OPINIONS

FEATURES

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Part XIII 101

Top 8 Wrongs

OSFI has introduced a four-part test for determining the location of where the business of insuring occurs, but confusion about its application abounds.

From the perspective of an outsider, there are at least eight things the industry is doing wrong when it tries to improve its relationships with policyholders.

BY J. BRIAN REEVE

BY CHRIS MACKECHNIE

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CANADA’S INSURANCE AND RISK MAGAZINE. PUBLISHED BY BUSINESS INFORMATION GROUP

www.canadianunderwriter.ca

COVER STORY:

2009 Reinsurance Forecast Global insecurity about investments, a consequence of the U.S. market meltdown, ranked among the top of Canadian reinsurers’ concerns looking forward into 2009. Not surprisingly, many are also keeping a watchful eye on how the current economic environment will affect the long tail of auto insurance claims.

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18 Reinsurance at the Crossroads

56 CSIOnet Upgrade

OSFI’s changes to the Insurance Companies Act may significantly alter competition within the Canadian reinsurance marketplace.

The Centre for Studies in Insurance Operations (CSIO) is calling on brokers to update their IP addresses on Nov. 21, because CSIOnet is getting a facelift.

BY TOBY STUBBS

BY DAVID GAMBRILL

30 NICC Coverage

58 A.M. Best Conference

The prevailing metaphor used to describe the Canadian insurance industry at the National Insurance Conference of Canada was one of a sputtering car with all of its cylinders misfiring.

Canada’s property and casualty insurers are well-positioned financially to navigate stormy seas, a byproduct of the current volatility of global credit markets.

BY VANESSA MARIGA

BY DAVID GAMBRILL AND VANESSA MARIGA

50 RIMS Coverage Value Subtracted

Duty to Defend

The insurance-to-value debate has insurers, brokers, vendors and reinsurers all clamoring for a solution, although consensus on how to resolve the issue appears distant at best.

If an insurer opts not to defend a case, a court still might require it to indemnify after a trial, in which case the insurer has lost any power or ability to control the outcome.

BY CRAIG HARRIS

BY GARY ZIMMERMANN

The U.S. market meltdown served to highlight the importance of having risk managers around the company boardroom table, a point risk managers should make to their managing executives.

BY VANESSA MARIGA

November 2008 Canadian Underwriter

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VOL. 75, NO. 11, NOVEMBER 2008

PROFILE

10 Stroke of Luck Brian Wilcox’s 30-year journey to becoming president of the Toronto Insurance Conference (TIC) evolved from his early desire as a university student to play on the pro golf tour.

BY DAVID GAMBRILL

SPECIAL FOCUS

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Editorial

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Marketplace

64 Moves & Views 66 Gallery

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

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

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

Art Director Gerald Heydens

Associate Editor Vanessa Mariga vanessa@canadianunderwriter.ca (416) 510-6793 Account Manager Mike Wells mike@canadianunderwriter.ca (416) 510-5122 Advertising Sales Christine Giovis christine@canadianunderwriter.ca (416) 510-5114

Art Consultation Pylon.ca Production Manager Gary White (416) 510-6760 Print Production Manager Phyllis Wright President Bruce Creighton Vice President Alex Papanou

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EDITORIAL

Licensed Insurance, Part XIII

OSFI needs to be much clearer than it has been thus far in the description of its purpose, how changes to Part XIII of the Insurance Companies Act will achieve that purpose and how the changes will affect the industry.

David Gambrill, Editor david@canadianunderwriter.ca

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Canadian Underwriter November 2008

A standing-room-only crowd attended the “Changes to Part XIII of the Insurance Companies Act” seminar on Oct. 2 at the National Insurance Conference of Canada in Ottawa.

Standing-room-only crowds at insurance conferences are rare; when they occur, it’s usually because there is some kind of industry-wide confusion that requires clarification.

In this instance, a vast majority of (re)insurers attending the seminar were hoping to gain some insight into how Canada’s solvency regulator intended to enact its proposed changes to Part XIII of the Insurance Companies Act. The fact that they didn’t know already suggests there has been a serious failure of communication between the Ontario Superintendent of Financial Institutions (OSFI) and the insurance industry it oversees.

OSFI’s stated purpose for the amendments was to bring Part XIII of the Insurance Companies Act in line with Canada’s Wind-up and Restructuring Act. Essentially, OSFI’s concern is about reserving, although a layman currently doesn’t stand a chance of knowing how this might ultimately affect him or her — and alas, (re)insurers aren’t having much luck figuring out how it will affect them either.

As near as anyone can tell,

OSFI is attempting to answer the question: What happens if the Canadian branch of an international (re)insurer were to fail? If international policyholders were able to bring claims against the reinsurer’s insolvent Canadian branch, would this dilute the pool of money reserved to reimburse Canadian policyholders?

To fix this, if this is indeed the right way to express the problem (whatever the problem is), OSFI is proposing to figure out where the business of insuring is being done, so that (re)insurers and regulators will know for which policyholders they have to reserve.

This is very a much a case of the regulator having a solution that was in search of a problem.

Alas, something weird happened between the plan and the execution. For one thing, this was very a much a case of the regulator having a solution that was in search of a problem. It remains unclear just what exactly OSFI wants to resolve. Is this a real problem, based on a real event, or is the concern merely theoretical?

Also, based on the confusion within the industry that now surrounds OSFI’s amendments to Part XIII (a confusion that has caused OSFI to delay im-

plementation until 2010), OSFI clearly hasn’t done a very good job of articulating to the industry — much less the public — how its proposed changes will fix whatever the problem is (if there in fact is one).

Instead, OSFI has now developed a multiple-part test to determine where the business of insuring is done. Each part of the test seems very arbitrary and uncertain in its application — to the point where the regulator has actually suggested to (re)insurers that they seek a legal opinion as to whether their business models would be considered

by OSFI to be selling licensed or unlicensed insurance.

If OSFI’s test for determining whether an insurer is licensed or not is so complicated in its application that companies need to seek a legal opinion to figure out, then chances are it’s not the right kind of test to be applied. OSFI’s proposed four-part test should be much more straightforward not only in its design, but in its application.

At this point, OSFI would be well-advised to go back to the drawing board on this one.

OSFI needs to be much clearer than it has been thus far in the description of its purpose (i.e. to protect the public), the way in which the amendments to Part XIII will achieve that purpose and how these changes will affect the industry.

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MARKETPLACE

Canadian Market ONTARIO AUTO INSURANCE RATES ON THE RISE A significant portion of the Ontario private auto insurance market went to the regulator to ask for rate increases in 2008 Q3.

“In the third quarter of 2008, for the 77.97% of the market that had rate changes approved, the average rate change was +1.12%, when weighted by market share,” the Financial Services Commission of Ontario (FSCO) said in a statement.

The province’s auto insurance rates have been on the rise since 2004.

“The rate changes approved in 2004, 2005, 2006 and 2007 were -10.60%, -2.43%, -1.27% and +0.55%, respectively, for the entire market,” FSCO notes.

DUTCH GOVERNMENT BOLSTERS ING’S CAPITAL POSITION The Dutch government bolstered ING’s capital position in October 2008, when it approved a EUR10-billion (Cdn$15.9-billion) injection into the parent company.

ING will issue non-voting, core Tier-1 securities to the Dutch state for a total consideration of EUR10 billion, according to ING. The state will rank exactly the same as common shareholders.

ING Bank’s core Tier-1 capi-

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Canadian Underwriter November 2008

tal ratio will be brought to around 8% due to the transaction. Bank holding companies are generally expected to have a Tier 1 capital ratio of at least 6%.

The move is also expected to strengthen the insurance balance sheet and reduce the group’s debt/equity ratio to around 10%.

DIRECT WRITERS SCORE WELL IN CANADIAN CUSTOMER SATISFACTION SURVEY State Farm scored highest in customer satisfaction among private full-coverage automotive service providers that were ranked in an inaugural customer satisfaction survey conducted by J.D. Power and Associates.

Runners-up for customer service in private auto insurance included belairdirect and Johnson Insurance.

J.D. Power and Associates’ 2008 Canadian Home and Auto Insurance Customer Satisfaction Study measured auto and home insurance policyholder experiences with their primary insurers based on five different categories: customer service; price/premium; policy offerings; billing/payment; and claims.

In auto insurance, State Farm scored a 757 on a 1,000-point scale, scoring particularly well in the categories of customer service and billing/payment.

Among home insurance providers, BCAA (812) ranked highest in the customer satisfaction survey, based on its

scores in the customer service, price/premium, policy offerings and billing/payment categories.

SSQ General (787) and belairdirect (777) followed BCAA in the home insurance rankings.

The study is based on responses from 8,965 auto insurance policyholders and 5,687 home insurance policyholders. It was fielded through a nationally representative online survey conducted in August 2008.

ONTARIO INTRODUCES BILL TO BAN CELL PHONE USE WHILE DRIVING A private member’s bill proposing a ban on the use of cellular devices and other handheld equipment while driving on a highway received second reading in Ontario’s Legislative Assembly on Oct. 28.

Bill 40 would amend the Highway Traffic Act to prohibit the use of a cellular phone, car phone, pager, personal data assistant, portable computer, fax machine or other equipment prescribed under the Act while a person is driving a motor vehicle.

The proposed bill includes exceptions for cases like emergencies, as well as situations in which an experienced driver uses the equipment entirely through a handsfree feature.

The Insurance Bureau of Canada (IBC) applauded the introduction of the bill, noting that distraction is a factor in as many as eight out of every 10 collisions.

Regulation SOME PROVINCES WOULD HAVE TO CHANGE LAW TO ENACT OSFI’S PART XIII AMENDMENTS: CCIR Legislative changes may be required in some provinces to harmonize provincial insurance regulations with amendments to Part XIII of the federal Insurance Companies Act (ICA), the Canadian Council of Insurance Regulators (CCIR) noted in an online update of its activities.The CCIR discussed the potential effects of Part XIII changes during its annual fall meeting in September 2008.

“The work to date of the RRC [Reinsurance Research Council] has confirmed that the insurance legislation in many provinces defines insurance in the province on a basis that is not compatible with the new federal definition,” the CCIR notes in its fall meeting highlights.

“Therefore, legislation changes may be required in some jurisdictions.”

Amendments to Part XIII of the ICA are now slated to come into force Jan. 1, 2010.

Claims THINKING LIKE A JUDGE Insurers and brokers should think more like a judge when they read or draft insurance policy contracts, because judges will ultimately determine whether or not policy coverage exists in a claim sit-

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MARKETPLACE

uation, a litigator told brokers attending an education session at the 88th annual convention of the Insurance Brokers Association of Ontario.

Tom Donnelly, a founding partner of Thomas Gold Pettingill LLP, an insurance law firm in Toronto, made his remarks as part of his speech entitled ‘Insurance Coverage Update: Think like a Judge.’

“How many times have you had a claim where the insurance company said: ‘That claim is not covered. The policy never intended to cover that type of risk?’” Donnelly asked rhetorically.

“The key thing in the insurers’ mind is: ‘We drafted this policy. We know what’s supposed to be covered.’ The easiest thing to say is, they’re half-right.”

The part where insurers are wrong, Donnelly said, is that it’s not just their interpretation that matters. “The court is also going to look at what the policyholders’ intent was.”

Reinsurance CASCADIA EARTHQUAKE DAMAGE MIGHT BE LOWER THAN INITIALLY ASSUMED Updated earthquake research by the United States Geological Survey is reporting that expected damage to buildings as a result of a Pacific Northwest earthquake in the Cascadia Subduction Region (which also affects B.C.) could be lower than initially assumed. The research includes the use of “Next-Generation Attenuation (NGA) Equations,” which pre-

dict how ground motion decays with increasing distance from an earthquake’s epicenter. Based on its use of NGA equations, the latest earthquake research shows a changing modelled hazard of between -15% and +5% in the Pacific Northwest region of

the United States.

“Based on the shape of a building damage function for earthquakes, the amount of damage a building incurs rapidly decreases as the ground motion decreases (all other components remaining unchanged),” the re-

port notes. “Therefore, a 20% increase in hazard can equal a 30-50% decrease in expected damage.”

These observations could have a bearing on earthquake modelling done by AIR, EQECAT and RMS, Willis notes.

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PROFILE

A Stroke of Good Fortune David Gambrill Editor

Brian Wilcox, the incoming president of the Toronto Insurance Conference (TIC), got waylaid on his initial career path to the golf tour.

Before starting his 30-year career in the insurance industry, Brian Wilcox, the incoming president of the Toronto Insurance Conference (TIC), had already played through one round of Life’s Grand Tour.

It started with a golf tour: Wilcox left Canada in the early 1960s to go to school in the United States, at the New Mexico State University in Las Cruces, New Mexico, on a golf scholarship. “I fully intended to play golf as a means of living, but I got waylaid at school and decided studying was a better idea,” Wilcox says. He notes that getting paid every two weeks seemed like a better bet than basing one’s earnings on the unpredictable speed and lie of the golf greens. “In those days, we’re talking back in the early ’60s now, we didn’t make money on the tour [in the same way elite, professional golfers do now].

10 Canadian Underwriter November 2008

“I can actually thank my accounting professor who was the head of the accounting department for changing my life around.”

Wilcox graduated with his B.A. in Accounting. He said the night after his graduation, he got married and he and his wife moved to Toronto. The Canadian insurance industry can thank the U.S. government for Wilcox’s re-location to Canada. It was 1967 and the American government had started drafting recruits to fight in the Vietnam War. “I had already received [a draft notice] from the [U.S.] government, advising me that my visa was up July 1 and if I decided to stay in the United States, I was to report,” Wilcox said, noting that he was Canadian and his wife was American.

“We left and came to Canada.”

The next leg of the tour was accounting, Wilcox decided. In Canada, he interviewed with an accounting firm that insisted he do some more schooling, despite his good transcript and four university years in the United States. Instead, Wilcox walked out of the meeting and called up a manager at Mercer’s, where he had been working in the accounting department cranking out pension evaluations.

“We had lunch and I started

working that afternoon at Mercer’s,” Wilcox recalls. “My career started in 1967 in the benefits [department].”

He shuffled around in different portfolios; a year and a half later, he came to rest at Marsh Mac International, part of the Mercer chain, and spent about three months travelling back and forth from New York.

“They were training me and then…all of us were moved to Peru, to Lima,” Wilcox said.

For young people coming along, [the chance to know about so many different kinds of businesses is] one of the reasons they can get hooked on this, at least on the commercial side.

“We had to work with one of their companies down there, a correspondent company, just to do a specific thing relative to a worker’s compensation situation that has existed in Peru. They saw the opportunity to make a killing and that’s exactly what happened. I only lasted a year.”

That’s because his first-born son was on the way. And so

Wilcox and his wife returned to Canada once again and had that big discussion of where they should stay. After the decision was made to raise the family in Canada, Wilcox began doing some consulting work in 1976 at what is now known as Aon. He started in the general insurance side. But after the passing of his father, he shuffled responsibilities yet again.

“Dad was a former risk manager for Maple Leaf Mills. He had a heart attack and ... although I was in general insurance, it was deemed that I was the most likely person to come in and do it because I knew everybody I needed to know at Maple Leaf.”

Since joining the world of insurance, Wilcox has never been disappointed.

“Probably the thing that kept me in the business was that I was given the opportunity with the account base that I had, during the core of my career with Aon, that I found to be so interesting,” Wilcox said. “The opportunity to travel was one [interesting facet about the insurance side]; to meet people worldwide was another; and the most satisfying thing is to see how these industries actually work.

“For young people coming along, it’s one of the reasons they can get hooked on this, at

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least on the commercial side.

There’s a wealth of information available. [Insurance and risk management is interesting] if you want to learn how to make bread, how uranium actually becomes uranium — all the rest of this good stuff. It’s fascinating to me and I think it would be fascinating to other people also.”

Not only wanting to learn, but reform, Wilcox was persuaded by a colleague to join the executive of the TIC. Wilcox was reluctant at first, not having a good feel for what the organization did outside of

its annual golf tournament (of course) and black tie event.

He joined after learning TIC was making some bolder political moves to improve the position of commercial insurance brokers generally. This entailed working more closely with the Insurance Brokers Association of Canada.

With help from IBAC’s political clout in some instances, TIC has managed to push commercial brokers’ concerns on the national agenda.

In particular, the TIC has three files open that Wilcox will be working to close.

The first, changes to Part XIII of Canada’s Insurance Corporations Act, may be the toughest of the files to resolve.

TIC members are concerned the costs required to make the changes contained in Part XIII will have to be borne by somebody, and there are fears that [re]insurers will have no choice but to pass those costs along to their policyholders.

Also, Wilcox noted, TIC members don’t agree with the government’s proposal to license business according to where the business of insurance takes place, the test of which

is currently a source of confusion in the industry.

Second, the TIC is working with IBAC and the Canada Revenue Agency to create an Export List. It is hoped the list will expedite the process for determining eligibility for excise tax exemptions on commercial insurance. To be eligible for an excise tax exemption, TIC clients must prove they were required to purchase unlicensed insurance because no licensed insurance was available. The Export List itemizes insurance coverages that are not available from insurers licensed in Canada.

The third file is thought to be the easiest file to close. TIC has created a pandemic endorsement. “What happens if something like [a pandemic happens] and everything shuts down and you’ve got all of the policies out there, both personal and commercial, renewing when there’s nobody around to renew them?” Wilcox says.

“Does it just go into a deep hole and there’s no cover there on business?

“It was [former TIC president] Brenda Rose who said: ‘Well, why don’t we have a pandemic endorsement?’”

TIC is working with the Insurance Bureau of Canada to bring about the endorsement.

November 2008 Canadian Underwriter

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Photo: Simon Cheung

PROFILE

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Navigating

Choppy Waters: J. Brian Reeve Partner, Cassels Brock & Blackwell LLP

Canada’s solvency regulator, OSFI, has introduced changes to Part XIII of the Insurance Companies Act to clarify vesting of assets, but confusion about the clarification abounds.

Changes to Part XIII of the Insurance Companies Act (ICA) are scheduled to come into effect on Jan. 1, 2010. The basic test for what is considered to be a Canadian licensed policy will be changed from the location of risk to where the activity of insuring occurred (based on a number of factors mostly related to the interaction between the insurer and the insured). Most foreign insurers and reinsurers are now aware that the Part XIII changes are coming and they might have significant effect on their operations in Canada.

The Part XIII changes were intended to resolve a relatively simple issue.The Office of the Superintendent of Financial Institutions (OSFI) was

12 Canadian Underwriter November 2008

concerned that the concept of a “policy in Canada” in the ICA was different than the concept of “insurance business in Canada” in the Winding-Up and Restructuring Act (WURA), thus resulting in misalignment between the two pieces of legislation.The concern was that the misalignment might result in problems in the event of an insolvency of a foreign insurer or reinsurer. Pursuant to the ICA, the vesting of assets was being made by foreign insurers and reinsurers for most risks located in Canada. However, if an insolvency occurred, foreign policyholders could also make a claim under the WURA for part of the vested assets under OSFI’s control to the extent that they had been insured in Canada as part of the insurance activities in Canada of the foreign insurer or reinsurer. Under such circumstances, there might not be sufficient vested assets for all of the liabilities to Canadian policyholders to be satisfied.

The Part XIII changes were, among other things, made to clarify the vesting regime in the ICA and align it with the winding-up regime in the WURA. The Part XIII changes were intended to ensure that there would be vesting of assets

Illustration: Rachel Anne Lindsay

Part XIII

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for risks located outside of Canada but insured in Canada and to move to a uniform “location of business regime.”

OSFI attempted to provide clarity on how the Part XIII changes will be implemented by issuing an advisory on the Insurance in Canada of Risks in September 2007.The approach OSFI takes in the advisory is based on the common law test for carrying on business and for the formation of contracts. It reflects a number of traditional tests that have been used (particularly by Canada Revenue Agency) to determine whether a foreign company is carrying on business in Canada.These tests include criteria such as the location of the subject matter of the contract, where the offer and acceptance of the contract occurs and whether the foreign company maintains a permanent establishment (usually an office) in Canada.

Part of the uncertainty with respect to the Part XIII changes has occurred as a result of certain ambiguities in the advisory.

Much of the uncertainty with respect to the Part XIII changes comes as a result of how the four criteria included in Section 2 of the advisory should be applied to the business models of Canadian branches of foreign insurers and reinsurers. Many foreign insurers and reinsurers are operating in Canada through local branches, each of which has a slightly different business model.

PART XIII ISSUES A number of different issues have been identified with respect to the implementation of Part XIII. These issues include the following:

Interpretation of the advisory Part of the uncertainty with respect to the Part XIII changes has occurred as a result of certain ambiguities in the advisory.

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At the National Insurance Conference of Canada in Ottawa-Gatineau in early October, Philipe Sarrazin, the director of legislation and policy initiatives at OSFI, made a number of useful comments about the implementation of Part XIII. Sarrazin advised it is generally only necessary for two of the four criteria listed

in Section 2 of the advisory to be met in order for a policy to be considered to be the insurance in Canada of a risk. It is still uncertain which of the criteria in that section should be given greater importance. OSFI has indicated one of the most important criteria is whether some of the negotiation or interaction with

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respect to a policy will have actually occurred in Canada. However, it is still uncertain which of the other criteria would also be considered to have significant importance. It appears that the flexibility of the criteria listed in the Advisory — criteria that were intended to reflect the fact that foreign insurers and reinsurers operate in Canada using many different business models — has resulted in some of the uncertainty about how the Part XIII changes will be implemented.

Audit issues It might be difficult for foreign insurers and reinsurers to be able to obtain sufficient information in order to provide an audit confirmation.This audit confirmation would support a decision either to include or exclude a policy for the purpose of OSFI reporting.

No grandfathering The lack of any grandfathering for risks written prior to the implementation of the Part XIII changes is a major issue. It will likely be relatively easy for a majority of foreign companies to determine whether risks written after Jan. 1, 2010 should be reported to OSFI. However, there may be significant difficulties in making an appropriate determination for policies written prior to that date, due to a lack of information being available.

Release of vested assets Most cedents would assume that if they are reinsured by a reinsurer with a licensed Canadian branch, they would have licensed reinsurance. But if the reinsurance was underwritten and negotiated entirely outside of Canada, it would be required to be excluded under the Part XIII changes. The result is that the foreign reinsurer might be able to obtain a release of its vested assets and the Canadian cedent would lose its security.

Under such circumstances, it would be necessary for alternative security — such as an unlicensed reinsurer trust account — to be arranged. OSFI will soon

14 Canadian Underwriter November 2008

For example, it is possible that a foreign insurer might not meet a sufficient number of criteria under the Advisory to be considered to be “insuring in Canada of a risk.” But the provincial definition of “carrying on business” is broader and would partially cover activities not included under the Advisory, such as delivering a policy into Canada.

Based on the Part XIII changes, it might be necessary for policyholders to ask a number of questions in order to determine the licensing status of a company. notify cedents of this fact — a year in advance of the coming into force of the provisions.

Multiple jurisdiction reporting One possible result of the Part XIII changes is that policies might have to be reported in more than one jurisdiction.

For example, it will be necessary for a foreign insurer that insures a U.S. risk from its Canadian branch to report the business to OSFI. However, the reporting rules in the United States — if they are based on the location of the risk — might also require the business to be reported.

Lack of harmonization There is a lack of harmonization between the definition of “carrying on business” in provincial insurance legislation and the “insuring in Canada of a risk” as provided in the Advisory.

Tax issues There are numerous tax issues with respect to implementation of the Part XIII changes. Provincial premium tax is assessed based upon the location of the risk; not where the underwriting occurs.

As a result, foreign insurers and reinsurers would be required to keep two sets of books in order to do both regulatory and tax reporting.

The provinces have traditionally relied on OSFI reporting as the basis for determining premium tax obligations. The Part XIII changes might make it more difficult for the provinces to be able to track premium tax obligations.

Systems changes There will likely need to be systems changes made by many companies in order to be able to comply with the Part XIII changes. System changes can take long periods of time to be implemented; it will therefore be important to determine as soon as possible what changes are actually required to be made.

APPROACHES TO OBTAINING CERTAINTY It will be important to achieve certainty about whether a policy or reinsurance agreement is actually licensed. Previously it was simple to confirm a company’s licensing status by reviewing the OSFI Web site. Now, however, based on the Part XIII changes, it might be necessary for policyholders to ask a number of questions in order to determine the licensing status of a company. This type of approach is awkward and would not be practical under most circumstances.

Many foreign insurers and reinsurers

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are uncertain whether their business models will comply with the criteria in the Advisory. The following available alternatives might help to obtain some level of certainty:

Participating in the IBC process In an attempt to obtain more certainty with respect to how the advisory should be applied, the Insurance Bureau of Canada (IBC) has provided OSFI with some sample business models and asked OSFI to comment on them. IBC’s approach has been on a no-names basis and may not be binding on OSFI. In particular, some questions being asked are general in nature and may not be sufficiently specific to provide certainty with respect to the particular business model of a specific company.

Obtaining a ruling from OSFI Sarrazin has confirmed it is possible for a foreign insurer or reinsurer to obtain a ruling or interpretation from OSFI with respect to its business model. However, it is likely OSFI will only be able to process a relatively small number of rulings during the period leading up to Jan. 1, 2010 and could easily become backlogged with requests.

Obtaining a legal opinion Sarrazin has encouraged foreign insurers and reinsurers to obtain a legal opinion with respect to their business models. A legal opinion will provide some level of certainty to a foreign insurer or reinsurer, as well as a good faith defence in the event that OSFI challenges the status of the business model of the company.

However, a legal opinion will always be limited in its usefulness since OSFI will retain discretion as a regulator to provide its own interpretation of the applicable facts.

Court application It is possible an application could be made to the courts to obtain their interpretation or a declaration with respect to how Part XIII would apply to a particular business model. Court applications

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would be expensive and time-consuming. In addition, they still might not provide total certainty, since the courts would likely want to provide deference to OSFI with respect to regulatory matters. It is likely court applications would only be used in situations in which: (1) there was a major disagreement with OSFI, or (2) a bankruptcy had occurred.

“Much of the uncertainty… comes as a result of how the four criteria included in Section 2 of [OSFI’s] advisory [on Part XIII] should be applied to the business models of Canadian branches of foreign insurers and reinsurers.”

NEXT STEPS Sarrazin has advised that OSFI will be flexible with respect to how foreign insurers and reinsurers comply with the Part XIII changes. He has suggested that companies should adjust their business models to respond to Part XIII in order to meet their business objectives. He has used an analogy to the Income Tax Act, which permits companies to organize their affairs to reduce their tax obligations. He has confirmed it would also be possible for companies to adjust their

business models to either minimize or take advantage of the effects of the Part XIII changes.

Once the dust has settled, it is likely Part XIII changes will result in greater certainty for foreign insurers and reinsurers with respect to their Canadian licensing status and reporting obligations.

However, it is possible that a lengthy adjustment period will occur for many companies; a certain degree of uncertainty may be inevitable.

Sarrazin has announced that OSFI will release transition instructions towards the end of 2008. These instructions are intended to provide guidance to foreign insurers and reinsurers with respect to their reporting obligations under the Part XIII changes.They may also provide some additional clarification with respect to OSFI’s expectations for the reporting of business.

It is likely the vast majority of insurers and reinsurers currently operating Canadian branches will want to remain licensed in Canada and continue their business on as much as of status quo basis as possible. As a result of the Part XIII changes, it may be easier for certain foreign insurers and reinsurers to insure risks located in Canada on an unlicensed basis. However, they still might have to be licensed due to provincial insurance regulatory requirements. In addition, the clients of the unlicensed insurers will be required to pay excise tax.Also, Canadian insurers will still be subject to the limitations of the Reinsurance Regulations, which prohibit ceding more than 25% of premiums to unlicensed reinsurers.

Total certainty for many foreign insurers and reinsurers may not be possible with respect to the Part XIII changes.

OSFI will likely provide more guidance with respect to its expectations on reporting of business prior to Jan.1, 2010.

The Part XIII changes will ultimately be implemented and everyone will learn to live with the new reporting system.

However, foreign insurers and reinsurers should expect to experience at least some choppy waters before calm weather once again returns.

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Danger Ahead

Canada’s reinsurance sector is at a crossroads, because it remains unclear how OSFI proposes to determine where the business of insurance is taking place.

Toby Stubbs Property Reinsurance Underwriter, Brit Insurance PLC

The Canadian reinsurance sector stands at a crossroads: the direction it takes in the future could significantly affect the degree of competition and choice within the market. As matters stand, when the country’s amended Insurance Companies Act (ICA) comes into force on Jan. 1, 2010, a number of the market’s current reinsurance players will be required to change significantly the way they engage with the market.

In broad terms, the ICA provides for federal regulation of insurers and reinsurers, laying down various requirements relating to (among other things) licensing, reporting, record-keeping, the levels of reserves to be maintained in Canada and other measures. It also effectively defines the terms under which an entity can write registered reinsurance in Canada.

Here is where the current cause for concern lies. Under the revised legislation, the Office of the Superintendent of Financial Institutions (OSFI) is seeking to align the definition of registered reinsurance business with the definition of

18 Canadian Underwriter November 2008

“insure in Canada a risk” so that, in effect, only reinsurance business written in Canada will be regarded as registered reinsurance. The question is what commercial impact this will have on the reinsurance market in Canada.

As ever with legislative change, the devil is in the details. In this instance, the question centres on the definition of what “insuring in Canada a risk” will actually mean in practice when it’s applied to those seeking to write registered reinsurance.

Although the ICA itself does not provide guidance on how to interpret this phrase, OSFI has issued guidelines, in the form of an advisory published in September last year, designed to bring some clarity to the question. The advisory makes it clear the determining factors will not be simply confined to the location of the insured, the broker, the insured property or risk, but will take into account a large number of other subsidiary activities related to insurance and reinsurance contracts — including where the business of insurance is being conducted, where it was solicited, where the policy was negotiated and where decisions were made regarding the issuance of the policy.

“INSURING IN CANADA A RISK” However, in the final analysis, it seems clear that in situations in which underwriting, policy issuance and administration and premium collection is conducted outside Canada, reinsurance is likely to be deemed to be unregistered.

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In addition, according to the advisory, it would be insufficient simply to have some form of local office as a means to steer clear of this issue. The guidelines clearly state OSFI would generally conclude that a foreign insurer or reinsurer is insuring a risk outside of Canada in situations in which it represents to its policyholders that: “Its office in Canada will merely act as a liaison between them and another office located outside Canada…will decide on all matters related to their policies.” These provisions mean many foreign reinsurers that have conducted business in Canada efficiently and effectively for many years — to the satisfaction of cedants and regulators alike — are now facing a real conundrum.

Just as important, the potential commercial implications of the amended ICA are a real issue for the reinsurers affected; they are a real issue for the Canadian insurance market as a whole.

If reinsurers wish to retain their registered status, they must now either re-invent their business processes in such a manner that they will be able to tick a sufficient number of boxes required in order to be deemed to be “insuring in Canada a risk,” or they must put an underwriting team on the ground in Canada, with all the costs and possible risks that that entails.

CREATING SYSTEMIC RISK? In the example of an entity such as Lloyd’s, which is a market rather than one specific risk carrier, the option of how to create a local underwriting presence is far more complicated than straightforward.

Foreign insurers can go some way towards tackling the issue by moving to work through local cover-holders. But this is not a practical solution for reinsurance, which involves complex, carefully-tailored contracts that need the oversight of senior underwriters.

The hard reality is that the expertise and capital needed to underwrite reinsurance programs most effectively — and to which Canadian policyholders should have unfettered access — exists in global hubs such as London, England.

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Although it is not essential for reinsurance to be registered, the status confers considerable advantages, both real and perceived.

The real advantages relate to the processes involved, both for cedants and reinsurers, in meeting security and capital requirements.

Equally important are the perceived advantages. Due to the fact that current regulations place a limit of 25% on the proportion of a cedant’s total reinsurance cessions that can be in the form of unregistered reinsurance, there is concern that some reinsurers — however strong their security and track record — will be seen as ‘second-class’ suppliers.

Depending on how reinsurers choose to tackle the issue, there is a danger, at least in theory, of the registered reinsurance market contracting significantly.

The ICA changes, it might be argued, create the kind of systemic risk that regulators around the world are currently trying to avoid.

Given the scale of the players that already have a local presence, there is no indication that there will be an immediate shortage of reinsurance capacity.

But as any student of economics knows, diminished consumer choice rarely bodes well from a competition — and therefore pricing — standpoint.

This may not seem like a significant threat at present. But it could become a real concern when the underwriting cycle hardens on the back of further capacity reductions, either on the international stage or locally.

At such times, the ability of international reinsurers to divert underwriting capital simply and easily to highly-priced markets is a critical part of the rebalancing process that returns pricing to more normal levels. However, to work efficiently, it is important that the process does not become too complicated when compared to the other opportunities to

which that underwriting capital could be applied. In other words, barriers to entry need to be sufficiently high to ensure the right quality of capital is being offered, but need to be sufficiently low to avoid a shortage of such quality capital.

In this context, the ICA changes, it might be argued, create the kind of systemic risk that regulators around the world are currently trying to avoid as part of their objective to create sustainable industry models.

LIGHT ON THE HORIZON The answer to how these issues can be tackled is far from simple. The desire of any regulator to verify that the businesses operating within its borders are sound, as well as to ensure that policyholders are adequately protected against cross-border trading risks, is both more than understandable and laudable. But in an increasingly global trading environment, such imperatives need to be balanced against the importance of encouraging the best security and capital to engage with a particular territory — rather than diverting those resources elsewhere — and facilitating effective access for policyholders to the most expert underwriters.

If an underwriting entity is well-controlled, well-managed, understands the business and is financially strong, that should be sufficient. In the case of reinsurance, this argument is further strengthened by the status of reinsurance as a business-to-business contract between two sophisticated parties, and by the fact that rating agencies and broker security committees are commonly used across the reinsurance world to help cedants chose strong partners.

There is still some way to go before the ICA comes into force. OSFI is currently working with reinsurers to review proposed working methods in order to determine whether they meet the new requirements. As a result, it is possible further meat will be put on the bones of the ICA outline. It can only be hoped that this additional information will go some way to proving that there can be many angels, as well as devils, in the detail.

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Craig Harris Freelance Writer

Canadian homes and businesses are undervalued by about Cdn$11 billion. Insurers, brokers, vendors and reinsurers are all realizing it’s time to stop finger-pointing and fix the insurance-to-value (ITV) problem

Insurance-to-value (ITV) has resurfaced as a particularly challenging issue for brokers, insurers and building cost technology vendors. Virtually everyone acknowledges underinsurance of residential (and commercial) buildings is real and problematic, but the consensus ends there.Within a wider environment of industry-wide fingerpointing, frustration and acrimony, insurance companies are contemplating the delicate act of bringing premiums in line with updated valuations without raising the ire of consumers.

ITV IN THE FOREGROUND If the packed audience attending the ITV session at the October 2008 National Insurance Confer-

22 Canadian Underwriter November 2008

ence of Canada (NICC) is any indication, underinsured properties are a major concern for brokers, insurers and reinsurers. When the session’s moderator, Kevin McNeil, president and CEO of Gore Mutual Insurance Company, asked for a show of hands from attendees if ITV and guaranteed replacement cost (GRC) were a problem, every arm was raised. And thus concluded the only point of agreement between the session participants when it came to discussing the thorny issue of ITV… Certainly, the numbers from valuation technology providers point to systemic and persistent undervaluing of properties across Canada. MSB (Marshall & Swift/Boeckh), the company with the most widely used building cost software, estimates that about 80% of residential homes in Canada are undervalued by 27% — a figure that hasn’t changed since 1995. When you factor in commercial properties, 60% of which are underinsured by 40%, according to MSB, the result is Cdn$11 billion in lost premiums for the property and casualty insurance industry. That does not necessarily include building contents, which many argue are also woefully undervalued.

“Think about that for a moment: roughly three-

Illustration: Rachel Anne Lindsay

Value Subtracted

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quarters of our residential insurance policies are inadequate, and not by a slim margin,” noted Diane Brickner, president and CEO of Alberta-based Peace Hills Insurance Company at the NICC session on Oct. 3 in Gatineau, Quebec. “They cover only two-thirds of the insurable value of peoples’ homes.”

MSB president Peter Wells, also a NICC seminar panelist, observed the Canadian market today is where the United States market was in 1980. “It is a reality in the U.S. that, from 1980 right up until about 2003, 73% per cent of homes were undervalued by 35%. That didn’t change until every property written got a total replacement cost calculation based on a component methodology.”

Many point to the forest fires that spread across the interior of British Columbia in the summer of 2003 as a major ITV wake-up call for Canadian insurers. The fires resulted in more than Cdn$200 million in insured losses, including 240 total losses, mainly in the Kelowna area. According to the Insurance Brokers Association of British Columbia (IBABC), real reconstruction data showed these properties were undervalued by an average of Cdn$100,000 per home.

“Five years after the forest fires, I ask: ‘Where are we? Where do we stand?’”

Christian Bieri, managing director of products at Swiss Re Canada, said at the session. “We still have a long way to go.

There is still significant underinsurance in the market.”

“This is a business model that is quite simply unsustainable,” Brickner said. “It results in a world where there is no accountability, and where there are no real consequences for being underinsured.”

The underinsured part of the equation has been recognized for at least the past five years; the main software providers (MSB, PowerSoft and e2value), brokers and insurers have scrambled to update values to reflect the risks. In particular,

INCREASING COSTS

several building cost calculator firms have moved to component-based valuation or total component estimating.This method eschews previous factors such as square footage or class-rating of properties; instead, it assigns a value to each component in a home — rooms, flooring, fixtures and so on.

Despite this new method of valuation, however, booming housing markets and surging construction costs — not to mention a startling number of renovation projects — in key regions have surpassed even these attempts to keep pace

ITV has become a hot issue because of the discrepancy between a property’s insured value listed on the policy and the actual reconstruction cost in the event of a partial or total loss. Compounding the problem is guaranteed replacement cost (GRC), which has existed in most Canadian homeowner policies for years.

Insurance companies are underwriting and pricing property policies based on what many consider to be inaccurate valuations, while at the same time guaranteeing full replacement costs.

24 Canadian Underwriter November 2008

ITV has become a hot issue because of the discrepancy between a property’s insured value listed on the policy and the actual reconstruction cost in the event of a partial or total loss.

with property valuations. Although there are signs this boom is slowing down in provinces such as Alberta, British Columbia and Saskatchewan, some say the damage is already done when it comes to valuation accuracy.

“What has happened in the last four or five years is we have had unprecedented but regionalized growth in construction and housing costs,” said Chris Lang, president of PowerSoft. “If insurers are only taking, say, a 5% inflationary increase year by year, then, after about two or three renewals, they will find clients 15-20% underinsured in areas like Alberta and Saskatchewan.”

The actual cost of construction has increased so much and so fast, in terms of both material and labour, the insurance industry has been unable to keep up with it, says Peter Dasilva, vice president of personal lines for ING Canada’s Central and Atlantic regions. “We are in a situation where we are underinsuring a lot of these homes, or insuring them for the wrong value.”

Economic conditions over the past few years have indeed brought more focus to the issue of ITV, says RSA Canada property leader Mike Findley. “Rebuilding costs have increased dramatically, driven by increased demand for materials (therefore higher prices) and labour (much of the labour has been going West to feed the boom in the oil patch).”

Ginny Bannerman, CEO of the Insurance Brokers Association of Alberta, said she has witnessed the trend first-hand in her province. “I have seen professional appraisers go out and estimate the cost to rebuild a house and within a relatively short period of time the estimate is far out of whack,” she noted. “When you look at these increases, it is very hard for brokers to stay on top of them.”

Or valuation technology firms, it seems. MSB’s RCT EvaluRater became a lightning rod for controversy soon after the company announced changes in the spring to its cost calculator. MSB elected to “hard edit” — i.e. automatically include — specific factors that had previously been optional in cost calculations.

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These factors include architect’s fees, general contractors’ overhead and profit and debris removal, which, MSB says, are crucial for devising an accurate estimate of true reconstruction costs. The upshot of the changes, however, is that many properties faced valuation spikes of up to 40% virtually overnight, depending on the specific region.

These adjustments have caused a great deal of consternation amongst brokers, who argue that such abrupt moves result in angry consumers and market disruption. Brokers say there are major differences in valuation figures and therefore a credibility problem for technology estimating tools.They note wildly fluctuating estimates could create service issues when it comes to information-gathering and claims handling, not to mention potential errors and omission (E&O) exposures for brokers who fail to provide accurate building or content limits.

In one B.C. case, Strougal v. Coast Capital Insurance Services Ltd. (2008), a customer sued a broker for not obtaining sufficient contents insurance in the homeowner’s policy. The B.C. Supreme Court dismissed the suit, but lawyer Mike Thomas of Harper Grey LLP noted of the decision: “an insurance broker may be responsible for a customer’s loss that is not adequately insured. However, the broker will not be liable if the mistake did not effect the amount of coverage purchased.”

BEST PRACTICES The ITV issue has hit Western Canadian provinces hard, particularly British Columbia. The IBABC has formed an ITV task force to develop best practice guidelines for residential property valuation.

“So far, the vendors have taken the position that they are correct and they are standing by the numbers and what their products say,” said Ted Lewis, a past president of the IBABC and chair of the ITV task force. “Brokers and consumers, through a lot of the feedback we are getting, feel the calculated numbers are inflated. That creates a huge issue of

26 Canadian Underwriter November 2008

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If insurers only take a 5% increase year-by-year, then, after two or three renewals, clients will be 15-20% underinsured in Alberta and Saskatchewan. credibility between the consumer and the insurer.”

Lewis notes the major role of the task force is to clarify with the software providers several of the brokers’ concerns. These would include the amount of data required for a valuation, the ability to implement system-wide upgrades, the ability to apply linear progressions and rating by postal code and consistency of terminology. Lewis also identifies other key issues, including insurance company interpretation of local bylaws vis-à-vis provincial and national building codes, as well as the standardized use of the Statistics Canada residential construction price index by all insurers.

The IBABC has put together draft guidelines on ITV issues. They address the frequency of evaluation, use of most current software, establishing minimum per-square-foot values for each region, ordering third-party inspections for homes worth more than Cdn$750,000, reviewing change of broker practices

and gaining consensus on building codes.

For Lewis, though, it still comes down to a matter of credibility. “The real question is, what is the accuracy of these tools?” he observed. “The average consumer relates to square-footage values.

But with the component costing that vendors use, they say: ‘Square footage is not an accurate tool, you can’t use that.’”

Debate about ITV has spread across the country and is fast becoming a matter of national importance for brokers. Insurance Brokers Association of Ontario operations manager Paul Taylor said: “It is very important that any number presented back to a customer is credible.

When consumers could be hit with an extra 30-40% on their premiums just for getting accurate valuations on their property, it doesn’t seem like the right way to go.There could be a huge public backlash and it is always, unfortunately, the broker who takes the brunt of that.”

IBABC’s concern about the accuracy of the estimating software is based on a test it conducted in preparation for a symposium it held on the ITV subject last February. In a sample, three different brokers used tools from two different vendors to perform eight evaluations on the same house. Each of the eight evaluations resulted in a different total: the lowest estimate came in at about Cdn$584,000; two were in the high Cdn$600,000s; three provided totals in the Cdn $700,000 range; one stood at Cdn $800,000 and the highest estimate was Cdn$1.3 million. According to the IBABC, any one of these estimates would have met underwriters’ requirements.

Valuation technology providers respond by saying their systems are working, but insurers and brokers are reluctant to take a good look at the long history of underinsured property in Canada. “We have proven over and over again that it works,” said MSB’s Wells.

“The question is: Are you (brokers and insurers) really ready to hear the facts?”

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estimating on every property underwritten. They have also archived the data to account for yearly changes due to renovation projects and other developments.

In the United States, company data show the characteristics of a building, not its square footage, play a major role in determining the value of the building, Wells says. A range of other factors include alignment with the proper building code, as well as localized data

Page 28

to reflect materials, overhead and wages.

Wells said total component calculations in the United States have resulted in an improvement to date in lost premiums of US$16 billion.

“That is a lot of calculation going on, but that is what we have invested in with our technology, “ Wells noted. “It is a fundamental change and continuous evolution of the business model. What we are suggesting to the marketplace is

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improving consistently Cdn$11 billion in lost premium in Canada. We want to recover what we think is that exposure.”

KEEPING PACE PowerSoft’s Lang says his company’s EvalWorks engine has steered clear of the major valuation increases experienced

by MSB because it has consistently used postal codes to generate local factors for overhead and profit, as well as debris removal, labour and material costs.

“We have been able to keep pace with regional growth spurts,” he said. “The year-to-date numbers for construction costs in Saskatchewan for 2008 are about 20%.When we have those increases, you have to keep pace or you will be woefully underinsured, even in one year.”

Total component calculations in the United States have resulted in an improvement to date in lost premiums of US$16 billion.

The reality for insurance companies is that they are in a Catch-22 position when it comes to finding the right balance between premiums and property valuation, Lang adds. “The insurance company people we have talked to have said: ‘Yes, we know it is a problem, but we can’t take more than [a] 5% [premium increase] or we will be pricing ourselves out of the market,’” he says.

“So, do they take the reality of the 1215% ITV increase, or [do they take] the 5% inflationary increase in premium and have an underinsurance problem down the line?”

Dasilva agrees insurers will confront the issue of balance in the years ahead.

“As an industry we have to manage the rate versus the value,” he said. “We are as shocked as the brokers by how much the MSB calculator has moved. But at the same time, we understand why it has.

Now we have to figure out together with our broker partners how we move our pricing and valuations together.”

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2008 National Insurance Conference of Canada

David Gambrill Editor

Vanessa Mariga Associate Editor

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Page 30

Sputtering on All Cylinders Having enjoyed the past few years of relative prosperity, Canada’s insurance industry is finding the chickens — more claims, increased costs — are coming back home to roost.

Joel Baker, president of MSA Research, kicked off the second annual National Insurance Conference of Canada (NICC) in Ottawa-Gatineau by likening Canada’s property and casualty insurance industry to a sputtering car. It’s the sound a car makes when it isn’t firing on all cylinders, noted Baker, the host of the conference.

Certainly, deteriorating loss ratios in the auto, property and commercial lines were a conversation piece for the NICC; if that didn’t prove enough, the sputtering U.S. stock market and the announced US$85-billion bailout of the American International Group (AIG) provided additional fodder for discussion during the conference’s many sessions.

Clearly the Canadian P&C industry has “issues,”

30 Canadian Underwriter November 2008

many of which were openly debated at NICC in October 2008. Here is a sampling of what occurred.

THE FALTERING U.S. ECONOMY Bailout isn’t enough The US$700-billion bailout package the U.S. Senate passed on Oct. 1 will not solve the fiscal problems plaguing the U.S. economy, but it will help to some degree, Don Drummond,TD Bank's chief economist, told delegates attending the NICC. The question,‘Will the bailout package provide sufficient liquidity?’ was posed to Drummond during a Q&A session following his presentation.

“What's sufficient?” Drummond responded.

Although the US$700-billion proposal is not nearly sufficient to rid the United States of the nearly US$5-trillion worth of mortgage-related debt crippling the U.S. financial sector, its liquidity will nevertheless serve to “free up” some available credit in the marketplace, Drummond observed.

He further noted the U.S. bailout package does not remove the debt owed. It simply moves some

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of the debt over to the government books from the books of the financial services sector. “That’s easier for the markets to handle, but the economy still has a long way to go before recovery,” Drummond said.

Baker asked Drummond to comment on whether or not the current state of affairs south of the border will affect the United States’ AAA bond rating.

“If you look at the financial mess, then they don’t deserve to be called the financial leaders of the world,” Drummond replied. “I think that they could lose that ‘AAA’ rating, but on a narrow basis, it doesn’t do a heck of a lot.” He said it would take a downgrade down to a ‘BBB’ rating for any serious consequences to develop.

Given huge imbalances on its fiscal and trade sheets, and its dependency on foreign banks to “pick them up,” the United States “has phenomenal vulnerability right now,” Drummond said. And there are signs they still haven’t learned their lesson.

“I was thinking they’ll get a new administration that will begin to chip away at the fiscal mess, but then I look at what happened last night [when the U.S. Senate passed the bailout package] and, for completely unprovoked reasons, they added US$100 billion of tax cuts to this financial problem.”

OSFI defends stance against leverage The Office of the Superintendent of Financial Institutions (OSFI), Canada’s federal insurance solvency regulator, made no apologies at the NICC for insisting on eliminating debt from the balance sheets of Canadian property and casualty companies.

It said its strategy to reduce leverage has allowed Canadian property and casualty insurance companies to weather the current financial turmoil in the United States.

“OSFI has faced criticism in the past for our stance against financial leverage in P&C companies, and we have been criticized by those who say we artificially add to the cost of capital, but despite the criticism we stand by our decisions,” OSFI superintendent Julie Dickson told NICC delegates.

32 Canadian Underwriter November 2008

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On the basis of OSFI’s stance, Canadian property and casualty companies have the lowest operational leverage than at any time in the past 15 years, “and most likely in the last 30 years,” Dickson noted.

As a result, to date, no property and casualty insurers in Canada have been forced to take significant writedowns as a result of exposure to the financial turmoil currently gripping the United States.

“In Canada, we know that regulated P&C companies are not overly leveraged,” Dickson said, comparing the difference between the Canadian and U.S. property and casualty insurance markets right now. “Regulated P&C companies in Canada do not have debt on their balance sheet, nor are they generally selling products that require collateralization in the event of credit downgrades.

“Debt — and OSFI has been adamant about this — does not belong on the balance sheets of operating P&C companies.”

Further defending OSFI’s decisions on capital requirements, Dickson noted the regulator could not be too careful.

“We are in uncharted waters,” she observed. “The total losses that global banks and insurance companies have had over the past three or four weeks were on what until very recently were perceived to be low-risk, conservative debt instruments.”

AUTO INSURANCE LINE Establishing new ROE targets Insurers should reconsider their future return on equity (ROE) targets in light of the volatility existing in the Canadian private auto insurance markets, actuarial panelists told delegates attending the NICC. “Return on equity: this is in my view a change in the landscape, and is an area or issue in which companies should be doing some soul-searching,” Richard Gauthier, a partner at Pricewaterhouse Coopers, said. “The auto market today is not the old product of Yore. It’s no longer an area where the level of certainty is sustained over time.

“Regardless of the equity that your shareholder demands, the case can be made that the auto product requires

higher [ROE] returns and that will compensate for the volatility.”

The ROE is a calculation of a company’s net profit, divided by the company’s average shareholder equity (or net worth) over a certain period.

The moderator of the auto actuarial panel, Francois Boulanger, president and CEO of RBC General Insurance Co., noted the uncertainty around claims costs in auto potentially affects insurers’ predictions about how much of their reserve funds to release, which in turn affects their ROE and capital calculations.

Higher ROEs would amount to leaving the company with more capital to pay for escalating costs, panelists noted.

The volatility affecting auto results is a consequence of higher loss ratios and a number of legal challenges to caps designed to keep insurers’ costs down, panelists observed.

In Alberta, the Court of the Queen’s Bench this year struck down the province’s Cdn$4,000 cap on auto insurance minor injury claims. An appeal has been heard and the ruling is pending.

While the outcome of the Alberta appeal is uncertain, trial lawyers have either launched actions or threatened to launch actions against minor injury caps in the Atlantic provinces.

In the meantime, Ontario lawyers have indicated they would be prepared to challenge the province’s verbal threshold for determining serious injuries, as well as the Cdn$30,000 deductible applied in Ontario to accident benefit claim awards of less than Cdn$100,000.

Ron Miller, principal of Baron Insurance Services, said if the caps in Alberta and the Atlantic provinces were to be permanently removed, insurers in Alberta will pay additional damage losses of up to Cdn$160 per car and Nova Scotia insurers could expect to see their losses climb by Cdn$250 per car.

In the Ontario market, the largest private auto insurance market in the country, if the verbal threshold defining a serious impairment and the Cdn $30,000 deductible were to be permanently eliminated, Miller said, additional claims costs to insurers would amount to Cdn$375 per car.

Align your capital in a decisive and profitable formation.

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The Alberta cap appeal Minor auto injury claimants suffering from temporary disabilities do not have the same “immutable” characteristics required to receive constitutional protection against discrimination, insurers’ counsel have argued on appeal in Alberta.

Alan D’Silva, a partner at Stikeman Elliott LLP, presented to the NICC the arguments the insurance industry has already made before the Alberta Court of Appeal.

The insurance industry is watching carefully the province’s appeal of an Alberta Court of the Queen’s Bench decision issued earlier this year. The court found the province’s Cdn$4,000 cap on minor auto injury claims was unconstitutional because it discriminated against whiplash victims.

The court found whiplash victims were labelled as “malingerers” who were faking the extent of their injuries for insurance purposes.

But “the claimants we are talking about seem to be people who have temporary disabilities,” D’Silva observed. “By definition, they don’t seem to fit into the category that Sections 15 [of the Charter] was intended to protect: people with immutable personal characteristics such as age, sex, ethnic background — things you can’t change.

“This group of people seems to be people who are either going to get better, in which case they are back to work, etc., or they could get worse, in which case they meet the test of a serious impairment and the cap wouldn’t apply.”

D’Silva cited a Supreme Court of Canada authority in which Canada’s highest court said characteristics engaging Charter protection had to be “immutable” in nature.

PROPERTY LINES Insurance-to-Value (ITV)s About 80% of Canadian houses today are undervalued by 27%, which hasn’t changed since 1995, according to Peter Wells, president of Marshall & Swift /Boeckh (M&S/B), a provider of building cost technologies.

In addition, 60% of commercial build-

34 Canadian Underwriter November 2008

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ings are undervalued by 40%.

In total, that would amount to Cdn$11 billion in lost premium for (re)insurers, based on the discrepancies between the reconstruction values of buildings and the premium collected to rebuild them (otherwise known as the insuranceto-value or ITV issue).

It’s a hot topic among insurers, brokers and insurance calculator providers, each of which blames each other for the problem.

(Re)insurers, in the meantime, are warning primary insurers that they might be in for a big surprise if they are suddenly required to insure the reconstruction of a large number of homes or businesses following any large-scale natural disaster in Canada on the order of the flood in New Orleans.

Diane Brickner, the president and CEO of Peace Hills Insurance Company, told delegates attending an NICC seminar on ITV that she blamed the insurance to value problem on three main factors: • the inadequacy of cost calculators; • brokers are not using cost calculators correctly; and • insurers are not capping guaranteed replacement cost (GRC) policies, thereby failing to limit the amount by which policyholders may be underinsured.

These and similar comments stoked the anger of many brokers attending the insurance-to-value seminar.

“Brokers are absolutely committed to fixing the ITV issue,” said Insurance Brokers Association of B.C. CEO Chuck Byrne. “We think we have the right leadership to do it.

“GRC is not the cause, it’s the symptom. What we have to change is ITV. “We’ve got to make sure that brokers do not use ITV competitively; that they do train and use the tools properly.

“We’ve got to make sure that the tools are adequate. They’ve been woefully inadequate for a long time. And insurers must be a lot more consistent and disciplined in their approach to ITV.” Wells noted insurance calculators in the United States have historically used square-footage models to determine the true value to rebuild homes. That has

changed, and those changes have recently come to Canada, Wells noted.

M&S/B now uses a “total component underwriting” method for determining the cost of homes, which includes many more variables in its calculations.

But when brokers were using the cost calculator, some were turning off one or more of the variables, leading M&S/B to make changes that would make it impossible to turn any one of the variables off, Wells said.

Doing this significantly changed the calculators’ final results.

COMMERCIAL LINES Iron-clad broker-insurer contracts In order to achieve market stability, insurers and brokers should consider non-cancellable broker-partner contracts, Paul Martin, president and chief operating officer of KRG Insurance Group, told NICC delegates.

“In other words, if you’re going to write it today, I want you to write it tomorrow,” he said. “This will breed stability for consumers and raise the trust factor.”

Insurers should also guarantee price stability and availability in order to promote consumer financial stability and confidence, he added.

Martin spoke as a member of panel discussing the outlook for the commercial market.

Martin called on the industry to create non-cancellable broker contracts. “This does not mean that a company would not have the right to select the right distributor,” he said. “What it means is, I’m not sure anyone really understands the hardship that the client goes through when an insurance company and broker relationship sours and clients are thrown onto the streets.”

There should never be a cancellation due to a brokers’ volume of books changing or a change in a broker’s loss ratio, he continued.

Martin stressed the importance of solidifying the broker-insurer relationship as the industry prepares for a hard market looming on the horizon.

This man leads one of Canada’s foremost underwriting companies. Behind him is a dedicated team focussed on delivering quality service and innovative solutions. Behind them is the expertise of a parent company with 77 years experience of underwriting in North America. And behind them all is the financial security of the Lloyd’s global insurance market.

So why trust anyone else to back up your business?

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Our financial strength is proven by our ‘A’ rating from A.M. Best.

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For further information contact: MINT CANADIAN SPECIALTY 145 King Street East, Suite 500, Toronto Ontario M5C 2Y7 Tel: 416-360-MINT (6468) www.mintcanadian.ca

9 OPINIONS

A Crash Course In Investment The recent market meltdown in the United States threatens to spill over into Canadian (re)insurers’ balance sheets, although the exact impact won’t be known for some time. But it is clearly the biggest issue facing Canadian (re)insurers looking forward into 2009.

36 Canadian Underwriter November 2008

In

July 2008, Canadian Underwriter canvassed a number of reinsurers and asked for their opinions about what differentiated the soft market occurring now in Canada with soft markets in previous times. The answers noted pricing decreases in the country’s reinsurance market tended not to be as sharp as rate decreases in the primary side. There was some discussion about how Canadian reinsurers were being more careful than in the past because they were not achieving the same favourable investment returns in today’s soft market as they had in the past.

One financial quarter after that article, the United States economy is in a state of collapse, the globe’s largest insurer is now primarily owned by the U.S. government, and nobody’s investments seem safe because of their potential links to subprime mortgage investment losses.

And so it’s hardly surprising that Canadian reinsurance CEOs in November have their eyes fixed on the future — and their investments — in light of the volatile financial markets.

All bets are off as to how the turmoil will affect reinsurers’ capital. But in the meantime, losses are piling high in the auto insurance market, and the market meltdown seems destined to magnify reinsurers’ long-tail auto losses going forward. The need to address the issues in the auto product is paramount, reinsurers say.

These reflections and observations are based on our annual survey of reinsurance company executives. This year, reinsurers were asked to choose their single most important issue facing Canada’s reinsurance industry today. We have reproduced the answers of nine senior executives here in alphabetical order.

November 2008 Canadian Underwriter 37

COVER STORY

A Crash Course In Investment

1

Francis Blumberg Head of Canadian Operations, Chief Agent, PartnerRe

In the casualty business, both the incidence and severity of claims vary significantly. It often takes a long time for the true extent of claims to emerge. For this reason, Canadian insurers have been seeking and finding protection in the reinsurance market for many years.

Today’s financial market turmoil creates additional implications for long-tail lines of business such as casualty. Indeed, even a small increase in inflationcan generate a significant increase in the cost of an excess of loss reinsurance program. Inflation creates a compounding effect, disproportionately increasing the cost of the reinsured part of a claim. Taken together with increasing legal costs and the rise in motor casualty awards, the price of casualty covers quickly spiral.

Although predictions are tricky these days, financially strong reinsurers seem to be weathering the current storm; they should continue to have capital to respond to an increasing demand for casualty reinsurance. That said, I would

1

2

expect them to have less tolerance for under-priced business than in previous years.

2

Christophe Colle Branch Director, Chief Agent, XL Re America Inc. Canada Branch

The Canadian insurance market that reinsurers service is experiencing a sharp reduction in profitability due to increases in loss frequency and

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severity, increases in expenses and a decrease in investment income coupled with increases in property and casualty exposures. We are seeing significant increases in recent years in property values and construction costs. Also we are witnessing larger casualty claims, due in part to recent benchmark court decisions related to future care costs and increased frequency of large automobile claims. For the reinsurer, these loss and exposure increases are magnified because of the reinsurer’s role as the risk carrier of peak losses.

The recent financial market disruptions have not only reduced investment incomes. It has also shrunk the liquidity available in the marketplace, leading to both less capital flexibility as well as a higher cost of capital.

Underlying all of these dynamics is the reinsurance buyers’ overriding concern about reinsurance security and the increased value for Canadian licensed reinsurance paper. It is becoming more relevant across all lines of business, across all the programs — especially on top catastrophic layers, where the capacity purchased is a significant portion of the buyers’ equity and surplus.

TABLE 1

Ontario Auto Direct Accident Benefits Loss Ratio (Source: MSA Research) 120%

110%

LOSS

100%

90%

80%

70%

60% 98

99

00

01

02 CALENDAR YEAR

38 Canadian Underwriter November 2008

03

04

05

06

07

Strength and stability - uninterrupted. www.swissre.com As a leading and highly-diversified reinsurer, we remain well positioned to weather the current market storm. We have four key strengths that will allow us to continue delivering sustainable solutions for you in this stressed economic environment: our clients, our underwriting expertise, our strong capital base and our prudent asset management.

Swiss Re has a 145-year history of being there for you. Strength and stability. Talk to Swiss Re.

Expertise you can build on. Š 2008 Swiss Re

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COVER STORY

A Crash Course In Investment

The Canadian licensed capacity remains more than sufďŹ cient to meet the demand. Yet the riskadjusted cost of exposures ceded to reinsurance has continued to increase, as has the cost of the capital allocated to cover them.

3

Carol Desbiens Chief Operating OfďŹ cer, Chief Agent, Paris Re

There are currently several deďŹ ciencies in the Ontario’s automobile insurance system; together, they represent a serious threat to market affordability and stability. In particular, the underlying inationary pressures affecting Accident BeneďŹ ts have caused a dramatic deterioration in results as indicated in Table 1, on page 38.

While from the perspective of the customer and insurance companies, the current situation is worrisome, the excess of loss reinsurer might ďŹ nd it ďŹ nancially unbearable.

The problem reinsurers face is the leveraged effect of ination.

For losses reinsured over a ďŹ xed retention, ination will increase both the severity of losses that already exceed the retention and the frequency of claims, by actually creating new excess of losses that were previously below the retention.

As such, the expected excess of loss payment increases proportionally much more than indicated by the general rate of ination, thereby eroding the excess carrier’s position.

As the retention increases, the effect on losses exceeding the retention will increase without limit.

This phenomenon is without any doubt one of the most serious problems facing any carrier writing long tail business over ďŹ xed retentions.

We all look forward to a series of major reforms aiming at improving the auto-mobile insurance system in Ontario. In the meantime, we need to ďŹ nd a fair balance between 40 Canadian Underwriter November 2008

3

4

the insurers and reinsurers by either adjusting upward the reinsurance premiums or increasing the retention level to reect the additional burden on reinsurers’ shoulders.

Because of the weight Ontario automobiles carry in most casualty programs, we would anticipate a moderate rate increase for the 2009 renewals.

4

Andre Fredette Senior Vice President, General Manager, CCR Canada

Given the current upheaval in ďŹ nancial markets, it is hard to see what new surprises will hit us in the near future. However, if I had to identify two persistent challenges, the following would be my choice. Looking at Table 2 below, you will see what probably is the most signiďŹ cant challenge for Canadian-based reinsurers.

For the past ďŹ ve years, local reinsurers’ net written premiums

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in Canada have been dropping due to a number of reasons. Market consolidation has reduced the number of insurance companies.

This happens because, after mergers and acquisitions, the resultant company is bigger and requires less reinsurance. Also, following four good years, companies’ capital bases are healthy. Consequently, they have decided to retain more of the risks themselves through reductions or cancellations of proportional treaties and retention of lower-layer excess treaties.

Unless there is a paradigm shift or tremendous erosion of companies’ capital bases, this trend is unlikely to reverse itself in the near future.

A second challenge that faces reinsurers is the performance of auto excess treaties. This class stubbornly continues to be unproďŹ table for most reinsurers. The issue that surrounds this class is that companies are still too slow to recognize the size of their ultimate accident beneďŹ t (AB) claims in serious losses. This leads to inaccurate presentations on reinsurance submissions and ultimately losses for the reinsurers that relied on the submitted data. This has led to a greater reluctance among reinsurers to write this class of business.

Since auto represents close to 50% of Canadian property and casualty insurance premium, a solution to the AB claims issue remains a major challenge for everyone.

TABLE 2

Year

2008 (mid-year)

Current year volume (Net Written)

Prior year Changes volume % with (Net Written) prior year

$ 520,389 $ 650,940 (mid-year)

-20.1%

2007

1,643,990

1,705,804

-3.6%

2006

1,705,804

1,765,413

-3.4%

2005

1,765,413

2,140,436

-17.5%

2004

2,140,436

2,477,947

-13.6%

2003

2,477,947

2,367,115

+4.7%

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The strength to reinsure the world’s leading insurance companies.

Creating solid structures to efficiently support global reinsurance programs for today’s buyers and brokers is achieved through the fundamental strength of XL Re’s capital and people.

XL Reinsurance America Inc. is rated A+ by S&P and A (Stable) by A.M. Best Experience our strength: www.xlre.com

Ratings accurate as of August 25, 2008.

COVER STORY

A Crash Course In Investment

5

Jean-Jacques Henchoz President and CEO, Swiss Reinsurance Company Canada

The Canadian reinsurance marketplace will clearly be affected by the global ďŹ nancial market turmoil, since the industry will face higher cost of capital and see the withdrawal of leveraged capital. This year’s relatively active catastrophe season will also act as a reminder that natural disasters continue to rise in frequency and severity.

Due to competitive pressure, as well as higher windstorm and water-related losses, primary property and casualty insurers experienced a deterioration of underwriting margins in 2008. Combined ratios worsened towards the high nineties and return on equity (ROE) values fell signiďŹ cantly. Balance sheets remain strong, but costs are managed carefully and reinsurance budgets have probably not increased.

In this market environment, there will likely be little pressure to further reduce reinsurance rates as we enter 2009. A continuous focus on disciplined underwriting and effective capital management remains the most appropriate approach to support the long-term sustainability and future viability of the Canadian reinsurance marketplace.

6

Caroline Kane Senior Vice President, Chief Agent in Canada, The Toa Reinsurance Company of America

The most important issues facing Canadian reinsurers in 2009 are to maintain underwriting discipline and preserve capital.

Most auto reinsurance is placed on an excess of loss basis; although reinsurers are removed from the frequency of smaller losses, we have witnessed a general deterioration of larger catastrophic claims.

This, combined with ination, will continue to affect reinsurers’ experience negatively.

42 Canadian Underwriter November 2008

5

6

7

Primary commercial property and some casualty lines are also deteriorating as soft pricing continues and claims activity increases. Again, since most reinsurance is placed on an excess of loss basis, reinsurers suffer a double whammy vis-a-vis pricing for the exposure, since reduced reinsurance rates are applied to a lower subject premium base.

Despite excess capital in the Canadian market, the need for reinsurers to maintain underwriting discipline is further reinforced by the current turmoil in the ďŹ nancial sector from which Canada is not immune. Capital needs have increased and will continue to do

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so with respect to underwriting and investment risk.

In general, reinsurers have exercised more underwriting discipline than the primary market over the last few years. Having said this, we cannot ignore mistakes of the past — i.e. the period during 1999 to 2001, when reinsurers offered two- to three-year treaty contracts at the bottom of the cycle. It is true we have seen available reinsurance premiums in the Canadian market shrink dramatically, perhaps temporarily. But if we repeat the sins of the past, then perhaps maintaining underwriting discipline on Canadian reinsurance business and the preservation of capital in Canada will be decisions made elsewhere in the future.

7

Cam MacDonald Regional Vice President, Transatlantic Reinsurance Company

Recent economic and ďŹ nancial market turmoil, coupled with an abundance of available capacity and competitive trading conditions, has led to a drop in premium for the Canadian reinsurance market. This trend will likely continue into 2009.

In an effort to maintain top line premium and reduce expenses, some primary companies are again rationalizing their reinsurance requirements. Changes in buying patterns and the ongoing consolidation of the primary market have meant less business for reinsurers.

As we move toward the treaty renewal season, the combination of achieving signiďŹ cant growth while maintaining adequate proďŹ t margins will be difďŹ cult for reinsurers.

However, despite these turbulent times, the reinsurance market has made a concerted effort to maintain underwriting integrity and rate adequacy; as net income and return on equity continue to fall, these disciplines will be in even greater demand.

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8

G.S. (Steve) Smith President and CEO, Farmers Mutual Reinsurance Plan Inc.

When asked to give my “top issues” facing Canadian reinsurers, two issues immediately come to mind.

In the wake of the current financial and investment chaos happening south of the border, the impact of the fallout will certainly be felt throughout the insurance and reinsurance sectors, affecting both income and capacity. The extent and full effect is still yet to fully realized.

The second issue is the Ontario auto loss trends during the past 12 to 18 months. This dramatic change in loss severity represents direct exposure to reinsurers, since losses are escalating well in excess of primary retentions.

The issues here are multi-fold.

They include: s HISTORICALLY INADEQUATE PRIMARY rating in this continuous soft market; s SIGNIlCANT DECISIONS FROM THE courts that have increased exposure not only on new claims, but, more importantly, on many existing claims that will be subject to significant reserve adjustments.

Pricing consideration at both the primary and reinsurance level will be critical over the next year to offset these developments.

44 Canadian Underwriter November 2008

8

9

9

Matt Spensieri Chief Agent for Canada, General Reinsurance Corporation

If anyone in our industry has not heard of the “global credit crisis,” they must just be awakening from a very long slumber. The extent to which it will affect our economy, industry or each one of us as individual consumers is a big unknown.

Some insurers and reinsurers have declared and/or identified exposure to — or losses from —

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risks or investments they have on their books. It is uncertain whether all of this has been fully captured, or whether more exists within our industry. Financial markets are in jeopardy around the globe.

Investors, hedge funds, pension plans have all lost millions/billions of dollars. We have already witnessed the near collapse of one of the largest insurers in the world. Six months ago, few would have recognized this as a possibility. One outcome is the potential dissection and sale of parts of this company. Will anyone be interested in or capable of buying? The “crisis” has virtually dried up the ability to raise capital or it has become onerously expensive.

For the moment, we are unlikely to see many new start-up reinsurers in tax-advantaged jurisdictions.

Will some markets look to alter their portfolio or risk selection, fearing their inability to replenish capital should a major loss — or losses — occur?

Although no one is predicting significant price increases within the Canadian insurance/reinsurance market, we are likely going to see increased caution and discipline. I think we will see greater scrutiny of the operations and balance sheets of those companies assuming risk.

It’s what we bring to the table that makes a lasting difference.

At Transatlantic Reinsurance Company, it’s the consistent application of our strengths that sets us apart and makes the difference in the long-term to the companies we do business with.

When TRC comes to the table, our clients know with confidence that they are working with a trusted and respected partner with proven expertise, solid financial strength, considerable capacity and innovative programs.

Transatlantic Reinsurance Company For more information on TRC, please give us a call at (416) 596-3960.

145 Wellington Street West, Suite 900, Toronto, Ontario M5J 1H8 Visit our Web Site at: www.transre.com

S&P rating: AA-

A.M. Best Rating: A+ Superior

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Chris MacKechnie President, Slingshot Communications

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8

Things Wrong With the Insurance Industry

Over the past decade, my communications company, Slingshot, has had the opportunity to work with 38 different property and casualty insurance companies on a wide range of topics, from designing computer systems,Web sites, and marketing programs to managing brand development and product launches.

Our work has allowed us to become both a knowledgeable industry insider and a third-party spectator looking in from the sidelines. The outcome, we believe, is quite a unique understanding of the industry.We see the good, the bad and the indifferent as part of our ongoing role — often experiencing all three in the same day.

As somebody who loves to rock the boat, I’ll leave it to somebody else to outline the positive traits of the industry. For the purpose of helping to improve the industry, I’m going to focus on identifying its shortcomings. I do this to encourage debate and promote conversations that I hope will make the insurance industry stronger.

46 Canadian Underwriter November 2008

1) Good underwriters are promoted to be managers Good underwriters are excellent at their job and uniquely skilled to analyze risk and select good from bad. A problem develops when we reward them with promotions into senior management roles.

In many cases, these same underwriters are not as good at managing people or instilling vision in an organization. In fact, the two roles in the organization are almost at odds with each other: the attention to detail that makes for a strong underwriter can theoretically conflict with the ability to see the forest instead of the trees, which is the hallmark of strong senior management team members.

The outcome of this dynamic is an industry with a dearth of innovation and vision. Managers and underwriters both have important roles, but let’s keep those roles separate and distinct.

Illustration: Rachel Anne Lindsay

Opinion/Analysis

11/13/08

EXPERTISE / INTEGRITY / RESPECT / TRUST / STRENGTH / STABILITY These characteristics should be the price of admission to any business relationship. At Great American, this is where the conversation begins.

The Property & Inland Marine Division of

Property & Inland Marine Division

Great American Insurance Company / Canadian Branch www.GreatAmericanInsurance.com 330 Bay Street, Suite 800 Toronto, ON M5H 2S8 Scioto Plaza, Suite 2100 40 King Street West Toronto, ON M5H 3C2

These values are fundamental to our success as one of the most respected property and casualty carriers in the United States. By partnering with a Canadian network of skilled independent brokers, we can offer our customers the unbeatable combination of security, protection and the peace of mind they need to build their businesses for the future.

pg46,48_8ThingsWrong_v1_VM_DG

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2) The entire industry is suffering a dearth of innovation I am humbled to report that I can’t think of a truly innovative product or approach that has come about in the past decade.

(And that includes the many projects we have worked on over the past decade, so I am not pointing fingers.)

I’m talking about those great ideas that disrupt entire industries because someone has had one of those moments in which a light bulb goes off in his or her brain and everyone else wonders why it has taken so long to happen.Think BlackBerries, flat panel TVs, online trading or hybrid cars…

In any other industry, companies that don’t innovate go out of business. In ours, it is the norm.

3) Your customers don’t like you (if they even know you exist) It doesn’t matter whether we meet with Harley Davidson owners in Kingston, Ont., teachers in Alberta or nursing home owners in Toronto, they all share one common belief — insurance companies are ripping them off. And that is only after a bit of prodding to see if they know who their insurer is.

Generally speaking, consumers only hear from their insurers when they receive an invoice. A small percentage might interact at the time of a claim. But these situations do not present a lot of time or the proper context to build a relationship — or even to tell them who you are. For these reasons, as a consumer, I have a stronger relationship with eBay and Amazon.com than I do with my insurer or broker.

4) In the eyes of your clients, Company A is the same as Company B We’ve worked with scores of companies and asked them what differentiates them in the marketplace. Inevitably, they all tell us it is their: • service; • relationships; and • expertise.

If they were all right, maybe our customers wouldn’t hate us so much.

(See above.)

48 Canadian Underwriter November 2008

Page 48

Everyone can’t be right, if indeed any are, and this helps us to understand why price remains a consumer’s primary means of differentiating between companies.

5) Our products are all the same I challenge anyone to put their product side by side with that of their biggest competitor and demonstrate the two products are more than 2% different.

Everyone says they don’t want to be a capacity player; and yet, by selling basically the same product, isn’t that exactly what we have become?

I am humbled to report that I can’t think of a truly innovative product or approach that has come about in the past decade.

Oh well, at least we have our service, relationships and expertise to make us different.

6) Companies are afraid of their channel partners. Channel partners are afraid of the companies There is a cold war going on right now between insurers and their brokers. Underwriters want to try some new ideas but worry about what their brokers will think. Brokers are worried underwriters are going to cut them out of the equation and otherwise react badly to any changes in the status quo.

The cold war ends when both sides star trusting the other. Maybe it’s time for a bit of glasnost in the war between insurers and their brokers, so both sides can bring down that wall of fear separating them and make some meaningful change to the industry.

7) Product development is undertaken by people who also have a day job It never fails. Each January, we meet with companies that tell us they want to launch “three new products this year,” with the first targeted to go live “by March.”

It turns out the project leader also has a day job, and he or she ends up squeezing the research and development for their project into an already busy schedule. March becomes “spring,” spring becomes “fall,” and by late November we are rushing to launch the new product before the holidays.

By this time, whatever visionary approach the underwriter — and it is usually an underwriter charged with launching a product (see Point Number 1 above) — wanted to achieve disappeared months before in favour of just “getting something out there.” This usually means using a photocopy of another company’s contract, making some minor edits to specific terms or coverages.

It seems to me that if a company wants to develop cutting-edge products, they need to put the resources behind them to help guide it along.

8) It’s too easy to make money Ah yes, the crux of the matter: insurance companies and brokers make a lot of money regardless of any of the above failures.With that in mind, it is not a surprise that many in the industry are willing to coast a bit.

But the industry has been coasting for a while now. And now that other players have inched forward to join our cartel, it behooves us to start thinking about our shortcomings and begin plotting some real strategies to keep the Barbarians at the gates from changing the industry on their terms.

At least that’s my opinion.

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Making

Yourself

2008 RIMS Canada Conference

Vanessa Mariga Associate Editor

Heard

The key role of risk managers, as well as the importance of their ability to coordinate with other departments, is highlighted by international crises both fiscal and reputational.

Managing risk through the collapse of the global financial market, and maintaining the integrity of an organization’s reputation during damaging events such as food product recalls were among several issues explored by delegates attending the 33rd annual Risk and Insurance Management Society (RIMS) Canada Conference in Toronto in late September.

Managing the financial crisis A panel of global risk managers suggested that the global financial services turmoil might produce opportunities for risk managers to have their

50 Canadian Underwriter November 2008

voices heard within the upper echelons of their organizations.

Panelist Carl Leeman, chief risk officer of the Belgian company Katoen Natie Group, said there were two theories of what went wrong with the risk management in the financial institutions most negatively affected by the recent market turmoil. “The risk managers in those institutions either didn’t do their job, or they were not heard,” he said. “I think we all know that it was the second one.”

Companies surviving the turmoil will have had their wake-up call, Leeman added. “The future for risk management seems more bright than ever before, because now everyone will know that you will really need a risk manager in your company.”

RIMS president Janice Ochenkowski said she saw “a phenomenal opportunity for risk managers” arising out of the financial crisis.

The opportunity is “two-pronged,” she said.

First, risk managers should do an internal assessment quickly of their organization’s risks.

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Second, they should open up a dialogue with management. “Whatever level of management you are in communication with, send out some information, press releases or credit analyst reports,” Ochenkowski recommended. “Whatever is relevant to the risks you’ve identified.”

Leeman is also hopeful the financial crisis will work to change misconceptions of the role of the risk manager in an organization. He suggested that in the past, company executives might have perceived risk managers as hurdles to making money, or merely complicating ways to do business.

“The risk managers in those institutions (affected by the financial crisis) either didn’t do their job, or they were not heard. I think we all know it was the second one.”

“These days, I think that people will really understand that what risk managers said [prior to the crisis] was not something foolish,” Leeman said. “If managers had listened, they might have fewer problems these days than they have now.”

Susan Meltzer, the 2008 RIMS Canada conference co-chair and moderator of the panel, took the opportunity to speak out against the notion that risk managers were to blame for the credit crisis and the subsequent bottom falling out of the global markets. “In echoing what Carl Leeman has said about the risk managers not being heard in the financial services industry, quite a few of the risk managers that were heard were the ones who thought the only approach to risk management was modelling and forecasting and coming up with a number at the end of the day,” she said. “Whereas, I think that our panel has eloquently talked about how being a risk manager today you have to understand globally the catastrophic impact of risk rather than just focussing purely on modelling — which

52 Canadian Underwriter November 2008

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is what was prevalent in the financial services.”

Integrating different philosophies As the profession of risk management begins to include more diverse disciplines — i.e. business continuity, law, finance, etc. — how can a risk manager integrate all of those different philosophies into a single risk management approach?

A RIMS Canada Conference delegate posed the question to the panel of global risk managers noted above.

Ochenkowski replied that it depends on the organization and the manner in which the organization operates. “Is it centralized, decentralized, controlled by a single group or several business units working together?” she said. “In our company [Jones Lang LaSalle], it’s a team approach, so the heads of the technical disciplines — legal, finance, tax — are all part of the global operating committee.

We work together and recognize one another’s expertise.”

She likened the approach to a poem by John Godfrey Saxe, ‘The Blind Men and the Elephant.’

“You get everyone looking at something from a unique perspective, but it’s only when you work together as a team that you can see the whole,” she said. “I think that, as some of the other disciplines that contribute to risk management develop more specialization, it is probably not something to reject, but to embrace it and include it in your assessment of risk within your organization.”

Empathy and managing reputation risk Recent headlines detailing the listeria outbreak at a Maple Leaf Foods plant in Canada prompted talk at the conference of managing reputation risk in the wake of such an event.

Lorne Honickman, partner at McCague Peacock Borlack McInnis & Lloyd LLP, told delegates that when faced with a crisis endangering a company’s reputation, it is vital for the spokesperson of that organization to express empathy immediately and then stress what the organization is doing at that moment to in-

vestigate and remedy the situation.

In his presentation, ‘Risk Management and the Media: The Importance of the Crisis Communication Plan,’ Honickman walked delegates through a potential crisis akin to that of the food contamination and industrial explosion events recently appearing in Canadian headlines.

“I have always maintained the most important thing is for companies to come out immediately and to be accessible,” he told delegates. “Accept responsibility, but be very careful that you never cross over the line to admitting liability.

That’s the key in strategic messaging and crisis communication.”

Getting the message right requires that the legal and risk departments be integrated in their approach, he emphasized.

Pointing to an example of an effective communications strategy, Honickman commended the approach of Michael McCain, the organization’s president and CEO, to the listeria outbreak at Maple Leaf Foods.

McCain held a press conference shortly after the outbreak and expressed sympathy for those affected, including both

When dealing with a crisis communications plan, organizations need to accept responsibility. But be very careful not to cross the line to admitting liability. the ill and Maple Leaf staff (more than 23,000 people).

He then went on to explain what the organization was doing at the present time. He repeatedly used phrases such as ‘accountability,’ ‘well beyond required regulations,’ and ‘listeria is pervasive,’ in addition to other key language that demonstrated knowledge, action and credibility.

“I would suggest that this was a crisis communication plan that was created long before the crisis hit,” Honickman observed.

pg51AON

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RIMS CANADA 2008

McGannon Fun Run/Walk Raises Cdn$2,400 Roughly 70 insurance and risk professionals dotted Toronto’s waterfront on the morning of Sept. 21 to participate in the annual William H. McGannon Foundation 5k Fun Run/Walk.

The event, sponsored by FM Global, received a helping hand from the Canadian Independent Adjusters’ Association, which provided water and spectators to cheer on their colleagues.

The title of fastest male runner went to Jody Draude. Carole Sunohara earned the title of fastest female runner.

Overall, $2,400 was raised.

The foundation has been gaining steam, even without its running shoes laced up: in terms of net assets, the foundation saw an increase of 12% over last year, to Cdn$507,654. Six scholarships totalling Cdn$17,500 were given out in 2007, an unprecedented amount, says Joseph Restoule, chair of the foundation’s board of directors.

Danielle Lewis, an MBA student at Dalhousie, recieved the John Faulds Memorial Award, a “prestigious award that is not given annually, but only to those pursuing risk management at the post-grad level,” Restoule adds.

Lewis is also one of the first participants in the foundation’s student mentorship program.

Each year, moving forward, the foundation will select one or two applicants to participate in the RIMS Canada Conference under the mentorship of McGannon board members.

“And for the first time, Junior Achievement, ourselves and FM Global are launching a risk management day in Vancouver

54 Canadian Underwriter November 2008

this fall,” Restoule said. High school students will get to spend a day playing the FM Risk Management Game and it’s a “great way to engage the students in considering a career in risk management.”

The foundation is also welcoming two new members to its board. Wayne Hickey, a former chair of the RIMS Canada Council, “brings that piece of the puzzle about continuing education for risk professionals,” says Restoule.

Niver Rubenyan, a former president of ORIMS now based in Toronto, has also joined the board. “She is one of the people on the front edge of the wedge of ERM,” he adds.

Board members Diane Wolfson and George Simpson have elected to retire professionally, although they have opted to continue their involvement with the board, Restoule says. “It’s a really great mix of experience and knowledge on the board,” he said.

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RIMS CANADA 2008

Catching Up with the RIMS Canada Council Volunteers are the oil that keeps the RIMS Canada Council (RCC) engine running, and this year the council intends to recognize and show its appreciation to those who tirelessly donate their time and expertise.

The council created a volunteer recognition task force, says Kim Hunton, RCC chair.

She hopes it will not only give praise where praise is due, but also drum up interest in council activities among new members.

The subcommittees of the RCC — Communications and External Affairs, National Education and National Conference — gathered in February to revisit RCC’s 10-year strategic plan.

RIMS the pre-eminent risk management organization in Canada. By developing relationships with regulators and fellow associations within the industry, it ensures the voice of the risk manager is heard.

“We’re trying to make sure that the RIMS and RCC names are known to these entities so that they will come to us if they want to comment on legislation, draft legislation or something that is happening in the industry,” Hunton says. The committee is also looking at and commenting on a draft of ISO Guideline 31000 for risk management, likely to be passed in June 2009.

COMMUNICATIONS AND EXTERNAL AFFAIRS

NATIONAL EDUCATION

One of the goals of the communications and external affairs committee is to make

The national education committee is working on promoting risk management as a profes-

sion, Hunton says. This involves setting up a task force with the William H. McGannon Foundation and furthering the goal of establishing a second risk management program at a Canadian university. Professional development at the chapter level is also on the books, she continues, noting that last November the first ‘Building a Better Chapter’ workshop was held in Montreal.

Every Canadian chapter had a representative there.

NATIONAL CONFERENCE The conference committee is examining the possibility of establishing a national programming committee to “take some of the load off of the local committees who are charged with having to come up with a program during the year,” Hunton says.

The initiative is in keeping with the RCC’s general mandate this year, she says. “It’s really about lifting the load from the volunteers and giving them a hand.”

George Simpson Honoured with Donald M. Stuart Award The Ontario Chapter of RIMS named George Simpson, senior manager, risk management and insurance of EPCOR Utilities Inc., as the 2008 recipient of the Don Stuart Memorial Award.

Erin Magilton-Morneau, ORIMS immediate past president, presented the award to Simpson during the RIMS Canada Conference’s opening ceremony and awards breakfast.

The award was created to annually recognize a Canadian that has contributed and shown innovation, leadership and dedication to the RIMS community and the risk management profession at large.

Simpson has 37 years of risk management and insurance

experience, Magilton-Morneau said. He established the risk management program at EPCOR. Prior to that, he spent five years as a risk management consultant with Aon Reed Stenhouse, where he designed risk management programs for urban and rural communities.

He is an active member of the Northern Alberta RIMS chapter and has participated in the organization at the national and international level. Simpson is also a director of the William H. McGannon Foundation board.

“When one reads through the letters of recommendation and support from colleagues and the risk management community, one is very much left with

the vision of a man who exudes integrity and professionalism, and as one colleague wrote, a gentleman,” Magilton-Morneau said. “We read of a man who is very well respected by his RIMS peers across North America and within the risk management community at large. It is these qualities that define George as a leader.”

In his acceptance, Simpson said he was “honoured, thrilled and humbled to receive the award.” He thanked his boss for allowing him the opportunity to grow in the profession and for “looking the other way when I was doing RIMS stuff.” Lastly, Simpson thanked his wife Lily “for the love, support, advice and patience.”

November 2008 Canadian Underwriter

55

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CSIOnet Gets a Facelift

David Gambrill Editor

The Centre for Studies in Insurance Operations (CSIO) is switching service providers this month for its upload/download system, CSIOnet.

All insurance brokers, companies and vendors that use the network must change their IP address setting on Friday, Nov. 21, 2008, to ensure their business continues uninterrupted.

The change is intended to improve service for approximately 1,800 broker offices across Canada. As of press time, CSIO had contacted approximately 1,500 of these broker offices, mostly by phone, to let them know about the switch.

“CSIOnet is the network that’s used between all parties in the property and casualty broker distribution channel,” says CSIO president Steve Kaukinen. “It’s a private network for members only, and it acts like an e-mail service between brokers and insurance companies. The platform is probably about 10 years old.

“We’re moving to a new platform for CSIOnet, with a new service provider, and we believe it’s going to give all of our members a much more secure, better way to move their data between each other.”

Telus will be providing the new, Microsoft exchange platform.

Among its many advantages, the new platform for CSIOnet is anticipated to be more reliable than the older proprietary platform, which was built before Internet communications became the norm. Described as a “more robust” solution, the new platform will include 128-byte encryption technology of the same type used by governments and the military.

Dean Bottschen, the manager of membership services and technical development at CSIO, says the new platform promises to be very simple to manage and operate.

56 Canadian Underwriter November 2008

“It’s not proprietary, meaning it’s the same as [technology used in] any other office,” Bottschen says. “When an update from Microsoft comes out, you can or cannot apply it immediately.

“Currently, we have no updates. It’s a manual process to maintain that service…

“So we are moving to a state-of-the-art Microsoft exchange platform, which, as you know, almost any technical guru out there can manage and function.”

Kaukinen says CSIO has held back on providing to brokers the IP address of the new server prior

The new platform for CSIOnet is anticipated to be more reliable than the older proprietary platform, which was built before Internet communications became the norm. to the Nov. 21 date. He notes the service will not be available prior to that date and “we do know from experience that [if the IP information is released now] a number of brokers will try to do it now and they won’t be able to work.”

Kaukinen says the long-term vision is that the need for the CSIOnet technology will diminish as new technology becomes available to take its place. “In the future, I would hope that as we move to new platforms, and as CSIO XML standards really proliferate in the industry, the need for CSIOnet will wane, because brokers and companies will be doing real-time data transactions between each other,” he says.

pg58,59AM Best_v1_VM_DG.1

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Sailing A.M. Best Review and Preview Conference

Vanessa Mariga Assistant Editor

Through the Storm A.M. Best says Canadian P&C market is well-positioned to negotiate what is expected to be a protracted de-leveraging process in the market.

Amidst the current economic turmoil, the Canadian property and casualty industry is stable, but not without its challenges, delegates attending the A.M. Best’s Review & Preview Canada conference in Toronto heard.

Charles M. Huber, a senior financial analyst with A.M. Best, presented his rating outlook for the Canadian property and casualty market at the conference. His analysis came a few days after insurer giant American International Group (AIG) announced its exposure to the credit default market, and subsequently received more than US$100 billion in loans from the U.S. Federal Reserve to forestall bankruptcy.

“In our opinion, the [Canadian] market is stable and the key to this stability is the strong capitalization in the industry,” Huber said.

“We believe the industry is well-capitalized to

58 Canadian Underwriter November 2008

withstand the many challenges in the underwriting and investment markets today.”

But expect capitalization to weaken (because of the somewhat-reduced profitability of underwriting income), as well as increasing net loss ratios that are expected to continue on all major lines, Huber cautioned.

Based on data A.M. Best gathered from approximately 220 companies, the industry’s 2007 net income was approximately Cdn$4.6 billion, marking a decrease of 3% or 4% over 2006, he said. “Through the first six months of 2008, however, the net income is only Cdn$1.2 billion, which is down 37% compared to the first six months of 2007.”

Huber attributed the significant decline to lower underwriting income and lower capital gains. “So, the not-so-rosy picture on the underwriting side is putting greater reliance on companies’ investment earnings.”

The volatility in the equity markets is going to challenge companies’ investment managers to better manage their investment portfolios, Huber said. “Lower underwriting earnings is also going to result in slower growth in invested asset bases,” he noted.“This is also going to hinder investment growth.”

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Huber said the increasing cost of auto claims, the increased frequency and severity of storm activity, construction cost inflation and the continuing softening in commercial lines pricing will also pose serious challenges to the industry.

De-leveraging plays out The economy is in the very early stages of a de-leveraging process that has yet to fully play out, conference delegates heard from panellist Michael Taylor, the vice president and associate director of fixed income product management with Wellington Management.

Leveraging is the degree to which a businesses or investors are relying on borrowed money or debt.

Taylor noted the de-leveraging process, in which insurance companies attempt to shed debt from their books, can be expected to generate volatility.

“How much volatility is generated by

Page 59

this de-leveraging will depend on its speed,” he added. “A gradual de-leveraging will allow the industry to earn its way out of its bad asset problem. A rapid de-leveraging will cause liquidity shocks that could ultimately lead even solvent institutions to experience the types of things that we’ve seen recently.”

Either way, moving forward, the cost of capital will increase and the availability of capital — even to credit-worthy borrowers — will be lower, he predicted.

As a result, consumer spending and economic growth would both decrease.

Consumer-driven recession Taylor observed the current economic recession is different from past ones.

Previous recessions have been primarily investment-driven recessions, whereas this one is a consumer-driven recession, he said. Investment-driven recessions are typically cured relatively easily, by a change in short-term borrowing rates

for companies. Lower interest rates will make projects more viable and spark an increase in investing. On the other hand, consumer recessions tend to feel much worse and they tend to be much more protracted in length, he said.

Taylor noted that today’s consumer tends to be over-leveraged, has not seen significant increases in pay in the past decade, is now experiencing no mortgage gains and has had his or her confidence in the financial markets shaken.

That means they will be less likely to invest in markets or spend money, even with tax cuts and lower interest rates.

For Taylor, the good news is that nonfinancial companies are entering this slow-down in consumer spending in better shape than they would have in the past. “Leveraging of non-financial corporations is much lower,” he said. “They should be better able to withstand the higher cost of capital and the restraints of the borrowing environment.”

ADVERTISERS’ INDEX A.M. Best ACE INA Insurance Aon Reed Stenhouse Aviva Canada Inc. Canadian Underwriter magazine Chubb Insurance CIP Society ClaimsPro Crawford & Company Cunningham Lindsey Canada e2Value, Inc. Economical Insurance FM Global Great American Insurance Group The Guarantee Company of North America Guy Carpenter IBAO Kingsway General Insurance Company MINT Canadian Specialty Munich Reinsurance Company of Canada PolicyWorks Swiss Reinsurance Company Canada Transatlantic Reinsurance Company XL Re Zurich Canada

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November 2008 Canadian Underwriter 59

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Decisions,

Decisions…

Gary Zimmermann Barrister & Solicitor McLennan Ross McLennan Ross is a member firm of the ARC Group Canada

As litigation becomes more elaborate and trials increase in duration, the cost of defending an action has increased significantly. At the outset of a defence file, most insurers now expect their counsel to provide liability assessments, quantum assessments and defence cost assessments. The weight placed on the role of defence costs varies from one insurer to another. On one hand, some take the position that defence fees are a necessary cost of doing business. In other words, assuming that care has been taken in selecting the defence firm, “the costs are what they are.” As such, when compared to issues of liability and quantum, defence costs have little bearing on the resolution of matters. On the other hand, many take the position that all three are equally important when making decisions that affect negotiations, settlement and trial exposure. Regardless of which position an insurer takes, under the current regime, the cost of defending a superior court action through to trial is certainly significant.

As a result of the high stakes, both insurers and their clients are now having second thoughts about issues of coverage.

The coverage provisions found in most liability policies provide two basic benefits to the insured.

First, the insured can expect to be indemnified by the insurer to the limits of the policy. Second, from a claim’s infancy through to resolution, the insurer agrees to defend the insured. Not

60 Canadian Underwriter November 2008

surprisingly, this latter benefit is termed the “duty to defend.”

The duty to defend is broader than the duty to indemnify. In this context, we note the oftencited decision of Manitoba Court of Appeal Justice Joseph Francis O’Sullivan (as he was at the time), who wrote in Prudential Life Ins.Co.v.Manitoba Public Ins. Corp.: “the duty to defend depends on the nature of the claim made, not on the judgment that results from the claim.”

In a perfect world, the duty to indemnify should be determined at the beginning of a claim. That said, we do not live in a perfect world and an insurer can wait until after a trial to make a decision regarding their obligation to indemnify. To the extent that they have any questions regarding their obligation to indemnify, they should proceed under a “Reservation of Rights Letter” or a “Non-Waiver Agreement.” Such a process allows an insurer to investigate, defend, negotiate and even pay out a claim without prejudice to a later denial of coverage on the part of the insurer.

Unlike decisions regarding the duty to indemnify, an insurer’s decision regarding its duty to defend must be made at the inception of a claim.

In doing so, an insurer finds guidance in the “Pleadings Rule.” The Pleadings Rule was pronounced by the Supreme Court of Canada in the seminal case of Monenco Ltd.v.Commonwealth Insurance Co., in which Supreme Court of Canada Justice

Illustration: Rachel Anne Lindsay

Based on escalating legal costs and the high stakes of seeing a policy coverage matter drag through the court system, many insurers are re-visiting their duty to defend.

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Putting the pieces together.

Events and Seminars Calendar You work hard to protect your clients’ property. Now, it’s time to ensure that you apply the same kind of energy and commitment to your own success. CIP Society Events and Seminars give you the opportunity to learn, to network, to catch up on industry developments and to think about your career.

CIP Society Events

Nationally

Calgary – CIP Society Christmas with Natalie MacMaster . . . . . . . . . . . . . .December 9

CIP Society members are encouraged to welcome our new grads to the Society at convocations and awards functions across the country:

London – London Knights vs Belleville Bulls . . . . . . . . . . . . . . . . . . . . . . . .December 12 London – London Knights vs Ottawa 67’s . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 4 Ottawa – CIP Society Winter Luncheon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 22 London – London Knights vs Sudbury Wolves . . . . . . . . . . . . . . . . . . . . . . . .January 25

IIO – Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 22 Quebec City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .January 24 IIO – Kawartha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 6 IIO – Hamilton/Niagara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 19

Toronto

IIO – Conestoga . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .February 26

Seminar: Emerging Trends in Directors’and Officers’Insurance . . . . . . . . .December 11

Montreal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .March 12

Seminar: Finance for the Non-Financial Professional . . . . . . . . . . . . . . . . . . .January 14

Keeping you at the forefront of the P&C industry.

The CIP Society. MEMBERS BENEFIT. www.insuranceinstitute.ca/cipsociety

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ASSOCIATIONS

CONSULTING FIRMS

Canadian Independent Adjusters' Association (CIAA) "The voice of Independent Adjusters in Canada" www.ciaa-adjusters.ca Honourable Order of the Blue Goose—Ontario Pond Our fraternal organization has been dedicated to fellowship and charity since 1908. www.bluegooseontario.org The Insurance Institute of Canada The professional educational arm of the industry. www.insuranceinstitute.ca Risk & Insurance Management Society Inc. Dedicated to advancing the practice of effective risk management. www.rims.org

Cameron & Associates Insurance Consultants Ltd. Claims consultants to the insurance and reinsurance community. www.cameronassociates.com Keal Technologies Complete technology solutions for insurance brokers. www.keal.com

CLAIMS ADJUSTING FIRMS Crawford Adjusters Canada One Globe, One Company www.crawfordandcompany.com Cunningham Lindsey International independent claims services. www.cunninghamlindsey.com Kernaghan Adjusters Adjusting Solutions — Depend On Us! www.kernaghan.com McLarens Canada International Loss Adjusters and Surveyors www.mclarens.ca SCM Adjusters Canada Ltd. Committed to providing leadingedge claims management services. www.scm.ca

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

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

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

INSURANCE COMPANIES AIG Commercial Insurance Company of Canada "THE STRENGTH to BE THERE". www.aig.com Aviva Canada Inc. Home Auto and Business Assurance. www.avivacanada.com/

FM Global The leader in property loss prevention. www.fmglobal.com Grain Insurance and Guarantee Company Commercial Lines Underwriters www.graininsurance.com The Guarantee Company of North America “Specialized insurance products...professional service” www.gcna.com Kingsway General Insurance Company The Specialty Insurer www.kingsway-general.com Royal & Sun Alliance Insurance Company of Canada Forward thinking since 1710. www.royalsunalliance.ca Sovereign General Insurance Company of Canada Since 1953 www.sovereigngeneral.com Wawanesa Insurance Earning your trust since 1896. www.wawanesa.com

PREMIUM FINANCING Third Eye Solutions Inc. Provides Internet-enabled premium financing/payment plan software solutions. www.thirdeyesolutions.com

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

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

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

RISK MANAGEMENT INSURANCE SOFTWARE APPLICATIONS Keal Technologies Complete technology solutions for insurance brokers. www.keal.com Tritech Financial Systems Inc. Provider of an enterprise solution to P&C insurance companies and their agents and brokers in Canada and USA www.trifin.com

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

SPECIALTY INSURANCE Firstbrook Cassie & Anderson Ltd. Your Source For Camp Insurance www.nbrown.com William J. Sutton & Co. Ltd. Insuring Special Risks since 1978 www.wjsutton.com

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Frank Iacobucci (as he was at the time) stated: “[w]hether an insurer is bound to defend a particular claim has been conventionally addressed by relying on the allegations made in the pleadings filed against the insured… If the pleadings allege facts [that], if true, would require the insurer to indemnify the insured for the claim, then the insurer is obliged to provide a defence. This remains so even though the actual facts may differ from the allegations pleaded.”

As stated by Supreme Court of Canada Justice Beverley McLachlin (as she was at the time) in Nichols v. American Home Assurance Co.:“[t]he mere possibility that an obligation to indemnify exists is sufficient to trigger the duty to defend.”

THREE STEPS TO DETERMINE DUTY The Supreme Court of Canada also provides guidance in Non-Marine Underwriters, Lloyd’s of London v. Scalera regarding an application of the duty to defend. In Scalera, Iacobucci identified a three-step process.

The first step is for the court to determine whether the allegations are properly pleaded. In short, the court will not be bound by the terms but will examine the substance of the pleadings. The second step is to determine whether any of the claims are derivative. In other words, if the claim has been drafted with a reference to a covered loss (such as negligence) and a non-covered loss (such as an intentional tort), both of which relate to the same subject matter, the court may find such claims as derivative and thus excluded. Third, the court will then apply the Pleadings Rule to determine whether the properly framed, nonderivative claims exist within the terms of the policy. If so, a duty to defend will be established.

Although the Pleadings Rule has been around for quite some time, the envelope is being pushed. Initially, the court would analyze only the originating document as framed by the plaintiff. Scalera expanded the scope of the rule. Now, in an effort to service their clients, counsel argue that the court can go beyond the originating document and analyze the duty with reference to a filed defence and any affidavits sworn in the litigation.

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The scope of the documents that may be examined through the Pleadings Rule has yet to bear settled jurisprudence, But the Court of Appeal of Alberta has addressed the issue in Wi-Lan Inc. v. St. Paul Guarantee Insurance Co., in which Alberta Court of Appeal Justice J.E.L. Côté took issue with an interpretation that allowed analysis beyond the originating document. Simply put, he said that if one makes use of the filed defence, a duty to defend can appear or disappear depending on whether or not a plaintiff demands a defence. He further reiterated the trite principle that insurance contracts are agreements of the utmost good faith. He envisioned a potential conflict in which counsel representing an insured, but paid by the insurer, may not place all viable defences forward. If the duty to defend is analyzed referencing only the originating document, then there can be no potential for conflict, Justice Côté found.

Perhaps the most important reason for assuming the defence is to avoid the risk of an indemnity finding after a trial.

Using the principles discussed herein, one must decide whether or not a duty to defend exists. In a grey area, an insurer may be tempted to deny a defence and save significant defence costs. Such mentality could, however, be considered “penny-wise and pound-foolish.” Simply put, if you are an insurer, there are many benefits to defending an action.

First, you get to select defence counsel.

As such, you can hand-pick counsel because of their recognized specialties. Second, you get to instruct defence counsel and guide the direction of the defence.

Such day-to-day decisions ultimately define the case and often lead to a litigant’s success or failure.The importance of this cannot be overstated. Third, through the defence and the terms of the policy, an insurer has the power to settle the claim within policy limits.

Perhaps the most important reason for assuming the defence is to avoid the risk of an indemnity finding after a trial. As noted above, an obligation to indemnify is often only revealed after trial. If an insurer refuses to defend, the litigation will proceed under the direction of the insured. Under such scenario, it is possible that after trial, the insured “loses” the case but succeeds in establishing indemnity.Thereafter, the insurer must pay out both the loss and the defence costs, but will have had no say in the direction of the file — a tough one to explain to management back home.

DUTY VERSUS RIGHT TO DEFEND Once the decision has been made to defend an action, one must be careful not to “lose” the right to do so. Case law has established that the quickest way to lose conduct of the defence occurs when there is an appearance of impropriety.

Thus, if the insurer does anything to prejudice the rights of the insured — for example, acting in bad faith or failing to settle a clearly-defined claim within the policy limits — then the insurer’s right to defend the action may be terminated.

Further, the insured will be able to select counsel and have the defence costs paid by the insurer. Finally, the courts have held that under such circumstances, counsel retained by the insured may not need to report to the insurer. This makes it very difficult to assess the risk and manage a claim until after a trial decision is rendered. Problematic indeed.

In the end, an obligation to defend may be considered by some to be a “duty,” but others will see it as a “right.”

Regardless of your view, it is undeniable that much rides on choices that must be made at the outset of the claim. To ensure that the best choices are made, consideration must be given to the pleadings, the law, the anticipated costs and the predicted outcome. Good luck.

November 2008 Canadian Underwriter 63

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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. lost a long-time stalwart member and friend with the passing of John McHugh on Sept. 24, 2008. John, vice president of claims operations for Crawford, was known throughout his 30-year career in the industry as a gentleman, a devoted family man, a distinguished claims professional and a gifted leader. He worked with independent firms Gray, McHugh, Virley; Adjusters Canada Inc.; and Crawford & Company (Canada) Inc. He will be greatly missed by all those who had the benefit of his positive outlook, willingness to help and dedication to the claims profession, Crawford said in a statement.

2

Jean Marc Laurin has been appointed senior vice president of operations at Cunningham Lindsey Canada Claims Services Ltd. Based in Montreal, Laurin will assist with Quebec operations in addition to special projects elsewhere throughout the Canadian operation.

He has 29 years of independent insurance adjusting experience.

3

David Brosnan has been appointed CEO of ACE Canada. Karen Barkley will now serve as

64 Canadian Underwriter November 2008

chief operating officer of ACE Canada and president of ACE Canada’s property and casualty business, a release says.

Brosnan has been with ACE since 2005; most recently he has served as president of ACE Casualty Risk. Prior to that, he held a senior leadership role with Chubb Insurance Company of Europe.

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Chris Kiah [4], is the new CEO of Allstate Canada, succeeding Michael Donoghue, who has announced his retirement.

Kiah joined Allstate Corporation in 1996; prior to becoming CEO, Kiah was the assistant field vice president in the southeast region for Allstate Corporation.

Donoghue has served at the helm of Allstate Canada for the last seven years and has spent a total of 38 years with Allstate Corporation.

Donoghue will also retire from his post as IBC chair.

IBC's deputy chair, Rowan Saunders, president and CEO of RSA, will replace him as chair.

5

Steve Pottle [5a], York University’s insurance and risk analyst, has accepted the role of president for the Risk and Insurance Management Society’s Ontario chapter

(ORIMS). Melissa Chrystian [5b], Sun Life Financial, will assume the role of vicepresident. Erin MagiltonMorneau, ORIMS’ immediate past president, resigned because she is “moving on to another chapter in her career [that] excludes her from continuing her role as president under the chapter bylaws,” an ORIMS release says.

6

CNA Canada has announced a series of appointments over the past six months. Denis Del Cont has been promoted to chief underwriting officer; Ted Wood is now the chief financial officer and senior

vice president of finance; Greg Knowles is vice president of distribution and marketing; Lynne vonWistinghausen is vice president of operations and IT; and Michael Walcott is assistant vice president of underwriting (Ontario).

7

W. R. Berkley Corporation has formed Berkley Underwriting Managers Canada, Ltd. Michael McLachlan, who has more than 30 years of experience in the insurance industry, has been named president of the operation. Its focus will be on specialty casualty commercial insurance products. Products include general liability, products liability and other

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5a

7 commercial lines on behalf of the Canadian branch of Berkley Insurance Company.

The company will be based in Toronto.

8

Keal Technology’s commercial management system (CMS), comXP, will be integrated with Aviva Canada’s Fastrax, a Web-based commercial insurance application. The partnership will enable brokers to upload small commercial package information, including client, risk and coverage details, from comXP to Fastrax, eliminating the need for dual entry, according to a release.

5b

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9

Affiliated FM has introduced a new green coverage endorsement to its ProVision all-risk property policy. The endorsement provides coverage for the additional costs of repairing, replacing or rebuilding damaged property — using environmentally responsible practices and green alternatives — to whatever level of green standards a policyholder chooses, the company notes in a release.

10

Jon Schubert has been appointed president and CEO of the Insurance Corporation of B.C. (ICBC). Prior to his new post at the ICBC,

computer forensics, Richard Stahl, damage quantification, and Kim Manchester, anti-money laundering. Also, Russell Brownlee has been appointed head of Giffin Koerth’s road factors practice. Brownlee has worked most recently as associate and senior transportation engineer with IBI Group.

13 Schubert served as president and CEO of Saskatchewan Government Insurance (SGI).

He worked at SGI for 23 years before venturing forward to run his own consulting firm.

He returned to SGI in 2004 as president and CEO. Following Schubert’s departure from SGI, Earl Cameron has been appointed acting president and CEO. Cameron most recently served as the vice president of claims and salvage with SGI.

11

Giffin Koerth has launched its forensic accounting group, which will calculate damages, detect signs of fraud and unlock secrets in computers. Giffin Koerth says its group will work in a “cuttingedge” computer forensics lab, where it can restore deleted files, uncover altered accounting records and track down email trails. The department will be led by Edward Nagel [11]. The team includes John Young,

12

Gore Mutual now provides both upload and download functionality for brokers between Policy Works and Gore Mutual’s GoBroker portal. The Policy Works’ data exchange program, launched last spring, offers integration and single sign-on upload capacity for users. The program has been expanded to include download capacity as well.

13

Graham Haigh [13], Gore Mutual Insurance Company, has assumed the role of president at the Insurance Institute of British Columbia’s 2008-09 governing council. Shaun Sinclair, Telus Communications, is first vice president od the academic division and Mike Dakin, ICBC, will serve as second vice president of the professional division. Wes M. Chowen, McLarens Canada, will assume the role of secretary.

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Three-hundred and fifty Canadian insurance professionals gathered for the second annual National Insurance Conference of Canada at the Hilton Lac-Leamy hotel in Gatineau, Quebec. Senior executives of insurers, brokers, reinsurers, risk managers, regulators and industry associations from across the country converged to discuss and debate pertinent issues facing the Canadian insurance market on Oct. 1-3.

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APPOINTMENT

GALLERY

Colin Robertson, ACII Manager, Central Regional Branch & Risk Control Manager for Canada

Ecclesiastical Insurance Office plc is a specialist insurer that seeks to advise and protect those who enrich the lives of others. We are dedicated to serving the needs of our customers and their communities. Through the independent broker network, we offer customized insurance solutions to faith and related not-for-profit organizations, retirement communities, education facilities, unique properties, registered charities, and select commercial enterprises.

Stuart Rowley, Underwriting and Operations Manager for Canada, is pleased to announce the appointment of Colin Robertson to the role of Manager, Central Regional Branch and Risk Control Manager for Canada. Colin joins the Canadian team from Ecclesiastical, U.K. where he held the position of Regional Manager, Gloucester Region. Colin spent a number of years as Ecclesiastical’s Deputy Chief Surveyor and was instrumental in establishing the risk control function in Canada.

Ecclesiastical Insurance was established in England in 1887.

The Canadian branch opened in 1972. Owned by a charitable trust, group profits are returned to our owner for distribution to charitable initiatives.

www.ecclesiastical.ca NICC continued on page 68‌ November 2008 Canadian Underwriter

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GALLERY National Insurance Conference of Canada (NICC), continued‌

The National Insurance Conference of Canada (NICC) chose Women in Insurance Cancer Crusade (WICC) as its official charity for the 2008 conference held in October.

As part of this partnership, WICC Quebec Chapter held a fundraising silent auction at the NICC, raising Cdn$6,000.

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With market turmoil top of mind, the NICC served as a launching pad for analysis and in-depth discussion about the impact of the credit crisis on the Canadian market; what can be done to mitigate damage; and what changes are needed moving forward in order to guarantee the health of the Canadian insurance industry. The lineup of speakers included: Don Drummond, senior vice president and chief economist, TD Bank Financial Group; Julie Dickson, federal superintendent of financial institutions; Andrew Coyne, national editor, Maclean’s; and Joel Baker, NICC president and CEO. Gregg Hanson, immediate past president and CEO of Wawanesa Mutual served as the master of ceremonies of the event.

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The 2008 RIMS Canada Conference started off with a bang on Sept. 20, with separate dinners hosted across Toronto by Cunningham Lindsey Canada, Crawford & Company (Canada), McLarens Canada and Quelmec Insurance Adjusters.

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The Saturday night dinners led delegates to GCAN’s Casino Night held at Canada’s National Ballet School. The next morning, conference delegates started their day at the Welcome Brunch, courtesy of Aon Reed Stenhouse Inc. After a day of perusing the Exhibit Hall, delegates mingled at the Opening Reception sponsored by Allianz Global Corporate and Specialty and Integro Insurance Brokers.

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Nightlife at the RIMS Canada Conference got a dose of sweet, and a dollop of rock ‘n roll.

On Sunday night, delegates enjoyed Willis Canada’s sweet Chocolate Decadence. The night afterwards, Polson Pier (the Docks) set the stage for Sedgwick Pub Night, where Marsh’s own ‘Tabloid’ served up some funk, rock and pop.

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APPOINTMENT

Robert Merizzi Robin Spencer, President and CEO of Aviva Canada Inc. is pleased to announce the appointment of Robert Merizzi to the position of Executive Vice President and Chief Operating Officer, Operations and Technology, effective October 6, 2008.

Mr. Merizzi will lead a broad operations mandate including operations, information technology, corporate security, facilities and Aviva’s corporate project office. His vast leadership experience will be critical in delivering seamless, end-to-end process improvements and customer solutions across Aviva.

Most recently, Mr. Merizzi held the position of Senior Vice President, Operational Excellence at Sun Life Financial where he was accountable for building global–scale operational programs that deliver cost effective business processes. Prior to Sun Life, he was Senior Executive and Head of IT Global Service Delivery for Zurich Financial Services with accountability for operational transformation and business change management. Mr. Merizzi held many executive-level positions at Nortel Networks, including VP & CIO (Paris, France), and VP of Information Services, CRM and E-Solutions in the United States.

Mr. Merizzi is a Certified Management Accountant (CMA), holds a BBA in Finance and Accounting and a Master of Information Technology (MIT) from the University of Ottawa.

Aviva Canada Inc. is one of the leading Property and Casualty insurance groups in Canada, providing home, automobile and business insurance to more than three million customers. Our group of companies has more than 3,300 employees, 40 locations and more than 3,000 independent broker partners. Aviva Canada products and services are delivered across the country under the following brands: Aviva, Aviva Pilot, Aviva Traders, Aviva Elite, Aviva Scottish & York and through S&Y Insurance Company. Aviva Canada Inc. is a whollyowned subsidiary of UK-based Aviva plc, the world’s fifth largest insurance group.

Please visit our web site at avivacanada.com and our innovative web tool at changeinsurance.ca.

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Sunday night provided another opportunity for RIMS Canada delegates to splash out with various private functions dotting the city. Catlin Canada painted the town red with their ‘Moulin Rouge – An Evening in Paris’ soiree at Ultra Supper Club. BFL Canada hosted a ‘Vintage Hollywood Gala’ at the Fermenting Cellar in the Distillery District. And guests set sail with Zurich at the Royal Canadian Yacht Club.

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Toronto certainly earned its nickname ‘Hollywood North’ when the 80 exhibitors at the 2008 RIMS Canada Conference took the Vintage Hollywood theme to the limit. It was all lights, camera and action as industry members got set for their booth close-ups in the Exhibit Hall.

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A star-studded speaker lineup at the 2008 RIMS Canada Conference delivered rich and emotionally-charged content, challenging delegates to rethink their risk management processes and policies. Among them, Stephen Lewis, co-director of AIDS-Free World, and former special envoy to the UN Secretary-General Kofi Annan, delivered a stirring talk about the AIDS crisis in Africa and the economic crisis here in North America. Robert F. Kennedy Jr. encouraged delegates to take action on the environmental crisis facing Canada and the U.S. From the RIMS community, Joseph Restoule, incoming president of RIMS, Janice Ochenkowski, president of RIMS, Kim Hunton, chair of the RIMS Canada council, Mary Roth, executive director of RIMS, and Nancy Chambers and Susan Meltzer, co-chairs of the conference, all spoke of the current issues and successes of Canada’s risk management community.

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GALLERY

In an effort to recruit new talent into the risk management industry, Aon hosted its third annual Risk Tournament as part of the RIMS Canada Conference. Sixty-six students participated in the preliminary tournament played at the University of Toronto on Sept. 19. In the final round play-off, held at the conference, David Lu won the grand prize of Cdn$5,000 toward tuition. Daniel Molnar and Mike Yoo each took home $2,500 in a tie for second place. “This is a unique opportunity for graduating students to interact with Aon recruiters in a fun and engaging environment,” said Noula Kondovski, Aon’s national talent manager.

“The Risk Tournament also provides us with the chance to raise awareness of the multitude of career path opportunities among prospective recruits.”

Michael Thornhill, B.A., FCIP, CRM Manager, Atlantic Regional Branch

Ecclesiastical Insurance Office plc is a specialist insurer that seeks to advise and protect those who enrich the lives of others.

We are dedicated to serving the needs of our customers and their communities. Through the independent broker network, we offer customized insurance solutions to faith and related not-for-profit organizations, retirement communities, education facilities, unique properties, registered charities, and select commercial enterprises.

Stuart Rowley, Underwriting and Operations Manager for Canada, is pleased to announce the appointment of Michael Thornhill to the role of Manager, Atlantic Regional Branch. Michael possesses significant insurance company experience primarily focused in the areas of Underwriting and Management.

Most recently, Michael held a senior management position at a local branch of a national broker.

Ecclesiastical Insurance was established in England in 1887.

The Canadian branch opened in 1972. Owned by a charitable trust, group profits are returned to our owner for distribution to charitable initiatives.

See all of our Insurance Industry Event Photos Online within the ONLINE PHOTO GALLERY at

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Professional leadership starts at the top.

At the 55th Annual General Meeting, held October 25, 2008, in Québec City (Québec), Noel Walpole, FCIP, ICD.D, was elected Chairman of the Board of Governors of The Insurance Institute of Canada (IIC). Mr. Walpole is President & CEO of The Economical Insurance Group based in Waterloo, Ontario.

Chris Fawcus, President & CEO of AON Reed Stenhouse Inc., was elected Deputy Chair.

François Faucher, BAcctg., CA, Co-Chief Operating Officer of TD Insurance, was elected Vice Chair, Membership-at-Large.

Regional Vice Chairs are: Darrell Mack, BAC, FCIP – Western provinces; Bruce Pearson, FCIP – Ontario; Richard Séguin, FPAA – Quebec; and Terry Shea, BBA, CGA, FCIP – Atlantic provinces.

The IIC is the premier professional education body for the property/casualty insurance industry. Its membership of 35,000 includes 18,000 active students in its formal programs. The Institute is also the parent organization of the Chartered Insurance Professionals’ Society, which serves the needs of more than 15,000 graduate Chartered Insurance Professionals (CIP) and Fellow Chartered Insurance Professionals (FCIP). For more information, please visit our Web site at www.insuranceinstitute.ca

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The CIP Society hosted its Annual Fellows Golf Tournament at the Diamondback Golf Club on Sept. 29 in Richmond Hill, Ontario.

integrity: n. incorruptible, complete.

When writing insurance, you need to know that the policy is well defined and covers your clients needs completely. And you should have no doubts that the insurer will fully stand behind this policy.

Chubb Insurance better defines its policies.

This provides more certainty in coverage and more efficient claims service.

If your integrity is critical to your success, Chubb is your recommendation.

Chubb Defines Insurance

www.chubbinsurance.com Chubb Insurance refers to Chubb Insurance Company of Canada.

The precise coverage offered is subject to the terms, conditions and exclusions of the policy as issued.

Your brokerage is alive with the sound of staff: Using Fastrax, our industry-leading online business solution Rejoicing, at Fastrax enhancements such as more classes and features Receiving Puretracks song downloads Having a chance to win gift cards or a trip to see the Sound of Music musical All of the above Now there are more reasons than ever why Fastrax is music to you and your customers’ ears!

With 25% more eligible classes, a two-year policy term option and decreasing deductible, you’re better positioned than ever to grow and protect your book of business. You can also now offer your customers discounts for picking the two-year policy term option or for placing multiple polices with us.

By seeing how Fastrax is the best solution for your commercial clients, you’ll have a chance to receive Puretracks song downloads and win from a selection of great prizes – including two grand prizes of a weekend trip for two to see the Sound of Music musical in Toronto.

Contact your Fastrax underwriter or Commercial Lines Business Development Staff today for more details.

Aviva CU Nov 2008 final.indd 1 Av

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