PACICC aims to expand resolution toolkit

Oct. 5, 2020 — CANADA’S P&C policyholder protection provider has been advancing plans to expand the use of its resolution powers with a consultation paper for member insurers. 

The Property and Casualty Insurance Compensation Corp. has made the issue a priority for this year, stressing that expanding its resolution toolkit beyond compensation after liquidation will help reduce systemic risk in Canada’s p&c industry. 

In the latest edition of its Solvency Matters newsletter, released in late September, PACICC explains that evolution of its governance model in recent years has led to closer work with prudential supervisory authorities. That enabled regulators to publish intervention guides for distressed insurers that specifically allow for an engagement with PACICC well before an insolvency.  

“This newfound runway has given PACICC the all-important element of time to explore options and develop alternatives to simple liquidation,” the industry-funded corporation said in the newsletter.  PACICC has asked member insurers for guidance with several issues, including: 

■ How should PACICC respond to a range of different, remote but credible scenarios? 

■ What resolution tools/options might best suit these scenarios? 

■ What are the implications for our governance model and what, if any, changes might be required? ■ What are the criteria by which the various options and alternatives should be evaluated by the PACICC board? Member feedback from the consultation paper will be used to shape toolkit recommendations that will be submitted to the PACICC board for consideration next month. 

Meanwhile, the policyholder protection provider is also forging ahead with its ‘permanent priority issue’ —

mitigating systemic risk from a large earthquake. 

PACICC reports in the newsletter that its board has endorsed a draft action plan that includes two broad initiatives intended to address potential trigger events. 

The first involves the development of an industry-wide proposal regarding a government mechanism to protect consumers from industry failure caused by a major earthquake. 

The second is an investigation of incremental changes to PACICC’s governance model to mitigate contagion risk. “We have worked diligently over the last decade to raise awareness among regulators and politicians, at the provincial and federal levels, regarding the significant risk of a systemic failure of our industry, if and when Canada is struck by a major earthquake,” PACICC CEO Alister Campbell says. 

“It is a sobering and troubling reality that Canada remains the largest developed economy in the world with a large exposure to earthquake and without a government mechanism to backstop the insurance sector and allow us to properly protect our country’s citizens — when that inevitable event occurs.” 

He says the COVID-19 pandemic “powerfully illustrates to government the compelling benefits of having an in-case-of-emergency- break-glass plan prepared in advance” for ‘tail-risk’ events such as outbreaks, wildfires, earthquakes or floods. 

But, Mr. Campbell notes, with the exception of the decades-old nuclear pool, Canada has neglected to build risk-transfer models to address obvious tail risks. 

“And so the work we now need to do to is multi-faceted,” he writes in the newsletter.  

“Our industry needs to help government think through the options and select the best possible solutions to address pandemic risk. 

“But at the same time, we must use this rare opportunity to see if we can also tackle some of the other longstanding — but as of yet unaddressed — tail-risk events that we also know are inevitabilities in our large and geographically diverse nation: earthquake, wildfire and flood.” 

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