Runoff Business A Canadian Perspective

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Run-off BusinessA Canadian Perspective

• AIRROC Quarterly Meeting
• February 12, 2009

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Objectives of This Session

• Provide perspective on the history, current state
  and future of the Canadian run-off marketplace
• Gain better understanding of the Canadian
  regulatory and legal environment
• Compare and contrast Canadian run-off business
  with other countries
• Outline hidden Canadian business in foreign
  portfolios

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Overview of the Canadian Marketplace

• Elaine Collier
• Vice President Portfolio Solutions
• Omega General Insurance Company
• Toronto, Canada

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A Few Facts About Canada
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A Few Facts Figures Banks

• Deposit Taking Institutions 149 in total
• 75 banks
• 21 domestic
• 24 foreign
• 23 foreign branches full service
• 7 foreign branches lending only
• 47 trust companies
• 19 loan companies
• 7 co-operative credit associations
• 1 co-operative retail association

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A Few Facts Figures Banks

• Current state of banks in Canada
• In Liquidation
• 3 foreign banks
• 1 trust company
• 6 loan companies

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A Few Facts Figures - Insurance

• Federally regulated property casualty insurers
  and reinsurers 192
• 94 are domestic Canadian companies
• 98 are branches of foreign owners
• Federally regulated life insurers and reinsurers
  92
• 46 are domestic Canadian companies
• 98 are branches of foreign owners
• Provincially regulated, mutuals, reciprocals,
  risk retention groups - 90

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A Few Facts Figures Run-Off Business

• Domestic companies currently in run-off 7
• Foreign branches in run-off - 21

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Overview of the Canadian Marketplace

• Whats the same and whats different?
• Public versus private market
• Lines of business
• Broker versus direct
• Regulatory framework
• Legal framework

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The Canadian Regulatory Environment

• Phil Cook
• Chief Executive Officer
• Omega Insurance Holdings Inc.
• Toronto, Canada

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Regulatory Environment

• Federal (OSFI)
• Provincial
• Domestic versus Branches
• Approvals
• Oversight (solvency market conduct)

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Business Environment

• Rates and Forms
• Reinsurance (licensed unlicensed)
• Commutations
• Buy-backs
• Novations

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Run-off Environment

• Insolvent (Courts and PACICC)
• Solvent
• Strategic
• Discontinued operations
• Actuarial (discounts and PFAD)
• Releases

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Settlement Environment

• International
• Local
• Parent Branch
• Finality
• Negotiations
• Cost of Run-off

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The Canadian Legal Environment

• Frank Palmay
• Partner Chair, Corporate Insurance Group
• Lang Michener LLP
• Toronto, Canada

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Some Important Features

• Federal solvency and governance of branches
  (exclusive)
• Provincial and Federal incorporation and
  solvency of insurance companies
• Provincial marketplace regulation (exclusive)
• Federal banking (exclusive)

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Some Important Features

• 12 common law 1 civil law
• Other than auto no regulatory approval of
  insurance contracts
• Auto government monopoly in 3 provinces and
  partial monopoly (BI) in Quebec
• Health Workers Compensation - government run

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Provincial Legislation

• Largely unchanged for over 30 years fair bit of
  harmonization
• Alberta enacted new Insurance Act recently
• British Columbia has introduced new Act
• Maritime provinces looking at new Act
• Automobile has been political lightning rod in
  the past

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Insurance Companies Act

• Introduced 1992 amended 1997, 2002, 2007
• Corporate provisions modeled on CBCA which was
  influenced by Delaware
• Substantial regulatory and regulation making
  discretion

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2007 Amendments

• Revamped the regulatory requirements for
  portfolio transfers by Canadian companies
• Introduced changes for branches (January 1, 2010)
• Clarification threshold for registration
  insure in Canada a risk
• Clarification what is reflected on branchs
  books
• Approval requirements for portfolio transfers

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Risk Transfers

• Indemnity reinsurance in the ordinary course of
  business
• Indemnity reinsurance not in the ordinary course
  of business
• Assumption reinsurance
• Some but not all
• All or substantially all
• Novation
• Some but not all
• All or substantially all
• Sale of all or substantially all assets

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Risk Transfers Pre-2007 Canadian Insurance
CompaniesMinisterial Approval

• Indemnity reinsurance in the ordinary course of
  business
• Indemnity reinsurance not in the ordinary course
  of business
• Assumption reinsurance
• Some but not all
• All or substantially all
• Novation
• Some but not all
• All or substantially all
• Sale of all or substantially all assets

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Risk Transfers Now Canadian Insurance
CompaniesMinisterial Superintendent Approval

• Indemnity reinsurance in the ordinary course of
  business
• Indemnity reinsurance not in the ordinary course
  of business
• Assumption reinsurance
• Some but not all
• All or substantially all
• Novation
• Some but not all
• All or substantially all
• Sale of all or substantially all assets

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Risk Transfers Now Canadian BranchesMinisterial
Approval

• Indemnity reinsurance in the ordinary course of
  business
• Indemnity reinsurance not in the ordinary course
  of business
• Assumption reinsurance
• Some but not all
• All or substantially all
• Novation
• Some but not all
• All or substantially all

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Risk Transfers gt 2009 Canadian
BranchesMinisterial Superintendent Approval

• Indemnity reinsurance in the ordinary course of
  business
• Indemnity reinsurance not in the ordinary course
  of business
• Assumption reinsurance
• Some but not all
• All or substantially all
• Novation
• Some but not all
• All or substantially all

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Case Study 1 Old Regime

• 100 indemnity reinsurance
• 100 novation
• Branch withdrawal
• Anticipated maintenance saving10 million

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Case Study 1 Recent

• A Assumption Reinsurance
• B 100 Indemnity Reinsurance (with assets in
  trust)
• Branch withdrawal

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Run-off BusinessA Canadian Perspective

• Wrap-up and Questions

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Misconceptions About Run-off in Canada

• Getting in and out of the market
• Timeframes for exit
• Leave business as is less trouble

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Canadian Run-off Business Outside of Canada

• Canadian risks hidden in foreign portfolios

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Run-off Business in Canada

• Opportunities you never knew you had
• Opportunities we know we have

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Questions???

• Phil Cook 416-361-1728
• pcook_at_omegageneral.com
• Frank Palmay 416-307-4037
• fpalmay_at_langmichener.ca
• Elaine Collier 416-801-0579
• ecollier_at_omegageneral.com