2015 Earthquake Exposure Data Form (effective date January 2015) - Letter

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  • Type of publication: Letter
  • Date: March 10, 2014
  • To: Federally Regulated Property and Casualty Insurance Companies

In August 2013, OSFI published the Draft Earthquake Exposure Data Form for public consultation and received seven submissions from industry associations and companies.  OSFI reviewed the submissions and amended the Draft form where appropriate.  Appendix A to this letter provides a summary of public comments received and an explanation of how they were addressed.

Today, OSFI is publishing a new version of the Earthquake Exposure Data Form (effective date January 2015).  This form is constructed to be consistent with the expectations and terminologies from Guideline B-9.  The sample of the form is posted here to help you understand the data points that will be required in the future electronic filing.  The format and/or structure of the form may change to accommodate system implementation requirements but this should not affect the data points requested.  Technical specifications for this form together with electronic filing instructions will be posted in the summer of 2014.

Please note this form is published today to give companies sufficient time to prepare for the transition, and should not be used for the April 15, 2014 filing.  The Earthquake Exposure Data Form (effective date January 2014) should be used for the 2014 filing.

Questions concerning the Earthquake Exposure Data Form should be addressed to your OSFI Relationship Manager or to Gladys Wong, Actuarial Division, by email at Gladys.Wong@osfi-bsif.gc.ca.

Yours truly,

Mark Zelmer
Deputy Superintendent

Appendix A - Comments and Responses on Data Collection Form

Industry Comments OSFI Responses
Two common themes emerged from consultations with the industry:

 

1. It was noted that the new earthquake filing form is onerous, requesting information that was not previously reported and whose purpose is not always clear.

Data quality and the associated documentation are the most controllable aspects of sound earthquake risk management. As such, Guideline B-9 sets high expectations in these areas. OSFI has revisited the cost effectiveness of the data points requested and amended the form where appropriate.

2. It is recommended that terminology and definitions used in the earthquake filing form should be clear and consistent with those already included in Guideline B-9 and draft MCT wording.

Some other modifications were made to improve clarity and consistency.

Materiality  

It should be made clear if the question on materiality is only relevant to companies that have a non-material exposure.

The data form was restructured to make it clear that only companies, that have non-material exposure to earthquake risk and do not use a model to estimate earthquake exposure, need to complete Section 1 - Materiality.
Elements of the reserving formula  

Terminologies used in section 2 should be defined and the logical flow of the information requested should be clarified.

Calculation instructions were included in the tables or footnotes for those items not defined in the MCT Guideline.

It’s recommended that OSFI coordinate a three-way dialogue with the audit firms and insurance companies to determine what elements of the reserving formula should be audited. OSFI agrees and a working group will discuss this during 2014.
Non-modeled perils and model operations

 

It’s not clear what other adjustments in section 4.3 are made to. The form clarified that “other adjustments” are those made to the direct model output for eastern and western PML(500).
Some companies will likely use percentage loadings. If a percentage loading is used, companies need to compute a dollar amount for the table.
Requesting separate dollar amounts for each type of PML adjustment implies a high level of information sophistication that may not always be available.  It is therefore recommended that a total dollar amount to be shown. If a combined adjustment is made, companies can use the “other” category and give a brief description of what is included in the other category.
PML by perils and risk groups  
It should be noted that PMLs for different perils or risk groups do not add up to 100%. As a result, summing these values in section 6 & 7 would result in over-estimation of overall PML. OSFI agreed and has deleted the summation. Companies should ensure the total column includes all the perils or risk groups related to earthquake exposure.

Worldwide PML

 

Some commentators requested an explanation of the rationale and purpose of reporting on worldwide (Canada wide) PML as the revised methodology does not take into account worldwide exposure.

Guideline B-9 requires that “Earthquake PMLs should be estimated and reported to senior management and the Board based on Canada wide exposure for foreign insurers or worldwide exposure for Canadian insurers, as well as any regulatory capital requirements.”

The table requested in the form is also a data resource for OSFI to monitor changes to the model output for comparison with the regulatory formula.

Definition of reinsurer  
Clarification should be provided on the definition of who is considered a primary insurer for the purposes of section 6 and who is a reinsurer for the purposes of section 7. Reinsurers here refer to companies with only assumed business.
AALFootnote 1 & Cat XOLFootnote 2 for reinsurers  
An explanation should be provided for the rationale and use of the data in table 7.2 “Top 3 cedents in terms of AAL” and table 7.3 “Top 3 cedents in terms of Cat XOL”. The information required is relevant to reinsurers’ risk analysis and easier to complete (for most reinsurers) than corresponding primary insurer data requests.

Footnotes

Footnote 1

Average Annual Loss (AAL) is pure premium quantified by aggregate exceedance probability curve. Aggregate exceedance probability curve is a cumulative distribution showing the probability that aggregate losses in a year will exceed a certain amount.

Return to footnote 1 referrer

Footnote 2

Cat XOL: catastrophe-excess of loss coverage

Return to footnote 2 referrer