How will P&C actuaries respond and react to the emerging changes to the economy?

This article originally appeared on the CIA COVID-19 Hub.

By Houston Cheng, FCIA, Chair of the Property and Casualty Insurance Financial Reporting Committee, and Chair of the P&C Insurance Subcommittee of the Committee on Continuing Education

This article reflects the opinion of the author and is not official guidance of the CIA. The author welcomes feedback on this article and suggestions for future articles, and invites CIA members to regularly visit the CIA COVID-19 Hub for thought leadership.

The Property and Casualty Insurance Financial Reporting Committee (PCFRC), along with other CIA councils and committees, have had many discussions on how actuaries might respond and react to the emerging changes to the economy. This article outlines these initiatives related to P&C insurance.

The result of some of these discussions have been presented in various CIA Town Halls on COVID-19. The all-practice Town Hall held on April 3 touched on the high-level impact and considerations, and the P&C Town Hall held on April 24 dove more into P&C-specific details. There have also been frequent updates on the CIA COVID-19 Hub covering different topics. The PCFRC intends to issue periodic updates through the Hub later in the year.

P&C actuaries who are interested to hear of their peers’ experiences so far should tune into the P&C Town Hall. Actuaries from Economical Insurance, Aviva Canada, Munich Re, and Desjardins General Insurance shared their perspective on key operational issues that have emerged, considerations that they expect will impact their Q2 and year-end valuation, as well as the timing and challenges of this year’s financial condition testing (FCT).

On other fronts, the Committee on Risk Management and Capital Requirements (CRMCR) recently released educational notes on Financial Condition Testing and Guidance for the 2020 Reporting of Capital and Financial Condition Testing for Life, P&C, and Mortgage Insurers. Specifically, the CRMCR’s 2020 Guidance highlighted sections the Standards of Practice that actuaries should consider in this year’s FCT.

In terms of whether this year’s FCT should be earlier or later than the timing that companies are used to in prior DCATs, through discussions with actuaries in the industry, we’re seeing both sides of the coin.

Most P&C practitioners are noting that where DCATs used to typically take place later in the year, the FCT should be pushed earlier. Quite a few actuaries are aiming to present some results at the Q2 board meeting, and this is a rushed timeframe to complete the work. Nevertheless, there are many actuaries who are taking this route, with the understanding that the modelling is fluid and updates to the scenarios, and maybe even the base scenario, may need to be performed in late summer or early fall.

The view of others is that the FCT should be delayed to allow for economic assumptions to stabilize. This view appears to be more prevalent with life practitioners, though some P&C actuaries also share the view.

Lastly, the Office of the Superintendent of Financial Institutions (OSFI) has offered some capital relief for loan or premium deferrals. Details on OSFI’s announcements are the following:

This article is part of a series of practice-specific articles under the Actuarial Guidance Council. Read the next article on risk management by Michelle Lindo.

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