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http://ssrn.com/abstract=1621740
 
 

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The Impact of the 2003 Regulatory Reform in the Canadian Property/Casualty Insurance Industry on Insurers’ Surplus Levels


Peter Carayannopoulos


Wilfrid Laurier University - School of Business & Economics

Mary Kelly


Wilfrid Laurier University - School of Business & Economics

Si Li


Wilfrid Laurier University - School of Business & Economics

March 17, 2010

Journal of Insurance Issues, Forthcoming

Abstract:     
In 2003, Canada’s federal prudential regulator modified the capital adequacy test for property/casualty insurers to better align regulatory surplus with firm risk. We explore the impact of this change on the level and determination of insurers’ surplus holdings.

We find that firms have not changed the level of surplus held in response to risk characteristics as delineated in the capital adequacy test. However firms have reduced surplus holdings in jurisdictions in which automobile insurance reform has been successful, and increased surplus holdings in jurisdictions with escalating automobile insurance claims.

Overall, larger firms have increased their surplus holdings since 2003, whereas smaller insurers report surplus-to-net-premium-written ratios that have been declining over time. In addition, insurers are part of a larger financial conglomerate have consistently held more surplus than their counterparts. We conjecture that these higher levels may be related more to the conglomerate’s future strategic opportunities than the insurer’s level of risk. This suggests that Canadian regulators need to work with supervisory authorities in other jurisdictions to study solvency standards related to groups and larger financial conglomerates.

Number of Pages in PDF File: 34

Keywords: Solvency Regulation, Statutory Surplus, Property/Casualty Insurance

JEL Classification: G22, G28

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Date posted: June 7, 2010 ; Last revised: November 7, 2010

Suggested Citation

Carayannopoulos, Peter and Kelly, Mary and Li, Si, The Impact of the 2003 Regulatory Reform in the Canadian Property/Casualty Insurance Industry on Insurers’ Surplus Levels (March 17, 2010). Journal of Insurance Issues, Forthcoming . Available at SSRN: http://ssrn.com/abstract=1621740

Contact Information

Peter Carayannopoulos
Wilfrid Laurier University - School of Business & Economics ( email )
80-University Avenue west
Waterloo, Ontario N2L 3C5
Canada
Mary Kelly
Wilfrid Laurier University - School of Business & Economics ( email )
Waterloo, Ontario N2L 3C5
Canada
Si Li (Contact Author)
Wilfrid Laurier University - School of Business & Economics ( email )
Waterloo, Ontario N2L 3C5
Canada
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