facility association · moving from east to west, we appealed the $459,000 cost of our 2002/2003...

FACILITY ASSOCIATION

1 5 1 Y o n g e S t r e e t • 1 8 t h F l o o r • T o r o n t o • O n t a r i o • M 5 C 2 W 7 Tel: (416) 863-1750 • Fax: (416) 868-0894 • Email: [email protected]

TO: MEMBERS OF THE FACILITY ASSOCIATION ATTENTION: CHIEF EXECUTIVE OFFICER BULLETIN NO.: F04 - 015 DATE: May 17, 2004 SUBJECT: MINUTES OF THE ANNUAL GENERAL MEETING Attached, for your information, are the minutes of the Annual General Meeting of the Facility Association held on April 28, 2004. David J. Simpson, M.B.A., FCIP President & CEO Attach.

Facility Association

MINUTES OF THE ANNUAL GENERAL MEETING HELD AT THE CAMBRIDGE SUITES HOTEL TORONTO, ONTARIO ON APRIL 28TH, 2004

1. The President read the notice of meeting dated March 23, 2004 (Bulletin F04-010) and

confirmed the presence of a quorum.

Residual Market Votes represented in person 522 Residual Market Votes represented by proxy 316 Residual Market Total represented (out of 1042 votes) 838 RSP Votes represented in person 329

RSP Votes represented by proxy 198 RSP Total represented (out of 658 votes) 527

2. On a MOTION made by Mr. R. Cooke, SECONDED by Mr. C. Brindamour

and CARRIED, the Minutes of the Facility Association Annual General Meeting held on April 23rd, 2003 as previously circulated, were approved.

3. THE CHAIRMAN’S REMARKS – ATTACHED 4. THE PRESIDENT’S REMARKS - ATTACHED

5. REPORTS OF THE PROVINCIAL OPERATING COMMITTEES

The written reports were attached to the Agenda. The Chairman noted that not all of the Chairpersons were present, however, their representatives would be responding to questions on their behalf. On MOTION made by Mr. D. Demers, SECONDED by Mr. Tisdale and CARRIED, the reports were adopted.

Minutes of the Facility Association Annual General Meeting – April 28, 2004 Page 1 of 4

6. REPORTS OF THE TECHNICAL COMMITTEES

The reports of the Technical Committees were circulated with the Agenda. The Chairman asked if there were any questions arising from these reports and indicated that representatives of these committees were present to answer any questions. On MOTION made by Mr. R. Saunders, SECONDED by Mr. R. Cooke and CARRIED, the reports were adopted.

7. NOMINATING COMMITTEE REPORT

Mr. R. Tisdale on behalf of the Executive Committee presented the Nominating Committee Report. Nominated for election to the Board of Directors for the Insurance Brokers Association of Canada for a two year term expiring in the year 2006: Thom Young Lundgren and Young Insurance Ltd. Nominated for election to the Board of Directors for a two year term expiring in the year 2006: Charles Brindamour ING Insurance Company

Andrew Cartmell The Co-operators General Insurance Company George L. Cooke The Dominion of Canada General Insurance

Daniel Demers Meloche Monnex Inc.

Igal Mayer Aviva Canada Inc.

The continuing members of the Board of Directors with terms expiring in 2005 are: Robert J. Cooke State Farm Mutual Auto Insurance Company

Beth Fesiuk Pearson Dunn Insurance and Financial Services

Peter Johnson Heritage Insurance (1997) Ltd.

Jules R. Quenneville The Guarantee Company of North America Rowan Saunders Royal and SunAlliance Insurance Co. of Canada

J. Robert Tisdale Pembridge Insurance Company

Mr. David Simpson is a member of the Board by virtue of his office.

There were no further nominations from the floor.


On MOTION made by Mr. R. Tisdale, SECONDED by Mr. C. Brindamour and CARRIED, the nominations from the floor were closed.

8. ELECTION OF DIRECTORS

On MOTION by Mr. D. Demers, SECONDED by R. Saunders and CARRIED, IT WAS RESOLVED that the Nominating Report be accepted by the Members. As there were no further nominations, the Chairman directed that a single ballot be cast in favour of those nominated.

9. FINANCIAL STATEMENTS Mr. David Ross from the firm of Deloitte & Touche advised that they were presenting an

unqualified opinion with respect to the Financial Statements of the Facility Association as at October 31st, 2003, the Facility Association Residual Market Segment as at October 31st, 2003, and the Risk Sharing Pool as at October 31st, 2003.

In response to a question by Mr. John Knill of Farm Mutual Reinsurance Plan, the

President advised that projections for FA results for 2004 are circulated periodically in a publication entitled “Outlook”, that FA servicing carriers are refunding premiums as a result of the PUB ordered rate reduction, and that FA will be refiling its current rates in New Brunswick for the required June 1st filing.

On MOTION made by Mr. R. Tisdale, SECONDED by Mr. R. Cooke and CARRIED,

all of the above Financial Statements for the fiscal year 2003 as previously circulated were approved.

10. APPOINTMENT OF AUDITORS

Upon MOTION made by Mr. C. Brindamour, SECONDED by Mr. D. Demers and CARRIED, the firm of Deloitte & Touche was appointed as the auditors for Facility Association for the fiscal year 2004, with terms to be negotiated by the Board of Directors.

11. OTHER BUSINESS

No other business was brought before the meeting.


12. TERMINATION OF MEETING

There being no further business, on MOTION made by Mr. R. Saunders, SECONDED by Mr. R. Tisdale and CARRIED, IT WAS RESOLVED that the meeting be terminated.

A. Cartmell Chairman


CHAIRMAN’S REMARKS

ANNUAL GENERAL MEETING – April 28, 2004

Good morning, my name is Andrew Cartmell, and I am the Chairman of the Board of Facility Association. Last year was another extremely difficult year for all stakeholders in automobile insurance as the industry struggled to return to acceptable levels of profitability and politicians struggled with facing angry electorates over rising prices. A variety of political and regulatory responses led to varying impacts on residual market volumes across the country. For example, in New Brunswick, where the government passed significant tort reform last July and where the Public Utilities Board ensured that companies were charging fair and adequate rates, our volumes continued to decline. By contrast, in Nova Scotia, where the government mandated an industry wide rate reduction and imposed a rate freeze, our volumes continued to climb. Overall though, across the system, Facility Association’s business volumes rose substantially. As volumes climbed, they did so with worsening loss ratios, most notably in Ontario, resulting in a fiscal year operating loss to our members of over $491 million, with almost $488 million of that loss in Ontario alone. As recently as April 1st of last year, our actuaries were projecting a loss of $275 million, so the situation emerged very, very quickly. In response, your Board of Directors took a number of steps on behalf of member companies. Some of those steps included: ♦ Authorizing funds for more detailed and more timely data to support the

pricing process

Chairman’s Remarks AGM on April 28, 2004 Page 1 of 4

♦ A number of meetings with FSCO to engage in dialogue over the scope of the problem and necessary solutions

♦ Submitting three rate filings ♦ Authorizing an independent actuarial valuation of the Ontario Private

Passenger segment ♦ Authorizing a Peer Review of the most recent Ontario Private Passenger

vehicle rate filing ♦ Conducting additional injury claims audits at our Servicing Carriers

Those audits showed that the Servicing Carriers were largely servicing the Facility Association business in the same manner that they were serving their own policyholders. However, they did identify some areas for improvement and we have received the follow up action plans from our Servicing Carriers to ensure those improvements are made. We will be completing follow-up audits prior to June 15th. We also engaged our actuaries, Eckler Partners Ltd., to produce an Outlook periodically to assist our members in forecasting the impact of Facility Association results on their own books. With support of our Accounting Committee, we have further refined that process for 2004 to enhance the Outlook’s usefulness. The Board was very active relative to other jurisdictions as well. Moving from East to West, we appealed the $459,000 cost of our 2002/2003 rate hearing to the Newfoundland & Labrador Supreme Court. The cost of our rate hearing was 14-15 times more than we’ve encountered in other jurisdictions. Given the materiality of those costs we believe they ought to have been properly heard before the Public Utilities Board in that province. Our case was heard January 12th and 29th of this year, and we are awaiting a decision.


In Nova Scotia, we were to have been subject to a regulation eliminating the use of age and marital status effective April 1st. We expressed our concern to the government that, regardless of the merits of that proposal, the effective date should be the same as that for the entire industry to avoid Facility Association having the cheapest rates for young drivers. I am pleased to report that the effective date of that change is now November 1st, to coincide with the rest of the industry. Reflecting a belief that the New Brunswick marketplace was once again a healthy place to do business for members serving the market on an involuntary basis, the Board mandated that staff work to reduce the numbers of drivers insured through Facility Association in that province. Staff have been working with Servicing Carriers and the IBC to achieve this goal and our industry has committed to reducing Facility Association’s private passenger vehicle market share in the province to 2.5% by August. So far, the industry is ahead of schedule in meeting that goal. Historically, your Board of Directors has voluntarily taken the position that rates be developed without a cost of capital. In 2003, the Board took the decision that future rate filings should include a cost of capital, and our recent rate filing in Price Edward Island is the first to reflect that approach. In Alberta, industry and government have been working together to develop a comprehensive “Market Availability Plan” for the province which incorporates aspects of all three major types of residual market mechanisms – Assigned Risk Plan, Risk Sharing Pool, and the traditional Facility Association model. The Board has, just this morning, approved a motion for the drafting of the necessary Plan of Operation amendments to make this a reality. Once drafted, the amendments will require approval of the Board, the membership, and the Alberta government.


Other initiatives approved by the Board throughout 2003 included: ♦ Approving an increase in the maximum Ontario broker commission from

$200 to $250 ♦ Distributing all Residual Market reports, Uninsured Automobile Fund

reports and bulletins electronically ♦ Approving funds to allow for more detailed and timely access to data for

ratemaking, valuation, and general information purposes ♦ Approving a change in the Servicing Carrier compensation formula ♦ Approving a change to the timing of the retro claims fee payments to the

Servicing Carriers to better match compensation with expenditures As I conclude my remarks, I would like to thank my fellow Board members and members of our volunteer committees for the time and effort that they devoted to Facility Association in the past year, and I would like to extend special appreciation to our departing Directors, Linda Palmer, the brokers’ representative from Alberta, Noel Walpole, and Henry Rodrigues. Noel is President and Chief Executive Officer of The Economical Insurance Group and Henry is formerly President, Personal Lines at Lombard Canada Ltd. Henry served on the Board since 1996 including one term as Chair and he was also active on Board Committees through the years, including Executive, Audit and Investment. Noel served on the Board since 1990 and was a member of the Investment Committee. We will certainly miss the wisdom, knowledge, experience and commitment of these gentlemen as we move forward. I would also like to thank our President and all the staff at Facility Association and our consulting actuaries, Eckler Partners Ltd. for their hard work and support throughout the year. I now turn the podium over to our President, David Simpson, for his remarks.


President’s Remarks AGM on April 28, 2004 Page 1 of 18

PRESIDENT’S REMARKS

ANNUAL GENERAL MEETING – APRIL 28, 2004

Thank you, Mr. Chairman.

As the chairman noted, Facility Association volumes were up

substantially in 2003. Premium volume for fiscal 2003 was $1.076

billion, up 303% over 2002. In the Ontario Risk Sharing Pool,

written premiums for fiscal 2003 were $153 million, up 24% over

the previous year.

As always, two fundamental economic realities drive the size of

residual markets. One, the degree to which voluntary market

companies believe they can achieve a reasonable rate of return by

selling auto insurance; and two, the proximity of Facility

Association’s rates to those of our member companies. If companies

do not believe they will be able to achieve a necessary rate of return,

they have less of an “appetite” for business, making coverage less

readily available for consumers. When our rates are below those of

our member companies, the information quickly spreads, and our

volumes start to go up.

As is my customary practice, I will take the next few minutes to

show how those forces played out across the country. At this

meeting last year, I mentioned that rising volumes, combined with

inadequate rates in 2002, gave us our worst combined ratio in many

years at 160%. As the saying goes, it is always darkest before it

goes completely black, and 2003 saw a continuation of the trends

and we ended the year with an even higher combined ratio of 166%.

Facility AssociationCombined Operating Ratio (incl. RSP)

All Jurisdictions

142%

118%

109%

87%

66%

79%

87%

104% 137% 160%

166%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


As losses mounted, our private passenger market share continued to

grow, reaching 5.1% on a written vehicle basis for all the

jurisdictions we serve combined.

Facility Association Private Passenger Market Share (incl. RSP)

All Jurisdictions

4.9%

5.1%

4.7%

4.5%

5.0%

4.9%

4.1%

3.3%

1.9%

1.4%

1.4% 1.8% 2.

9%

5.1%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Moving through the jurisdictions we serve from East to West, our

Market Share in Newfoundland & Labrador rose to 7.5%, easily its

highest level in over 10 years. Our combined ratio improved

marginally to 130%. Prior to the recently announced 15% rate

rollback, we were projecting a $9.5 million loss in the province for

our members in 2004. Our concerns, of course, are that given the

difficult market conditions in the province, our volumes will

continue to increase and our losses will worsen. President’s Remarks AGM on April 28, 2004 Page 3 of 18

Facility Association Private Passenger Market Share

Newfoundland & Labrador

5.1%

5.7%

5.3%

5.5%

5.6%

5.7%

5.2%

5.0%

4.5%

4.6%

3.6%

3.8%

6.6%

7.5%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Facility AssociationCombined Operating RatioNewfoundland & Labrador

125%

104%

106%

113%

89%

50%

100% 94%

189%

137%

130%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


In Nova Scotia, our market share increased as well, ending the year

at 7.1%, another historic high, and our combined ratio improved to

127%.


Nova Scotia

3.2%

3.8%

4.3%

5.2% 5.7%

4.9%

4.1%

3.2%

1.3%

0.8%

1.1% 1.9%

4.9% 7.1%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Facility AssociationCombined Operating Ratio

Nova Scotia

141%

97%

86%

97%

96%

99%

101%

115% 164%

151%

127%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


In Prince Edward Island, the story was much the same in terms of

market share, at 8%.


Prince Edward Island

5.9%

6.0%

6.5%

6.5%

6.3% 5.3%

4.3%

3.2%

2.6%

2.6%

3.3% 4.6% 6.5%

8.0%

0%

2%

4%

6%

8%

10%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


Prince Edward Island

101%

84%

61% 75% 133%

89%

96%

110%

86%

113% 96%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

However, there was some good news as the combined ratio

moderated to 96%. President’s Remarks AGM on April 28, 2004 Page 6 of 18

In New Brunswick, we’ve seen a dramatic departure from our

experience in other provinces, as our numbers started to decline

mid-year. This was not surprising, as we implemented a rate

increase April 1st of last year which lifted us “out of the way” of our

member companies. As well, as the Chairman mentioned, legislated

product reform and a rate review process at the PUB led our

members to be more optimistic about opportunities in the province.

Our market share at year end was 4.5%, down from year end 2002.

What these numbers don’t reflect is the continued climb in market

share to over 6% mid-year and the subsequent decline.



New Brunswick

4.5%

5.1%

5.9%

5.8%

5.1%

4.6%

3.8%

2.6%

1.2%

0.8%

0.9% 1.5%

4.9%

4.5%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

If the industry meets its publicly announced goal of a Facility

Association private passenger market share at 2.5% by August, and

we believe that it will, it will have done so in record time—

approximately 16 months. The last time our market share changed

to that degree in New Brunswick, it took approximately 5 years.

In New Brunswick, our combined ratio was 104%, an improvement

on 182% of the previous year. Members are reminded that we have

just received a decision on our rate filings relative to last year’s

product reform and that those changes are not reflected in these

results.

122% 82%

102%

113% 99%

99%

132%

131% 149% 182%

104%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


New Brunswick


In Ontario, our market share for the traditional residual market

quadrupled to 3.5%. That dramatic increase put our Servicing

Carriers under incredible strain and they responded remarkably

well, and I extend my thanks to everyone at those companies for all

the extra time they put in this past year to support our industry.

Facility Association Private Passenger Market Share (incl. RSP)

Ontario

5.3%

4.9%

4.0%

3.8%

5.2%

5.2%

4.5%

3.6%

1.9%

1.4%

1.4% 1.9% 2.

8%

5.4%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

The market share of the Ontario Risk Sharing Pool, a mechanism

designed to subsidize higher risk drivers and companies that insure

them, and thereby moderate the size of the residual market, failed to

perform that function as its market share held steady at 2%.


Our combined ratio in Ontario was 204%, up 16% from 2002.

Facility AssociationCombined Operating Ratio (incl. RSP)

Ontario15

1%

127%

118%

82%

55%

77%

88%

109%

144%

188%

204%

0%

40%

80%

120%

160%

200%

240%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

In Alberta, our market share increased from 1.28% to 3.2%, its

highest level since 1995.


Alberta

3.9%

6.0%

6.7%

6.2%

3.8%

3.4%

2.8%

2.3%

1.6%

1.2%

0.9%

1.0% 1.3%

3.2%

0%

2%

4%

6%

8%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


However, our combined ratio remained relatively steady at 94.6 %.

Facility Association Combined Operating Ratio

Alberta13

0%

113%

90%

95%

82%

81%

74% 92%

104%

99%

95%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

`

For the Northwest Territories, Yukon and Nunavut taken as a group,

these jurisdictions continue show relatively stable market shares and

volatile combined ratios you would expect from very small volumes

of business.



Northwest Territories

20.7

%

21.5

%

18.8

%

18.5

%

19.1

%

16.5

%

14.7

%

15.8

%

15.8

%

16.1

%

13.1

%

15.4

%

17.8

%

18.7

%

0%

4%

8%

12%

16%

20%

24%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


Northwest Territories

124%

46%

69%

89%

46% 115%

73%

51% 110%

216% 27

9%

0%

40%

80%

120%

160%

200%

240%

280%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003



Yukon

5.1%

6.5%

7.2%

8.2%

7.8%

8.2%

6.8%

7.0%

6.6%

6.9%

6.2%

5.5%

5.2%

6.3%

0%

2%

4%

6%

8%

10%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


Yukon

180%

184%

45%

33% 85%

70%

30% 55%

197%

105%

73%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003



Nunavut

12.9

%

15.9

%

15.5

%

15.3

%

24.4

%

0%4%8%

12%16%20%24%28%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003


Nunavut

72%

60%

74%

51%

0%

40%

80%

120%

160%

200%

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003



The Chairman mentioned the importance of auto insurance in the

political and regulatory arenas last year and we were active in many

respects:

• In Newfoundland & Labrador, we responded to the many

issues raised in the previous government’s auto insurance

legislation, Bill 28, that would adversely impact our members

and consumers;

• We submitted a written brief to the Nova Scotia consultation

process. We were pleased that the Consumer Advocate’s

report recognized that we should not be in competition with

our member companies and that higher-risk drivers insured

through Facility Association should not be subsidized by the

broader marketplace;

• At the invitation of the Weir committee, we made a

presentation at their hearing held in Fredericton in November.

• In Alberta, we responded to extensive requests for

information from the Alberta government as they


contemplated a significant restructuring of the automobile

insurance system in that province.

• To promote a broader understanding of regulatory approaches

to residual markets that work, as well as those that don’t, we

produced a position paper “Considerations for Residual

Market Regulation” which is available on our website.

Political and media attention are, of course, often intertwined

and 2003 was certainly an active year for us in the media. We

participated in interviews in print media at the provincial and

national levels, as well as regional radio and TV, especially in

Atlantic Canada.

On another communications front, we have made several

enhancements to our website, including the posting of rates for

all jurisdictions. Rules manuals for Western and Eastern Canada

are ready to be posted to the website as soon as we receive

regulatory approval for them.


I would like to join the Chairman in extending thanks on behalf

of myself and the staff to our departing Board members, Linda

Palmer, Noel Walpole and Henry Rodrigues. I would also like to

recognize the following long-serving committee members who

have stepped away from their roles in the past year:

Ross Betteridge and Kevin Daniels from the Accounting

Committee;

Cel Zambri from the Ontario Operating Committee;

Jill Sarious, Harry Mason, Evanne Sheppardson and Ron Denhill

from the Alberta Operating Committee;

Mary Lou Vokey from the Newfoundland & Labrador Operating

Committee;

Garry Stack and Brenda Duplisea from the Nova Scotia

Operating Committee,

and Ellen Rogers from the Rates and Rules Committee.

Sadly Ron Weaver, a valued member of both the New

Brunswick and the Prince Edward Island Operating Committees


for many years passed away last year and we miss his

contribution.

2004 will continue to be a challenging year as our industry

works to avoid a re-occurrence of the crisis environment of the

last few years and contemplates revised residual market

structures as a component of that strategy. The Facility

Association staff and I are looking forward to what the year will

bring, and are confident there will be much to report on at this

time next year.

I would like to end by personally thanking the Board of

Directors, the Facility Association staff, and our many business

partners for their support and guidance over the last year. As

always I enjoy working with, and learning from, all of you. And,

as I always do, I am looking forward to doing more, and doing it

better, in the next 12 months.

Mr. Chairman, that concludes my report.

facility association · moving from east to west, we appealed the $459,000 cost of our 2002/2003...

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