Round 2 Interrogatories
2013 GRA
September 10, 2012
PUB (MPI) 2013 GRA Information Requests
PUB (MPI) 2-1
Reference: PUB/MPI 1-1
a) Please file the Corporation’s Board of Directors and Audit Committee meeting minutes
for 2011/12 that relate to:
(i)
IT Optimization;
(ii) Compliance with prior Board Orders;
(iii) Approval of the 2013 GRA;
(iv) Approval of the 2011/12 audited financial statements; and
(v) Approval of the external actuary.
b) Please file the minutes from the quarterly meetings of the Investment Committee.
PUB (MPI) 2-2
Reference: PUB/MPI 1-3, TI.18 Sections 2, 3
a) Please clarify the reference to an assumed volume factor of 1.75% for 2012/13 and
beyond as cited in TI.12, TI.13 and TI.15A, versus the documentation of this assumption
being 2.75% as provided in TI.18 Section 2.3.
b) Please augment the justification provided in TI.18 Section 3.3 with respect to the
selection of an assumed vehicle upgrade factor of 2.50% for 2012/13 and beyond based
on HTA-only historical experience recognizing that the premium being projected
encompasses both HTA and non-HTA vehicles and that non-HTA historical experience
has persistently decreased the overall vehicle upgrade factor by between 47 and 122
percentage points over the last eight years.
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c) Please provide supporting documentation for the derivation of the 2013/14 Motor
Vehicles Premiums Written of $761,582,000 (starting from the 2012/13 forecast of
$729,600,000) demonstrating the use of the 2.75% volume factor and 2.50% vehicle
upgrade factor assumptions.
PUB (MPI) 2-3
Reference: PUB/MPI 1-6
a) Please provide the names of the individuals who currently comprise the Investment
Committee.
b) Please provide the names of the individuals who currently comprise the Investment
Committee Working Group.
c) Please advise of the role and responsibilities of each of the Manager of Investments and
the Manager of Financial Services positions within the Corporation and their respective
roles within the Investment Committee Working Group.
d) Please advise of whether the Investment Committee Working Group has held special
meetings within the last year (in addition to the quarterly meetings required by the
Terms of Reference of the Investment Committee). If so, please explain the
circumstances that warranted the special meeting(s) and provide the minutes thereof.
PUB (MPI) 2-4
Reference: PUB/MPI 1-6, PUB/MPI 1-8
In paragraph 7, page 3 of Attachment A to PUB/MPI 1-6, it is reflected that among the
purposes of the Investment Committee are a number of recommendation, review and
oversight functions relative to the Corporation’s investments and in paragraph 10, page 4 of
the same attachment it is reflected that among the role of the Investment Committee
Working Group are a variety of development, monitoring, drafting and implementation
functions also relative to the Corporation’s investments. Please reconcile these
responsibilities with the Corporation’s answer to PUB/MPI 1-8(d).
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PUB (MPI) 2-5
Reference: PUB/MPI 1-8 (d), (e), (f)
a) Given the importance of investment income to the Corporation’s overall revenues,
please advise of whether the Investment Committee and/or Investment Committee
Working Group have considered updating the independent AON report, presented to the
Board in 2008 at the 2009 GRA. If not, why not?
b) Please provide the definitions of “Average Investment Portfolio” and “Average Effective
Rate” as referenced in AI.9, page 1 and explain the relationship of those amounts to
forecast Corporate Investment Income for 2013/14.
c) Please identify the author of the Investment Activity & Performance Reports.
d) Please file the most recent Investment Activity & Performance Report.
e) It is reflected on page 1 of PUB/MPI 1-8(f) that “The extra cash balances are being held
for tactical purposes and will be considered to be part of the fixed income portfolio for
performance measurement purposes commencing on June 1, 2012”. Please explain the
tactical purposes referenced and explain why these extra cash balances are being
considered to be part of the fixed income portfolio.
PUB (MPI) 2-6
Reference: PUB/MPI 1-10(b), CAC/MPI 1-84
a) Please explain why the real estate portfolio management fees increased by $772,000
from 2011/12.
b) Please provide details on how the investment management fees, including with respect
to real estate investments, are determined.
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PUB (MPI) 2-7
Reference: PUB/MPI 1-14(a)
a) Please advise of who authored the Statement of Investment Beliefs found on page 5 of
the Investment Policy Statement. If external resources were utilized to develop this
statement please file a copy of the report.
b) Please advise of who are “The administrators of the Fund” as referenced in the
Statement of Investment Beliefs.
c) Please identify the role of the Investment Committee Working Group in item (iii) of the
Statement of Investment Beliefs, namely the identifying, measuring and monitoring of
risks within the portfolio.
d) Please advise of which representatives of the Corporation are involved in identifying,
measuring and monitoring of risks within the portfolio.
e) On pages 5 and 6 of the Investment Policy Statement it is reflected that the Investment
Committee Working Group shall annually review the risk, return and diversification of
the equity holdings, alternative investments and fixed income holdings within the
portfolio and report the results to the Investment Committee. Please file the most recent
such analysis or report.
f) Please explain why changes were made to the responsibilities of the Investment
Committee Working Group as referenced on page 10 of the Investment Policy Statement
and confirm that as a result of these changes the role of representatives of the
Corporation relative to its investments has been enhanced.
g) Please explain the reason for the changes to permitted investments, namely the
elimination of international equity investments as referenced on pages 5 and 16 of the
Investment Policy Statement.
h) Please advise of why the Corporation’s Rebalancing Policy has been eliminated from the
Investment Policy Statement.
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i)
Please explain what considerations are now undertaken and/or documented on when
and how to rebalance the Corporation’s investment portfolio within outside established
target ranges.
PUB (MPI) 2-8
Reference: PUB/MPI 1-15
a) Please explain why the forecast and projected amounts of Net Claims Incurred are not
affected by the assumed yield curve shifts.
b) With the understanding that unpaid claims provisions will be affected by yield curve
shifts, please provide another response to PUB/MPI 1-15.
PUB (MPI) 2-9
Reference: PUB/MPI 1-16(f)
a) Please confirm that the 1.0080 factor cited in the table in this response represents the
indexation adjustment to PIPP benefits that took effect 1 March 2011.
b) Please provide a ten year history of these indexation adjustments, and provide an
authoritative source for the CPI information on which they are based.
PUB (MPI) 2-10
Reference: PUB/MPI 1-17
a) Further to your response to 17(b), please provide supporting rationale and
documentation beyond that provided in TI.18 Section 1.3 for the selection of the
assumed inflation rate for indexed benefits used in the valuation.
b) Please discuss the impact on fiscal year 2011/12 financial statements (balance sheet and
income statement) arising from there being a difference between the indexation
adjustment of 1.0080 applied at 1 March 2011 versus the assumed inflation rate of
2.0% in the valuation as at 28 February 2011, with respect to inflation-indexed lines of
business.
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c) Further to your response to 17(e), AI.10A Page 48 indicates that the increase in
investment return rate margin for adverse deviations is “to account for observed higher
inflation rate coupled with lower trending interest rates”. Please expand on the rationale
for why the coupling of these two changes (higher inflation rate, lower trending interest
rates) justifies an increase in this margin. Does either of these two changes on its own
justify a change in this margin?
d) Further to your response to 17(f), considering the discount rate of interest selected for
inflation-indexed lines of business is affected by the assumed future inflation rate (which
does not affect the non-indexed lines of business), why isn`t there a greater level of
uncertainty (and therefore a greater margin for adverse deviations) associated with the
selected discount rate of interest used for inflation-indexed lines of business?
PUB (MPI) 2-11
Reference: PUB/MPI 1-19
a) Please explain how the derivation of the Fitted Expected Loss Ratios properly accounts
for the loss ratio impact of rate level changes, volume growth and vehicle upgrades.
b) Further to your response to 19(b), please describe what process is used in the selection
of ultimate loss trends if not regression analysis.
c) Further to your response to 19(b), please provide commentary on the statistical strength
and predictive power of the selected trend assumptions.
PUB (MPI) 2-12
Reference: PUB/MPI 1-27(c)
a) Please provide the historical data from which the selected annual drift assumptions by
Major Class are selected, as shown in the Attachment, Row [1].
b) Please provide an appropriate weighted average calculation of the selected annual drift
assumptions by Major Class, and comment on any difference from the overall drift
(upgrade) factor assumption of 2.50% made in the Application.
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PUB (MPI) 2-13
Reference: PUB/MPI 1-28(a)
Please provide the supporting, detailed calculations for the determination of the “MPI RG”
within the example.
PUB (MPI) 2-14
Reference: PUB/MPI 1-29
Please explain the factors that led to the reduction in the number of claims in 2011,
particularly within the Private Passenger and Motorcycle major classes.
PUB (MPI) 2-15
Reference: PUB/MPI 1-30
a) Please explain what factors have led to the increases in “Expenses” 2011 and 2012.
b) Please explain what factors have led to the increases in “Rehab” and 2012.
PUB (MPI) 2-16
Reference: PUB/MPI 1-33(g)
Please provide the compounded annual growth rate for the period from 2007/08 to
2011/12.
PUB (MPI) 2-17
Reference: PUB/MPI 1-38
a) For comparative purposes regarding the growth of Basic’s costs relative to that of the
Corporation as a whole, please provide the analysis requested in PUB/MPI 1-38(a), in a
similar level of detail to TI.7.A for the Corporation as a whole and comment on the trend
of increasing costs projected for 2013/14 and 2014/15.
b) Please provide the relative percentage of corporate expenses for each expense category
on the same basis as in PUB/MPI 1-33(g).
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c) Please restate PUB/MPI 1-38(a) and (b) having removed all special projects including,
for example, but not limited to, Business Process Review and IT Optimization, and
itemize all such projects.
PUB (MPI) 2-18
Reference: PUB/MPI 1-43(c)
a) The footnotes referenced in the response provided do not reflect the data requested.
Please provide all supporting calculations for the 2010 comparisons of the Corporation
with SGI and ICBC, with reference to source documents.
b) Please update the analyses on pages 10 and 11 of AI.15 utilizing 2011 information and
provide detailed calculations.
PUB (MPI) 2-19
Reference: PUB/MPI 1-44(a)
a) Please comment on any known differences in coverage or other factors that have led to
Regina, Saskatchewan drivers obtaining more affordable insurance coverage within
every driver profile.
b) Please comment on any known differences in coverage or other factors that have led to
Montreal, Quebec and Charlottetown, PEI drivers obtaining more affordable insurance
coverage within driver profiles 1 and 2.
c) Please provide any commentary that accompanied the tabular analysis including any
written report.
PUB (MPI) 2-20
Reference: PUB/MPI 1-47(d), (e)
Last year the Corporation provided projected corporate staffing levels to 2016 calculated on
a different basis than this year’s analysis in TI.9. Please re-state last year’s TI.9 using the
calculation methodology employed this year, and comment on the differences in the results.
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PUB (MPI) 2-21
Reference: PUB/MPI 1-47(g), CAC/MPI 1-121(d)
The Corporation’s response references the avoidance of a $30 million capital expense. What
are the staffing level reductions anticipated as a result of the IBM arrangement?
PUB (MPI) 2-22
Reference: PUB/MPI 1-48(b)
Given that the Corporation’s major operating expense is compensation and the Board sets
rates based on forecasts, including forecasts of compensation, please provide the total
wages and benefits by pay grade and EFTs per pay grade for 2004/05 to 2013/14 together
with the compounded annual growth rates for 2004/05 to 2011/12 and 2011/12 to
2013/14.
PUB (MPI) 2-23
Reference: PUB/MPI 1-51
Basic’s revenue requirement includes the cost consequences of the Corporation’s IT
spending allocated to Basic. Gartner has advised that the Corporation’s IT spending is
higher than peer organizations as well as the overall industry average. On the basis that
some of these above average costs are being or will be allocated to Basic, provide a table
detailing each of the conclusions and issues raised in the Gartner report, MPI’s specific
actions to address the same and Gartner’s assessment of MPI’s remedial strategies and
successes to date.
PUB (MPI) 2-24
Reference: AI.19
a) Please provide the quantum of IT spending in 2010/11 and 2011/12 with support for the
conclusion that spending was reduced by nearly 26% in 2011/12.
b) Please explain the factors that led to a 26% reduction in IT spending in 2011/12 over
2010/11.
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c) Please advise of the extent to which the peer group with which MPI is compared is
comprised of public insurers. If available, please provide the peer comparison with ICBC
and SGI only.
d) Please elaborate on the performance gaps which it is suggested that MPI close via
focused Cost Containment activities. Please advise of the Cost Containment activities
that MPI has implemented or will implement and the targeted cost savings associated
therewith.
e) To what extent are the results of the Cost Containment activities reflected in the
forecasts presently before the Board?
f) Please explain the changes that the Corporation is proposing to meet the gap in
Business Process Management including targeted cost savings.
g) Please reconcile the FTE changes and levels reflected in AI.19 with the staffing analysis
presented at TI.9. If TI.9 was not the source of the information used by Gartner please
provide information on IT staffing levels in support of Gartner’s analysis.
h) Please provide the composition of MPI’s IT staffing levels broken down by In House
versus Contractor for the years 2010 through 2014.
i)
Please provide the required headcount reduction of IT FTEs that would be required
mathematically to meet the peer average in 2010/11 and the relative payroll or
contractor cost savings that would result.
j)
Please advise of the extent to which the analysis in AI.19 reflects the change of moving
to a shared services solution with IBM.
PUB (MPI) 2-25
Reference: PUB/MPI 1-52(a)
a) What was the “initial solution” referenced in the Corporation’s answer and the cost
estimate therefore?
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b) Please file the current net present value analysis that demonstrates the 13% savings,
including all key assumptions.
c) At last year’s GRA the Corporation presented a report from Hewlett Packard wherein it
was recommended that the Corporation spend $77 million in one-time IT expenditures,
together with $29 million in ongoing annual expenditures. After review by the
Corporation’s Board, the one-time expenditures were reduced to $71 million. Please
advise of whether the Corporation continues to anticipate ongoing annual expenditures
of $29 million relative to IT optimization, and if not, what ongoing annual expenditures
does it now anticipate?
d) Please advise of how many staff and/or outside consultants were expected to be
dedicated to IT optimization at the time of last year’s GRA hearing and how those
expectations have now changed given the IBM arrangement.
PUB (MPI) 2-26
Reference: PUB/MPI 1-54, PUB/MPI 1-55(b)
a) Please provide details on the IT optimization costs deferred in 2012/13 and 2013/14.
b) Please explain how the Corporation is accounting for the $12.9 million in Transition and
Mitigation work to IBM.
c) Please provide an explanation for the material variances in corporate IT and hardware
costs forecast this year versus last.
PUB (MPI) 2-27
Reference: PUB/MPI 1-55(b)
a) Please explain the impact on Compensation and Corporate IT Head count related to the
IBM shared services arrangement.
b) Please provide details on the IT Special Services costs forecast for 2013/13 and 2013/14
which have increased by over $1.2 million, or over 570%, from that forecast last year.
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PUB (MPI) 2-28
Reference: PUB/MPI 1-56(d)
At last year’s GRA, Mr. Geffen of Gartner testified that Gartner would “insist” on seeing a
project charter from MPI as that was a best practice, after which Gartner would “definitely”
provide feedback in terms of content (page 1431 transcript). Why is Gartner not involved in
a review of the project charter?
PUB (MPI) 2-29
Reference: PUB/MPI 1-59
Please advise of how the results of the Risk Analysis would change if the actuarial reevaluation adjustments discussed in the response were removed from the analysis.
PUB (MPI) 2-30
Reference: PUB/MPI 1-60
a) Further to the response to 60(b), please clarify the definition of “minimum regulatory
capital requirement” that would apply if the Public Utilities Board were to decide to
accept MPI’s recommendation of basing the target RSR level on the results of the DCAT
investigation.
b) Further to the response to 60(d), please provide the corresponding history of S&P/TSX
index values underlying the “4 Year Total Return” information provided in this response.
PUB (MPI) 2-31
Reference: Updated AI.11
Please confirm that the only changes made to the document relate to correcting the DCAT
due to the calculation error. If that is not the case, please summarize the changes made in
the updated AI.11 which resulted in a change in the proposed target and an increase in the
risk profile.
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PUB (MPI) 2-32
Reference: 2012 DCAT Base Case (Amended), CAC/MPI 1-4
a) Please provide a rerun of the base scenario assuming an investment portfolio mix based
on the actual portfolio mix as at February 28, 2012.
b) Please provide a rerun of the equity decline adverse scenario assuming a 35% decline in
equity values.
PUB (MPI) 2-33
Reference: PUB/MPI 1-64
a) Please file the Executive Summary of the March 2012 report referenced at SM.5.8.1
entitled “Safer Roads, Saving Lives and Preventing Injuries”, such that the same will
form part of the record in this proceeding.
b) Please advise of the anticipated timeline for the hiring of a consultant to work with the
Corporation to prepare recommendations for a potential Roadway Infrastructure
Improvement Partnership Program, for the completion of recommendations relative to
that program and for the business case relative to that program.
c) Please file the Request for Proposal with respect to the hiring of a consultant referenced
in (b) above.
PUB (MPI) 2-34
Reference: PUB/MPI 1-65
a) What are the cost estimates relative to the two initiatives?
b) In Order 162/11, the Board ordered that a technical conference take place with respect
to road safety and loss prevention matters, at which the following significant issues were
to be discussed:
(i)
rural versus urban differences in occupant restraint usage;
(ii)
rural versus urban differences in collision fatalities;
Page | 13
(iii) the operation of off-road vehicles by minors in rural areas, including what
guidelines or rules can be implemented with respect to the use and operation of
ORVs by minors;
(iv) wildlife claims costs;
(v)
motorcycle safety issues;
(vi) traffic enforcement in rural and urban areas;
(vii) targeting "problem" intersections or roadways;
(viii) the possible role PAYD approaches could play in reducing traffic density;
(ix) red light cameras and photo radar – linkages between incidents and accidents; and
(x)
the use of wireless devices while driving, whether hand-held or hands-free.
Please advise of which of these issues the Corporation is concerned fall outside the Board’s
legislated responsibilities.
PUB (MPI) 2-35
Reference: PUB/MPI 1-68(f), (g)
a) Given that the research in question could lead to initiatives pursuant to which claims
costs would be reduced, why is the Corporation not prepared to ask for the information?
b) Please advise of which Canadian jurisdictions have adopted the Transport Canada
NCDB2 standards for collision reporting.
c) Please advise of why Manitoba has not yet adopted the standards and when it is
anticipated to do so.
PUB (MPI) 2-36
Reference: PUB/MPI 1-70(b)
Given that the research in question could lead to initiatives pursuant to which claims costs
would be reduced, why is the Corporation not prepared to ask for the information?
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PUB (MPI) 2-37
Reference: PUB/MPI 1-73
a) Please confirm that the Corporation’s assertion regarding Manitoba’s low insurance rates
relative to other provinces is based solely on all-perils vehicle coverage and without any
regard for personal injury coverage either in Manitoba or other provinces.
b) If the statement in (a) is correct, please explain why the Corporation does not consider
injury coverage when assessing whether Manitobans will pay less for their automobile
insurance than other major Canadian cities.
PUB (MPI) 2-38
Reference: Road Safety
There is legislation proposed in the United States pursuant to which Event Data Recorders,
or EDRs (also known as a black box) would be required to be installed in all vehicles by
2015. Typically EDRs will record data on acceleration, deceleration, vehicle speed, engine
speed and steering inputs and will store this data in memory leading up to a crash. See
attached article from the Economist on June 23, 2012. Has the Corporation considered the
use of EDRs to record the driving behaviour of Manitoba motorists?
CAC (MPI) 2013 GRA Information Requests
CAC (MPI) 2-1
Reference: CAC (MPI) 1-2 Response
Subject: DCAT methodology and the RSR
Preamble: “Where necessary, the historical data is adjusted to exclude data that is not
relevant to the Corporation’s future financial position (e.g. . .)
Request:
Please confirm that MPI intends to justify what historical data is included and excluded to
support each adverse scenario.
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CAC (MPI) 2-2
Reference: CAC (MPI) 1-3 Response (b)
Subject: DCAT methodology and the RSR
Preamble: “Examples where historical data may not be relevant: . . . (iii) hail experience
from 10-20 years ago.”
Request:
a) Please explain why hail experience from 10-20 years ago is no longer relevant.
b) Please provide statistical evidence that the incidence or extent of damaging hail has
changed in the last 10 years compared to previous years.
CAC (MPI) 2-3
Reference: CAC (MPI) 1-4 Response (a)
Subject: DCAT methodology
Preamble: “ . . . one-year total returns on the TSX from 1919 to present . . . was assumed
to follow a Normal distribution . . . ”
Request:
a) Please explain whether the assumption of a normal distribution for the one-year equity
return was based on (i) a statistical comparison of alternative distributions or (ii)
published results from the financial literature on the distribution of equity returns.
b) If the assumption of a normal distribution for the one-year equity return was based on a
statistical comparison of alternative distributions, please explain what statistical
test/criterion was used.
c) If the assumption of a normal distribution for the one-year equity return was based on
published results from the financial literature on the distribution of equity returns, please
cite the source(s).
Page | 16
CAC (MPI) 2-4
Preamble: As of January 1, 2012 the Minimum Capital Test of the Office of the
Superintendent of Financial Institutions requires the calculation of an interest rate risk
margin.
Request:
Please calculate the amount of this margin for the Corporation as of the end of their
financial year 2011/2012.
CAC (MPI) 2-5
Reference: CAC (MPI) 1-10
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-10:
Request:
a) Please explain why the Decline in Equity Markets scenario assumes a decline in equity
asset value of 40% in 2013/14 with that reduced value remaining level for the entire
forecast period when equity markets tend to rebound at least partially to their post drop
values relatively quickly.
b) Will the Corporation amend this scenario in next year’s DCAT report to make the
assumptions more realistic?
CAC (MPI) 2-6
Reference: CAC (MPI) 1-12
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-12:
Request:
Please provide the results of a scenario assuming a 40% drop in equity asset values at year
end 2012, recovering to base plan levels at all subsequent fiscal year ends.
Page | 17
CAC (MPI) 2-7
Reference: CAC (MPI) 1-12
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-12:
Request:
Please provide the results of a scenario assuming a 40% drop in equity asset values at year
end 2012, recovering to 10% below base plan levels at all subsequent fiscal year ends.
CAC (MPI) 2-8
Reference: CAC (MPI) 1-12
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-12:
Request:
Please provide the impact on the Corporation’s financial results of a 40% drop in equity
asset values at year end 2012, recovering to base plan levels at all subsequent fiscal year
ends. In the same scenario assume increases to Government of Canada Bonds (market
yield) at fiscal year-end 2012 of:
a) One year rate of 100 bps
b) Two year rate of 75 bps
c) Three year rate of 50 bps
d) Four year rate of 25 bps
e) 5 year and longer rate of no change from base scenario
Also assume the spread between Government of Canada and provincial government bonds
increase by 25 bps, while the spread on corporations (bonds and preferred shares) increase
by 50 bps. The Government of Canada yield curve and the provincial and corporate spreads
are to remain above the base plan by the amounts noted above and unchanged through the
end of the scenario.
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CAC (MPI) 2-9
Request:
Would the Corporation agree that the RSR is meant to protect Manitoba’s drivers from large
rate increases resulting from large shocks (due to changes in the financial markets, incurred
losses, etc.) to the Corporation’s financial position? If so, would a drop in retained earnings
due to such shocks not be acceptable with the expectation that retained earnings would
build up again as results return to the level expected in the base plan?
CAC (MPI) 2-10
Reference: CAC (MPI) 1-14
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-14:
Request:
Please explain why the loss development factors would differ between the Combined
Scenario and the Base Scenario.
CAC (MPI) 2-11
Reference: CAC (MPI) 1-15
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-15:
Request:
Please confirm that the Combined Scenario assumes a rebound of the equity markets to
Base Scenario levels after the realization of the equity losses in 2013/14 and 2014/15. If
confirmed please explain why the same logic was not used in the Decline in Equity Markets
scenario.
CAC (MPI) 2-12
Reference: CAC (MPI) 1-16
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-16:
Page | 19
Request:
Please give the information required to run the figures in the table on the bottom of page 21
through to the figures shown in the results table on page 22 of the amended DCAT report.
CAC (MPI) 2-13
Reference: CAC (MPI) 1-17
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-17:
Request:
Please produce two tables like the first table shown on page 22 of the amended DCAT
report. The first table will be the results with only the equity decline impact; the second
table will be the results with only the incurred change impact. The two tables should be
reconcilable to the table on page 22.
CAC (MPI) 2-14
Reference: CAC (MPI) 1-18
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-18 the impact of a
large increase in incurreds on the investments placed and the investment income realized
can be significant.
Request:
Please explain how the DCAT model is run if the financials are not linked together. Is there
not a financial statement model that allows the scenarios to run through the financials? If
not, please explain how the financial model works.
CAC (MPI) 2-15
Reference: CAC (MPI) 1- 18
Preamble: The response indicates that the investment income impact was not modeled as
part of this scenario because it was assumed to be insignificant.
Request:
Please elaborate and indicate the amount which would be considered insignificant.
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CAC (MPI) 2-16
Reference: Amended DCAT report
Preamble: In reference to the Amended DCAT report
Request:
Please provide the derivation of the forecasted investment income for years 2012/13
through 2016/17 both before and after the amendments were made.
CAC (MPI) 2-17
Reference: AI.11 Rate Stabilization Reserve
Preamble: In reference to AI.11 Rate Stabilization Reserve
Request:
Please explain why the MCT and the DCAT are considered separately. It is standard industry
practice for the DCAT to be performed with MCT results as the output.
CAC (MPI) 2-18
Reference: AI.11 Rate Stabilization Reserve, page 6
Preamble: In reference to AI.11 Rate Stabilization Reserve, page 6, the Corporation writes
that one of the cons of the MCT is that “It is a private sector test.”
Request:
Please explain why that fact would preclude the use of the MCT to set a target MCT ratio for
the Corporation. Please be specific as to why the risk factors for the Corporation would be
different than a private insurer writing only automobile lines of business.
Page | 21
CAC (MPI) 2-19
Reference: AI.11 Rate Stabilization Reserve, page 6
Preamble: In reference to AI.11 Rate Stabilization Reserve, page 6, the Corporation writes
that one of the cons of the MCT is that “The method uses the same risk factors for all
companies, which may not be reflective of the Corporation’s risk level.”
Request:
Please explain why this would be a concern, given that different factors are used in the MCT
for the claims liabilities of different lines of business.
CAC (MPI) 2-20
Reference: AI.11, the amended DCAT report
Preamble: In reference to AI.11, the amended DCAT report
Request:
Please provide Minimum Capital Test results for the base scenario and each of the adverse
scenarios.
CAC (MPI) 2-21
Request:
Has the corporation considered using the results of the DCAT report to determine a target
Minimum Capital Test result for the Corporation? If not, why not?
CAC (MPI) 2-22
Request:
Does the Corporation perform actual and projected Minimum Capital Test calculations? If so,
please provide them. If not, please calculate and provide them.
CAC (MPI) 2-23
Preamble: In reference to AI.11, the amended DCAT report, page 16
Page | 22
Request:
Please explain the statement “Based on the latest PUB Order, we do not believe it is prudent
to assume that these ‘excess’ funds are available for DCAT testing purposes.”
CAC (MPI) 2-24
Request:
Has the Corporation completed any research into Economic Capital and the use of internal
models to determine capital requirements? If not, does it plan to do so? If it does not plan
to do so, why not?
CAC (MPI) 2-25
Reference: CAC (MPI) 1-5 and TI.14 updated as at August 3, 2012
Preamble: The updated Statement of Basic Insurance Retained Earnings (TI.14) reports an
amended MPI RSR Target (the only change from the previously filed TI.14) of $200 million
for each year from 2012/13 through to 2016/17. In the response to CAC (MPI) 1-5 it
indicates the upper limit of the PUB target for 2012/13 is $153 million.
Request:
Please clarify why the PUB RSR target has not been updated on the amended TI.14 from
$151.1 million to $153.0 million.
CAC (MPI) 2-26
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 4 it states that a ‘pro’ relating to the DCAT methodology in setting the
RSR target is that it “Produces an opinion that is based on the RSR target set by the
Manitoba Public Utilities Board”.
Request:
Please clarify this statement and explain how the DCAT methodology produces an opinion
based on the RSR target set by the PUB.
Page | 23
CAC (MPI) 2-27
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 7 it states that a ‘con’ relating to the Operational and Investment Risk
Analysis methodology in setting the RSR target is that “The operational risk analysis is not
based on plausible adverse events that could occur. Rather, it is based on events that have
actually occurred in the past eighteen years”.
Request:
Please confirm that plausible adverse events formulated for the purposes of performing the
DCAT analysis are based on historical events and projected to occur in the future at a
magnitude below, at the same level or higher than they occurred in the past. If this cannot
be confirmed please explain and contrast how historical events are applied differently
between the DCAT and Risk Analysis methodologies.
CAC (MPI) 2-28
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 7 it states that a ‘con’ relating to the Operational and Investment Risk
Analysis methodology in setting the RSR target is that “Using Value-at-Risk may not be
appropriate for a time horizon of 2.5 years”.
Request:
Please prepare and file an updated Operational and Investment Risk Analysis report using a
time horizon of 1 year and indicate the required RSR target based on this analysis.
CAC (MPI) 2-29
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended) and CAC (MPI) 1-6
Preamble: On page 8 it states that a ‘con’ relating to the Percentage of Premium Method is
“The method assumes that the Corporation’s risk level is a function of its annual premium
level; however, the Corporation’s main risks are from changes to assets and liabilities which
are significantly larger than annual premiums”.
Page | 24
Request:
Please confirm that over time changes in assets and liabilities are reflected in annual
premium requirements. If this cannot be confirmed, please explain.
CAC (MPI) 2-30
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 9 it states that a ‘con’ relating to the Percentage of Premium Method is
“The indicated RSR range does not change when the Corporation’s risk profile changes”.
Request:
a) Please elaborate and explain in the event MPI’s (Basic Insurance) risk profile (positive or
negative) changed year over year (actual, forecasted or projected) would the premium
requirement change. In the response please provide examples.
b) During the policy liability valuation process an adverse/favourable claims development
trend change is detected by the actuary relating to car technology, please explain
whether this could be considered a risk profile change. Please elaborate whether this
adverse/favourable claims development trend change would be reflected in the Basic
Insurance premium requirements by a change to the unpaid claims which would be
reflected in claims incurred for actual, forecasted and projected.
CAC (MPI) 2-31
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 9 it indicates as a benefit to using the DCAT to set the RSR target
“Assists Management and the Public Utilities Board in the identification, measurement, and
mitigation of key risks faced by the Corporation”.
Request:
Please elaborate on how specifically the DCAT will assist in the mitigation of key risks.
Page | 25
CAC (MPI) 2-32
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 10 it states “RA/VaR: The indicated RSR is based completely on
historical forecasting performance. Historical results are not at the same cost level as future
experience and include events that are not reflective of future risk (e.g. $250 million
reduction in claim liabilities)”.
Request:
a) Please confirm that the $250 million reduction in claim liabilities refers to the PIPP
unpaid claims reduction in 2010/11.
b) Please elaborate and explain whether MPI is implying that the DCAT methodology would
have anticipated the referred to claim liability reduction. If yes, please illustrate by way
of an example.
CAC (MPI) 2-33
Reference: Rate Stabilization Reserve Part 1 – AI.11 (Amended)
Preamble: On page 11 it states “It is a recognized method of the Canadian Institute of
Actuaries and OSFI. DCAT: Is used by all Canadian Property and Casualty Insurers that
report to OSFI”.
Request:
Please elaborate whether MPI is implying that the Basic Insurance line of business operates
similar and is comparable to the Canadian Property and Casualty Insurance industry.
CAC (MPI) 2-34
Reference: 2012 DCAT Report Part 2 – AI.11 (Amended)
Preamble: On page 8 it is recommended “If the upper RSR target is not changed by the
Public Utilities Board, Management should advise the Minister of Finance that the
Corporation’s current exposure to equity assets is significantly greater than the amount of
protection provided by the Public Utilities Board’s upper RSR target”.
Page | 26
Request:
a) Please explain how the asset mix recommended by the most recent asset liability study
by AON mitigates negative exposure to various investment asset classes including
equities.
b) Please calculate the reduction, in terms of percentage and amount; equities would need
to be reduced for the PUB upper RSR target to result in a satisfactory financial condition
using the 2012 DCAT plausible adverse scenarios.
CAC (MPI) 2-35
Reference: CAC (MPI) 1-7 (b)
Preamble: With respect to IFRS 4 Phase II, the response indicates an increase in unpaid
claims of $90 to $100 million based on the “risk free rate” (the average yield on a portfolio
of Government of Canada bonds with similar duration to the claim liabilities). In addition,
the Corporation currently holds an interest rate provision for adverse deviation of 125 basis
points or approximately $159 million.
Request:
Please elaborate whether the Corporation expects the financial impact of implementing IFRS
4 Phase II for Basic Insurance to be relatively immaterial.
CAC (MPI) 2-36
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 1 it states “Application Optimization: Development work has
commenced on reducing the risk of outages from enterprise systems on unsupported
versions”.
Request:
Please provide a list and commentary of the unsupported enterprise systems affecting Basic
Insurance.
Page | 27
CAC (MPI) 2-37
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 1 it states “Infrastructure Optimization: Data Centre Network
equipment that was purchased will be re-purposed and shipped to the IBM Data Centre
locations”.
Request:
a) Please provide a list of the equipment purchased and the related costs for the Data
Centre Network before outsourcing this function to IBM.
b) Please elaborate whether IBM reimbursed MPI for the Data Centre Network equipment
purchased by MPI and shipped to IBM or whether the monthly service fees were
adjusted for the MPI purchased Data Centre Network equipment.
CAC (MPI) 2-38
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 1 the report refers to “Driving Ahead in Real Time” (DART) which is a
project to decommission the legacy Driver Licensing System.
Request:
a) Please provide a summary overview of the legacy Driver Licensing System.
b) Please file a copy of the project roadmap and estimated costs for decommission the DL
system.
c) Please confirm that the current functionality (currently needed functionality) of the
legacy Driver Licensing System will be incorporated into AOL.
CAC (MPI) 2-39
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 1 the report refers to a “Broker Refresh Initiative”.
Page | 28
Request:
Please provide an estimate of the expected costs of the Broker Refresh Initiative and
elaborate whether the brokers share in the broker refresh initiative costs.
CAC (MPI) 2-40
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 1 the report refers to an operating initiative “MPI/HP Process
transition”.
Request:
Please elaborate and explain the MPI/HP Process transition.
CAC (MPI) 2-41
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 2 the report states “The comparison to other Team Player organizations
saw that MPI’s Cost Containment and Business Process Management capabilities were less
mature and offer opportunities for MPI to enhance its IT and business efficiency and deliver
further value to Manitobans”.
Request:
Please provide a general elaboration on the type of IT and business efficiency actions MPI
might undertake based on this statement by Gartner.
CAC (MPI) 2-42
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 3 the report states “MPI’s Revenue per Company Employee is
considerably lower, which aligns with MPI’s mission to return premium dollars to
Manitobans”. According to the graph on page 3 the Revenue per Company Employee is:

MPI
$537,646

Peer
$915,902 (plus 70%)

Insurance Industry Average (CAD)
$1,110,573 (plus 106%)
Page | 29
Request:
a) Please demonstrate, by way of an example that MPI’s significantly lower Revenue per
Company Employee is solely due to MPI’s mission to return premium dollars to
Manitobans.
b) Can MPI comment whether MPI requires more employees to provide a higher standard of
service and administer activities different from its Peer group.
CAC (MPI) 2-43
Reference: Gartner CIO Scorecard – AI.19
Preamble: On page 5 the report states “MPI’s IT FTEs to Company FTEs dropped by 14% as
total IT headcount was reduced from 356 to 313 since 2010/1”.
Request:
Please comment whether the reduction in IT staff of 43 FTEs left MPI or were they
redeployed in a non IT department within MPI.
CAC (MPI) 2-44
Reference: CAC (MPI) 1-23
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-23
Request:
Please explain why this loss ratio was chosen when the loss ratio chosen for other coverages
was chosen based on the fitted expected loss ratio and the ultimate projected loss ratio.
CAC (MPI) 2-45
Reference: CAC (MPI) 1-24
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-24
Page | 30
Request:
Please confirm that the IBNR selected would be $5.6 million if the latest 6 volume weighted
averages were selected through development period 92-104 months with no change in the
selected initial loss ratios. If not confirmed, please give the calculated amount. Please give
the amount by which this calculated amount differs from the IBNR selected in the October
31, 2011 actuarial report.
CAC (MPI) 2-46
Reference: CAC (MPI) 1-29
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-29
Request:
Has the Corporation completed any sort of consistency check to ensure that the loss ratios
assumed in the actuarial report line up reasonably well with the overall Basic budgeted loss
ratio? If so, please outline how the consistency check was undertaken.
CAC (MPI) 2-47
Reference: CAC (MPI) 1-29
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-29
Request:
Please complete the table below.
Coverage
2011/12 Bornhuetter Ferguson Selected Loss Ratio
Bodily Injury
Property Damage
Collision
Comprehensive
Accident Benefits - Weekly Indemnity
Accident Benefits - Other (Indexed)
Accident Benefits - Other (Non-indexed)
Basic 2012/13 Forecasted Loss Ratio
Page | 31
CAC (MPI) 2-48
Reference: CAC (MPI) 1-31
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-31
Request:
Please give the actual incurred amount for the Comprehensive coverage in the 2011/12
year and the expected incurred amount based on the incurred development factors chosen
in the October 31, 2010 actuarial report.
CAC (MPI) 2-49
Reference: CAC (MPI) 1-40 and CAC (MPI) 1-41
Preamble: In reference to the Corporation’s responses to CAC (MPI) 1-40 and CAC (MPI) 141
Request:
If the 116-ultimate factor was chosen to make the selected 116-ultimate factor equal to the
116—paid to tabular ultimate factor please explain why it would be deemed necessary to
load the unpaid further for development periods 116 to 236 months.
CAC (MPI) 2-50
Reference: CAC (MPI) 1-42
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-42, the initial incurred
tail factor of 1.06 as described on page 26 of the October 31, 2011 actuarial report is
chosen by judgment.
Request:
Please explain what factors went into this judgmental selection.
Page | 32
CAC (MPI) 2-51
Reference: CAC (MPI) 1-43
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-43
Request:
Is there any historical basis for the 1.75% growth factor for the paid tail factor for Accident
Benefits – Other Indexed shown on page 26 of the October 31, 2011 actuarial report?
Please provide the basis for this calculation.
CAC (MPI) 2-52
Reference: CAC (MPI) 1-46
Preamble: In reference to the Corporation’s response to CAC (MPI) 1-46
Request:
a) Can the Corporation confirm that the 2005 analysis is still being used to determine the
initial incurred tail factor of 1.06 referenced on page 26 of the October 31, 2011
actuarial report?
b) If confirmed, has consideration been given to producing a more current analysis like the
one done in 2005?
CAC (MPI) 2-53
Preamble: The Quebec government insurer has data going back decades on the Bodily
Injury coverages that are handled by the government in that province.
Request
a) Has the Corporation considered using external data, such as the Quebec experience
data, in the determination of tail factors for the longer tail lines such as Weekly
Indemnity?
b) If not, please explain why not, given that the data would be very useful.
Page | 33
CAC (MPI) 2-54
Reference: Innovation
Request:
a) Please explain the process by which the staff is encouraged to think creatively and how
the results of this process used to create value for basic policyholders.
b) Please explain how the highest-potential employees are identified and how are they
motivated, incented and engaged.
c) Please explain how the human-capital model has been adapted to address the next
generation of employees to continue to create a competitive advantage for basic
policyholders.
CAC (MPI) 2-55
Reference: TI.9.
Request:
a) Please file a copy of the current corporate organization chart, detail and explain any
changes that have occurred since last year.
b) Please prepare and file a descriptive analysis of the purpose, mandate duties and
responsibilities of each division/function reporting to the CEO.
CAC (MPI) 2-56
Reference: Quarterly Financial Report 1st Quarter
Preamble: On page 5 the report states “Claims costs for the three months ended May 31,
2012 increased by $13.2 million compared to last year due primarily to bodily injury claims
incurred that increased by $7.1 million and physical damage claims incurred rose by $5.6
million. An increase in severity of both bodily injury and physical damage claims contributed
to the increase in claims costs”.
Page | 34
Request:
Please prepare a chart comparing bodily injury and physical damage actual and budgeted
claims incurred for the first quarter of 2012/13.
CAC (MPI) 2-57
Reference: CAC (MPI) 1 – 65
Request:
Please explain the language at the bottom of page 63 of the 2011 Annual Report were it
states “Write-down (reverse write-down)” with brackets around the 2012 value of $6,515.
CAC (MPI) 2-58
Reference: CAC (MPI) 1 – 74 and PUB (MPI) 1- 20
Request:
With reference to Claims Incurred Expenses, please provide a schedule by expense type for
actual expenses for the fiscal year 2010/11 and 2011/12.
CAC (MPI) 2-59
Preamble: In reference to the Corporation’s response to PUB (MPI) 1-28
Request:
Please provide the number of exposures, incurred losses and calculated relativity for each
rate group shown on the graph PIPP Cost per Unit Relativities by Rate Group after PIPP Cost
Allocation.
CAC (MPI) 2-60
Preamble: In reference to the Corporation’s response to PUB (MPI) 1-33:
Request:
Please explain why claims expense is increasing at a significantly faster pace than claims
incurred or number of claims.
Page | 35
CAC (MPI) 2-61
Preamble: In reference to the Corporation’s response to PUB (MPI) 1-44 (b)
Request:
a) Please provide a table indicating by jurisdiction (for which rate comparisons were done)
whether the jurisdiction had family protection that was part of the automobile package
or whether it had to be purchased by endorsement.
b) Please provide, by jurisdiction, how many competitors were used in the comparisons and
how the choice of these competitor’s was made.
c) Were the premiums used in the comparisons an average of many competitor’s
premiums? If so, please list the premiums individually for each of the profiles.
d) For each of the profiles please provide a table indicating, by coverage, the premium of
the various jurisdictions and whether the coverage was mandatory or optional in those
jurisdictions.
(Please explain, in detail, the process by which the premiums of the various jurisdictions
were obtained.)
CAC (MPI) 2-62
Preamble: In reference to the Corporation’s response to PUB (MPI) 1-45 (a)
Request:
Please provide a table with each element of the percentage of premium dollars returned to
motorists formula shown separately for each year 2000 to 2010.
Page | 36
CAC (MPI) 2-63
Preamble: In reference to the Corporation’s response to PUB (MPI) 1-74
Request:
Would the Corporation not agree that persons living in the same household can sell a
vehicle for a minimal amount to the person in the household with the best DSR rating and
drive that vehicle with no restrictions?
CAC (MPI) 2-64
Reference: CAC (MPI) 1 – 93 (Expense Allocation Methodologies—New vs. Old)
Preamble: MPI’s response to comparing the new vs. old allocation methodologies for past
fiscal years indicates that this analysis has no bearing on the reasonableness of the financial
projections or actuarial modeling used to determine rates.
Request:
a) The question is how can an independent regulator derive a satisfactory level of comfort
without a set of historical comparisons which demonstrate a consistent set of results
between the new and old allocation methodologies?
b) Please reconsider providing a response to the question posed in CAC (MPI) 1 -93.
CAC (MPI) 2-65
Reference: CAC (MPI) 1 – 94 (Cost Allocation Methodologies)
Preamble: The response to CAC (MPI) 1 -94 provides the following allocation percentages
Basic Insurance:
Fiscal Year
2009/10
Four-Year Rolling Net
Claims Incurred %
85.0%
Gross Premiums
Written %
81.5%
Difference %
3.5%
2010/11
83.6%
81.6%
2.0%
2011/12
84.2%
81.3%
2.9%
Page | 37
Request:
a) Should the ‘Four-Year Rolling Net Claims Incurred %’ be used, the allocated expenses to
Basic Insurance would be higher by the percentage points shown in the ‘Difference %’
column.
Please calculate and provide the dollar values for the allocated expenses to Basic
Insurance using the above percentages in the following table:
Fiscal Year
2009/10
Expenses Allocated
using the Four-Year
Rolling Net Claims
Incurred % ($000)
$
Expenses Allocated
using the Gross
Premiums Written
% ($000)
$
Difference
($000)
$
2010/11
2011/12
b) Please provide comments with respect to the financial materiality of the ‘Difference’ in
relation to the overall financial condition of Basic Insurance in the context of rate setting.
CAC (MPI) 2-66
Reference: CAC (MPI) 1 – 116 (2011 Annual Report page 45)
Preamble: Per the response to CAC (MPI) 1 -116 it indicates that the unearned premiums
are reported correctly on the Statement of Operations.
On the Annual Report it reports the following:
Account Description
February 29, 2012
February 28, 2011
$(17,735)
$(8,726)
Increase (decrease) in gross unearned
premiums
Request:
a) For greater clarity please confirm that gross unearned premiums have increased by
$17,735,000 for the year ended February 29, 2012 and that the brackets should
surround the word ‘Increase’ and not ‘decrease’.
b) On Note 14 of the 2011 Annual Report Unearned fees are reported in the amount of
$4,283,000 as at February 29, 2012. For greater clarity please provide a detailed
schedule of the type of fees included in this amount.
Page | 38
CAC (MPI) 2-67
Reference: CAC (MPI) 1 – 121
Preamble: In response to CAC (MPI) 1 – 121 (a) MPI appears to be outsourcing its data
centre operations to IBM.
Request:
Please provide a detailed analysis of the organizational and financial impact on Basic
Insurance for the fiscal years 2012/13 and 2013/14 relative to reductions in IT FTEs,
operational expenses and IT equipment costs as a result of outsourcing the data centre
operations to IBM.
CAC (MPI) 2-68
Reference: CAC (MPI) 1 – 125 (b)
Preamble: The response to CAC (MPI) 1 -125 (b) indicates that the future investment in
people and processes, not just technology has no bearing on the rate application before the
PUB.
Request:
a) Please confirm that future investment in people and processes result in either increase
or decreases in operating expenses contained in the financial projections filed in the rate
application before the PUB.
b) Please reconsider providing a response to CAC (MPI) 1 -125 (b).
CAC (MPI) 2-69
Reference: CAC (MPI) 1 – 135
Request:
Please indicate the approximate date the Information Technology Optimization Initiative
Roadmap will be completed.
Page | 39
CAC (MPI) 2-70
Reference: CAC (MPI) 1 – 136
Preamble: The response to the Bodily Injury Improvement Initiative (BI3) benefits
realization status request indicates that MPI has no further information to that filed last
year.
Request:
a) From a public interest perspective, how can the PUB Board assure itself that the
promised financial benefits, which were projected to accrue to Basic Insurance, have in
fact occurred?
b) Please prepare and file a summary of the financial benefits projected to accrue to Basic
Insurance from the implementation of BI3 and compare this summary to the financial
benefits that have occurred to date.
CAC (MPI) 2-71
Reference: CAC (MPI) 1 – 142
Preamble: Per the 2011 Annual Report (page 44), as at February 29, 2012, the deferred
policy acquisition costs are reported as $40,547,000 and per Note 7 (page 63) the amount
relating to commissions is $27,245,000 ($34,321,000 - $7,076,000 write-down).
Request:
a) Please provide a detailed commentary as to the ‘recoverability’ of the deferred policy
acquisition costs asset relating to commissions of $27,245,000.
b) Please provide a detailed commentary as to whether IAS 36 (Impairment of Assets)
considers non recoverable deferred policy acquisition costs as an impaired asset to be
written off against operations.
Page | 40
CAC (MPI) 2-72
Reference: CAC (MPI) 1 – 151 (b)
Per the response to CAC (MPI) 1 – 151 (b) it indicates the following expenses are not
included in ‘Initiative Related Expenses (Implementation)’ on TI.13:
IBM Data Centre
Licence Fees/Maintenance
Depreciation of Capital
$4,045,000
$401,000
$1,384,000
Request:
a) Please indicate whether these expenses form part of Normal Operations Expenses or
Initiative Related Expenses (Ongoing) on TI.13.
b) For greater clarity please explain why the expense reporting contained in TI.7 and TI.13
is not consistent.
CAC (MPI) 2-73
Reference: CAC (MPI) 1 – 156
Preamble: Per the response to CAC (MPI) 1 – 156 the Appointed Actuary Valuation fees are
budgeted to increase to $123,773 in 2012/13, an increase of 69.5% over the previous year
of $73,027.
Request:
Please provide a detailed explanation for this significant increase.
CAC (MPI) 2-74
Reference: CAC (MPI) 1 – 173 (d)
Preamble: The response to CAC (MPI) 1 – 173 (d) indicates that at February 29, 2012 the
Unpaid Claims were valued at $1,485 million and the fixed income portfolio was valued at
$1,532 million.
Page | 41
Request:
Please elaborate whether this mismatch of $47 million is reasonable and not material as it
relates to the financial condition and resources of the Corporation.
CAC (MPI) 2-75
Reference: CAC (MPI) 1 – 176
Request:
Please elaborate whether there were any changes made to the 2011-2015 Corporate
Strategic Plan relative to the 2012-2016 Corporate Strategic Plan.
CAC (MPI) 2-76
Reference: CAC (MPI) 1 – 165 (Claims and Operating Expenses Statistics)
Request:
Please recalculate Tables 1 through 4 using Claims Expenses (excluding Road Safety
Expenses) and Operating Expenses (excluding Regulatory Appeal Expenses) as reported on
TI.7.B in the current Rate Application. For values prior to fiscal year 2010/11 please use the
values from the similar TI.7.B schedule from prior Rate Applications.
CAC (MPI) 2-77
Reference: CAC (MPI) 1 – 164 (Performance Indicators)
Preamble: The following table has been updated with information from CAC (MPI) 1-164
Schedule 1 and PUB (MPI) 1-32 (a):
Page | 42
Indicator
Notes
2006/7
2007/8
2008/9
2009/10
2010/11
Operating Expense Ratio
i.
14.2%
15.0%
15.0%
16.0%
16.2%
Claims Expense Ratio
ii.
14.1%
14.7%
14.8%
14.8%
15.2%
Loss Ratio
iii.
82.8%
79.0%
74.5%
70.9%
44.4%
Combined Ratio
iv.
111.1%
108.6%
104.3%
101.8%
75.8%
Investment Income Ratio
v.
16.1%
16.4%
0.5%
11.6%
11.2%
Investment Yield
vi.
6.3%
4.0%
(5.8)%
13.7%
8.4%
Operating Expense/Policy
vii.
$48
$50
$48
$54
$65
Claims Expense/Claims
viii.
$409
$416
$487
$482
$487
Policies/Support Employee
ix.
2,485
2,499
2,556
2,446
2,590
Claims/Claims Employee
x.
253
266
233
234
245
Premiums/Policy
xi.
$776
$777
$794
$807
$804
Insurance Costs/Capita
xii.
$553
$566
$593
$606
$615
2011/2
2012/3
2013/4
2014/5
2015/6
Indicator
Notes
Operating Expense Ratio
i.
17.0%
16.3%
15.6%
15.5%
15.3%
Claims Expense Ratio
ii.
16.1%
16.7%
16.6%
16.3%
16.2%
Loss Ratio
iii.
80.4%
80.4%
82.6%
81.4%
80.6%
Combined Ratio
iv.
112.8%
113.5%
114.9%
113.2%
112.0%
Investment Income Ratio
v.
13.3%
10.5%
11.4%
11.7%
12.0%
Investment Yield
vi.
6.4%
4.4%
4.6%
4.6%
4.6%
Operating Expense/Policy
vii.
$61
$64
$64
$66
$66
Claims Expense/Claims
viii.
$541
$562
$558
$567
$581
Policies/Support Employee
ix.
2,560
2,716
2,816
2,866
2,916
Claims/Claims Employee
x.
241
240
249
253
256
Premiums/Policy
xi.
$790
$753
$782
$807
$830
Insurance Costs/Capita
xii.
$624
$596
$619
$641
$663
i.
Operating Expense Ratio (%) (The numerator to include the following—commissions,
operating expenses, premium taxes and regulatory/appeal expenses.)
The ratio of operating expenses to net premiums earned measures the company’s
operational efficiency in underwriting its book of business.
Page | 43
ii. Claims Expense Ratio (%) (The numerator to include claims expenses and loss
prevention/road safety expenses.)
The ratio of claims expense to net premium earned measures the company’s efficiency in
adjudicating claims.
iii. Loss Ratio (%)
The ratio of claims incurred to net premiums earned measures the company’s underlying
profitability, or loss experience, on its book of business.
iv. Combined Ratio (%)
The sum of the loss, operating expense and claims expense ratios, not reflecting
investment income or income taxes, measures the company’s overall underwriting
profitability, and a combined ratio of less than 100 indicates an underwriting profit.
v. Investment Income Ratio (%)
The ratio of investment income to net premiums earned measures the contribution of
investment income toward the combined ratio in measuring the company’s overall net
profitability.
vi. Investment Yield (%)
To be calculated on current market value basis as per Annual Reports.
vii. Operating Expense/Policy ($)
The operating expense/policy dollar value measures the cost efficiency or activity cost of
issuing a policy.
Page | 44
viii.Claims Expense/Claims ($)
The claims expense/claims dollar value measures the cost efficiency or activity cost of
adjudicating a claim.
ix. Policies/Support Employee (#)
The policies/support employee number value measures the number of policies a support
employee can handle or the number of support employees required to manage policies
effectively and efficiently.
x. Claims/Claims Employee (#)
The claims/claims employee number value measures the number of claims a claims
employee can handle or the number of claims employees required to manage claims
effectively and efficiently.
xi. Premiums/Policy ($)
The premiums/policy dollar value measures net premiums written changes per policy,
year over year, even if there is no premium rate increases or decreases.
xii. Insurance Costs/Capita ($)
The insurance costs/capita dollar value measures net premiums written (basic
insurance) changes per capita based on the provincial population providing a social or
public cost indicator.
Request:
a) The Insurance Costs/Capita changed from last year from 2007 and onward. Please
provide the detailed calculations (numerator and denominator) relating to the current
ratio calculation compared to last year’s ratio. Please explain the reason for the change.
b) Please confirm that the information is correct in the above table.
Page | 45
c) Please elaborate on the magnitude and cause of the year over year changes in the above
indicators.
d) ICBC in its 2011 Annual Report on page 25, to measure its actual to target financial
stability to achieve streamlined, efficient, and cost-effective systems and processes,
uses the following measures:

Combined ratio

Loss ratio

Investment Return (ICBC portfolio less policy benchmark equals excess)
Please elaborate on the usefulness and applicability of using the ICBC listed financial
performance measures for Basic Insurance at MPI.
CAC (MPI) 2-78
Preamble: The following Statements of Financial Position as at February 29, 2012 and
Statements of Operations for the year ended February 29, 2012 were summarized from
AI.7. The statements summarize the relative financial information for Basic Insurance; Ext.,
SRE and DVA; and Corporate in financial statement format.
Page | 46
Manitoba Public Insurance
Statements of Financial Position
As At February 29, 2012
$000
Basic Insurance
Assets
Cash and investments
Equity investments
Investment property
Due from other insurance companies
Accounts receivable
Prepaid expenses
Deferred policy acquisition costs
Reinsurers' share of unearned premiums
Reinsurers' share of unpaid claims
Property and equipment
Deferred development costs
Ext., SRE, DVA
Corporate
$
1,308,214
424,986
161,186
1,956
222,487
699
22,958
2,779
23,782
85,275
33,736
$
242,392
77,689
29,804
589
81,668
297
17,589
561
7,509
37,991
3,063
$
$
2,288,058
$
499,152
$ 2,787,210
$
4,718
32,891
3,137
393,285
14,568
207,912
1,368,857
$
1,073
24,958
1,399
86,307
6,541
93,349
116,588
$
Total Liabilities
$
2,025,368
$
330,215
$ 2,355,583
Equity
Retained Earnings
Rate Stabilization Reserve
Retained Earnings
Extension Development Fund
$
155,700
57,983
213,683
49,007
$
139,060
20,769
159,829
9,108
$
Total Assets
Liabilities
Due to other insurance companies
Accounts payable and accrued liabilities
Financing lease obligation
Unearned premiums and fees
Provision for employee current benefits
Provision for employee future benefits
Provision for unpaid claims
$
Accumulated Other Comprehensive Income
$
$
1,550,606
502,675
190,990
2,545
304,155
996
40,547
3,340
31,291
123,266
36,799
5,791
57,849
4,536
479,592
21,109
301,261
1,485,445
155,700
197,043
20,769
373,512
58,115
Total Equity
$
262,690
$
168,937
$
Total Liabilities and Equity
$
2,288,058
$
499,152
$ 2,787,210
Total equity as a % of total assets
11.48%
431,627
33.84%
15.49%
Page | 47
Manitoba Public Insurance
Statements of Operations
For the Year Ended February 29, 2012
$000
Basic Insurance
Earned Revenues
Gross premiums written
Premiums ceded to reinsurers
Net premiums written
Change in gross unearned premiums
Change in reinsurers' share of unearned premiums
Net premiums earned
Service fees and other revenue
The Drivers and Vehicles Act operations recovery
786,632
(6,679)
779,953
(13,647)
(4,629)
761,677
18,736
-
$
$
780,413
$
$
$
$
619,110
(7,073)
612,037
109,760
12,982
$
734,779
$
$
57,465
41,033
22,766
3,423
Total Expenses
$
Underwriting income (loss)
Investment income
Gain on disposal of property
Net income (loss) from annual operations
Total Earned Revenues
Claims Costs
Direct claims incurred
Claims incurred ceded to reinsurers
Net claims incurred
Claims expense
Loss prevention/Road safety
Total Claims Costs
Expenses
Operating
Commissions
Premium taxes
Regulatory/Appeal
$
Ext., SRE, DVA
180,933
(1,346)
179,587
(4,088)
(1,791)
173,708
6,310
27,325
$
207,343
$
987,756
$
$
710,002
(8,152)
701,850
132,325
15,828
115,224
$
850,003
$
56,089
36,404
5,305
34
$
113,554
77,437
28,071
3,457
124,687
$
97,832
$
222,519
$
(79,053)
101,243
88
$
(5,713)
17,732
3,126
$
(84,766)
118,975
3,214
$
22,278
$
15,145
$
37,423
$
$
Surplus distribution
Net income (loss) after surplus distribution
$
$
$
90,892
(1,079)
89,813
22,565
2,846
(14,120)
$
Other Comprehensive income (loss) for the period
Total Comprehensive income (loss)
Corporate
8,158
(15,917)
$
$
(24,075)
$
$
15,145
(14,120)
$
(1,362)
$
13,783
967,565
(8,025)
959,540
(17,735)
(6,420)
935,385
25,046
27,325
23,303
(25,437)
$
(2,134)
Request:
a) Please confirm that the values in the above statements are correct.
Page | 48
b) Please confirm that the relative financial leverage to finance assets, as measured by
total equity as a % of total assets, of Basic Insurance is approximately one-third of nonbasic insurance operations.
CMMG (MPI) 2013 GRA Information Requests
CMMG (MPI) 2-1
With reference to the data in the table in CMMG (MPI) 1-1, what loss rates does the
Corporation calculate to be break even given the load for claims costs and other expenses?
Please provide a detailed calculation showing how the Corporation sees a 75% loss ratio as
“breaking even” (i.e calculate other expenses in percentages showing total).
CMMG (MPI) 2-2
With respect to the table referred to above, how ultimate are the 2011 losses? What
methodology and calculations have been applied to make the actual total losses of
$5,528,974.00 be more ultimate? What percentage of further adverse
deviation/deterioration can be expected from the $5,528,974.00?
CMMG (MPI) 2-3
The Corporation’s response to PUB (MPI) indicates the Corporation was not impressed with
its 2011 pilot study of urban speed enforcement. However, the pilot study had nothing to do
with rural collision prevention initiatives such as barriers or corridors. Please indicate if the
Corporation plans to do any studies of that type.
CMMG (MPI) 2-4
With reference to CMMG 1-5, please calculate the approximate costs of a Whiteshell corridor
along Highway 1 by using the information the Corporation acquired in its rough costing of
the Highway 59 fencing near Birds Hill that was estimated last year at approximately
$700,000.00.
Page | 49
CMMG (MPI) 2-5
With reference to CMMG 1-6, please confirm these were no serious losses (as defined by the
Corporation) for motorcycles in 2011. Please confirm this will likely be true on an ultimate
basis.
CMMG (MPI) 2-6
With reference to CMMG 1-9, which motorcycle dealer or repair shop was involved with
negotiations of the current labour rate? Is it not true that the ATA & the MMDA represent
only car dealers and autobody shops?
CMMG (MPI) 2-7
In regards to the Corporation’s answer in CMMG 1-9, there must be estimating bulletins or
similar guidelines available to MPI estimating staff. Please produce any such notices,
guidelines, instructions, etc. that relate to this issue.
CMMG (MPI) 2-8
With reference to CMMG 1-15, please indicate the aggregate premium dollar difference
between the increase sought and the increase approved per year for those years in the
table. Please also determine the cumulative effect given that a reduction one year leads to a
smaller premium for the application of the next years increase.
CMMG (MPI) 2-9
A portion of the driver’s licence fee is insurance. How is this proportioned among liability,
collision and PIPP? How is PIPP portion allocated among vehicle types?
CMMG (MPI) 2-10
How many and what percentage of vehicles are registered in Manitoba, which do not have
to pay PIPP?
Page | 50
CMMG (MPI) 2-11
What is the total number of Manitobans receiving PIPP benefits? What is the average annual
cost of these claims?
CMMG (MPI) 2-12
Over the most recent 5 year period, how many PIPP claims involve licenced drivers who are
non-vehicle owners? What is their proportion of total PIPP costs?
CMMG (MPI) 2-13
Over the most recent 5 year period, how many PIPP claims involve unlicenced non-vehicle
owners? What is their proportion of total PIPP costs?
CMMG (MPI) 2-14
If a bicyclist is involved in a collision with an Autopac insured vehicle and it is the vehicle’s
fault, does the cyclist receive PIPP benefits? What is the same scenario with respect to
snowmobiles and ATS’s?
CMMG (MPI) 2-15
If a bicyclist is involved in a collision with an Autopac insured vehicle and it is the cyclist’s
fault, does the cyclist receive PIPP benefits? What is the same scenario with respect to
snowmobiles and ATS’s?
CMMG (MPI) 2-16
If PIPP costs were applied evenly across all vehicle types, what would the resulting affect be
on average premiums for all vehicle classes? For private passenger? For motorcyclists?
Page | 51
CMMG (MPI) 2-17
If PIPP costs were applied evenly across all vehicle types, and included all excluded vehicle
classes (i.e Interprovincial trucking etc.) what would the resulting affect be on average
premiums for all vehicle classes? For private passenger? For motorcyclists?
Page | 52