DEFINITIONS
SECTION III
Definitions have been included in these Instructions to assist insurers with the preparation of
their filings.
This section is not a complete set of insurance and insurance accounting definitions or
interpretations. It is related specifically to the preparation of the Annual Return.
Other definitions are contained in the Federal Insurance Companies Act and the various
provincial and territorial Insurance Acts.
Another Canadian source of definitions of insurance and insurance accounting terms and
concepts is:
Dictionary of Insurance, The Insurance Institute of Canada
However, definitions contained in this section take precedence, for the completion of the
Annual Return, over any definition of the same terms contained in non-legislative sources.
In some cases, there may be jurisdictional differences in the interpretations of certain terms.
If necessary, insurers should consult their primary Regulator for technical interpretations.
Affiliate
An enterprise is an affiliate of another enterprise if one is the subsidiary of the other or
if both are subsidiaries of the same other enterprise or if each of them is controlled by
the same person or enterprise. In addition, if one enterprise controls another, the two
enterprises are affiliated. "Control" exists where one enterprise is able to exercise
"significant influence" in accordance with GAAP over operating and financial
decisions of another enterprise.
Acquisition Expenses
Policy acquisition expenses are those expenses incurred in the acquisition of new and
renewal business. They include items such as commissions, premium taxes and an
allocation of operating expenses.
(1996) III-1 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Ancillary Operations
Any function which can be considered to be providing support or service to the
insurance or investment operations, can be considered an ancillary operation.
Claims Ratio
With respect to any particular period, for any policies issued by an insurer for a
particular class of insurance, the ratio of claims incurred, including adjustment
expenses, during that period under those policies, to net premiums earned during that
period for those policies, expressed as a percentage.
Claims Ratio - By Year of Accident
The claims ratio determined when claims and premiums used in the calculation are
those which pertain to a specific accident year.
Claims Ratio - By Year of Account
The claims ratio determined when claims and premiums used in the calculation are
those which pertain to a specific calendar year.
Contingent Commission
Any commission not exclusively attributable to premium volume is a contingent
commission and would be considered non-deferrable. Refer to the Instructions for
Page 80.10 for further details on commissions.
Control
Control exists where one enterprise is able to exercise significant influence over
operating and financial decisions of another enterprise, in accordance with the meaning
of the term under GAAP.
Counselling Fees
Fees paid for investment advice.
(2003) III-2 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Deferred Commissions
The estimated amount of commission expense on direct and assumed premiums relating
to the coverage period beyond the current year end. Deferred Commissions arising
from direct and assumed business must not be reduced by Unearned Commissions
arising from ceded business, and must be estimated by class of insurance.
Derivative Instruments
Refer to Instructions for Page 50.50, lines 91 and 95.
Expected Claims Ratio
With respect to the Calculation of Required Margin on Net Unearned Premiums, the
claims ratio that the person who signs the declaration under the applicable legislation
expects the insurer to experience under policies issued by it, for a particular class of
insurance during the unexpired terms of such policies.
Experience Rating Refunds
A refund to the insured that is based upon a clause or agreement in an insurance
contract that allows the insured to share in the favourable underwriting results of the
contract. Also known as "retrospective rating" refund.
Financing Reinsurance
Where an agreement that is called a reinsurance agreement does not have as its primary
purpose the transfer of insurance risk, such an agreement will be regarded as a
financing or funding agreement and not as reinsurance and must be reported
accordingly.
IBNR (Incurred But Not Reported)
The additional claim reserves established to cover claims, including related adjustment
expenses, which have occurred but which have not been reported to the insurer before
the date of valuation, and for additional reserves set-up to allow for an anticipated
development in case reserves.
(2003) III-3 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
In Arrears (Receivables)
Generally, balances are in arrears when they have not been settled in accordance with
the terms of the contract or the arrangements made between the parties.
Premiums receivable from agents or policyholders are in arrears as follows:
i) Federal, Ontario and Quebec use 65 days as the cut-off, with November 1 used
for ease of reference and calculation and, when permitted, September 1 for
insurers with an October 31 year-end;
ii) Alberta uses 3 months, with October 1 used for ease of reference.
Insurer
May include insurance companies, reinsurance companies, (farm) mutual insurance
companies or societies, captive insurance companies, or reciprocals. In Quebec, certain
professional corporations are also considered insurers.
Investment Grade
Refer to Instructions for Page 30.71.
Investment Real Estate
Investment in land and/or buildings other than for use in the insurance operations of the
insurer.
Mid Terminal Reserves
An actuarially determined calculation of the policy reserves required to cover Accident
and Sickness insurance policy benefits as at the end of the statement year.
(2003) III-4 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Net Retention
- Insurers
The maximum amount of net insurance coverage that the insurer retained in the
reporting period on any one risk or exposure in the particular class of insurance, either
by underwriting the risk for its own net account, or after the application of all
reinsurance recoveries applicable to the risk.
- Reinsurers
The maximum amount of coverage that the reinsurer accepted in the reporting period
on any one risk or exposure in the particular class of insurance, either on a given
assumed treaty or on a group of treaties covering the same risk or exposure for the same
ceding insurer, either by underwriting the risk for the reinsurer's net account, or after
exhaustion of all retrocession recoveries applicable to the risk.
Policy Limit
- Insurers
The maximum amount of insurance coverage that the insurer provided during the
reporting period on any one risk in the particular class of insurance.
- Reinsurers
Not applicable.
Policy Dividends
Amounts paid to participating policyholders as determined by the insurer, and as
prescribed by the insurance contract.
Premium Deficiency
A premium deficiency exists where the unearned premiums will not be sufficient to
discharge all the expected liabilities that will accrue to the policies, including all
expenses associated with the servicing of the policies.
Rating Refunds
Refer to the definition of Experience Rating Refunds
(1996) III-5 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Registered and Unregistered Insurer
The terms "registered" and "unregistered", as defined below are relevant in determining
whether credit can be taken for reinsurance placed by federally regulated insurers and
provincially incorporated insurers, respectively.
- Federally Regulated Insurers only:
Registered Reinsurer
A reinsurer is generally considered to be a registered reinsurer where it is:
(a) a federally regulated domestic insurance company;
(b) a foreign company that has reinsured in Canada the risks of the ceding company;
(c) a provincially/territorially regulated insurer that does not meet the definition of
unregistered reinsurer (defined below);
(d) the Insurance Corporation of British Columbia;
(e) The Manitoba Public Insurance Corporation;
(f) Saskatchewan Government Insurance; and
(g) Export Development Canada.
In order to help companies determine whether they were reinsured in Canada,
subsection 578(5) of the Insurance Companies Act requires a foreign company, in
respect of risks it reinsures in Canada, to set out in all premium notices, applications
for policies and policies (which may include cover notes offer letters or quotations) a
statement that the document was issued or made in the course of its insurance business
in Canada. In cases where the cover note, offer letter or quotation can neither be
considered an application for a policy nor a policy, a company will only be
permitted to treat a reinsurance arrangement as registered reinsurance only if the
reinsurer includes, in the cover note, offer letter or quotation, a statement that the
reinsurer intends to issue the policy under negotiation in the course of its insurance
business in Canada, and that it will take measures to ensure that the cedant’s risks will
be reinsured in Canada in accordance with OSFI’s Advisory No. 2007-01-R1 entitled
Insurance in Canada of Risks.
With respect to reinsurance of out-of-Canada business only, reinsurers regulated in an
OECD country may be recognized as “registered” on the basis of financial soundness,
provided that the reinsurance agreements are recognized by the regulatory agencies of
the countries in question. The primary Regulator (in Canada) retains the authority to
disqualify such reinsurance if not satisfied with the financial condition of the reinsuring
company.
(2010) III-6 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Registered and Unregistered Insurer (cont’d)
Unregistered Reinsurer
Any other reinsurer is generally considered to be an unregistered reinsurer where it is:
(a) incorporated or formed outside Canada and has reinsured outside Canada the risks
of the ceding company;
(b) either:
(i) incorporated federally; or
(ii) incorporated or formed outside Canada and has reinsured in Canada the risks
but is not authorized by order of the Superintendent to do so;
(c) a provincially/territorially regulated reinsurer that has not been approved by the
Superintendent.
- Provincially Incorporated Insurers:
Registered insurers in a particular jurisdiction are insurers that are licensed in that
jurisdiction. Certain Regulators will also accept (re)insurers not licensed in their
jurisdiction, but incorporated and licensed in another jurisdiction, as registered.
Verify for your jurisdiction.
Unregistered insurers are insurers not licensed by one or more provincial Regulators,
and not federally registered.
- Insurers in Quebec only:
To be deemed approved, the insurer must be approved in Quebec or another province,
or subject to federal regulation.
Registered reinsurer: A reinsurance agreement is deemed registered if it was assumed
by an insurer constituted under the laws of Québec, of another province, or the laws of
Canada and in this case licensed by one or more provincial regulator. A reinsurance
agreement is also deemed registered if it was assumed by the branch of a foreign
company authorized by the federal authority, licensed by one or more provincial
regulator, and the branch maintains assets which guarantee the fulfillment of its
obligations in relation to the agreement.
(2010) III-7 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Regulator
The federal, provincial or territorial government agency responsible for the control and
regulation of the insurance industry under its jurisdiction. The "Primary Regulator" is
the Regulator in the jurisdiction under which the insurer: (a) obtained its order to carry
on business; or (b) was incorporated.
Retrospective Rating Credits
Refer to the definition of Experience Rating Refunds
Salvage and Subrogation Recoverable
Salvage is the residual value that belongs to the insurer as a result of paying an
insured's claim for the property covered by a policy issued by the insurer.
Subrogation is the assumption by an insurer of an insured's legal right to collect
damages.
Selected Claims Ratio
With respect to the Calculation of Required Margin on Net Unearned Premiums, the
claims ratio that the actuary selects as the ratio expected to be experienced under
policies issued by the insurer for a particular class of insurance during the unexpired
terms of such policies. The selected claims ratio must not be less than the expected
claims ratio or except with the approval of the Regulator, the claims ratio selected shall
not be less than the claims ratio experienced under the policies with respect to the most
recent year.
Structured Settlements
Refer to Section IV, "Special Topics"
Subsidiary
A subsidiary is any enterprise of which the insurer owns directly, or indirectly through
other subsidiaries, more than 50% of the voting rights and for which it has the right to
elect a majority of the members of the board of directors.
(1996) III-8 INSTRUCTIONS P&C-1
SECTION III DEFINITIONS
Substantial Investment
For federally registered insurers, Section 10 of the Insurance Companies Act (ICA)
defines a substantial investment as meaning:
• "the voting rights attached to the aggregate of any voting shares [owned] exceed 10
per cent of the voting rights attached to all of the outstanding voting shares";
or
• "the aggregate of any shares" which are owned "represents ownership of greater
than 25 per cent of the shareholders' equity".
Subsection 495(4) of the ICA provides that a property and casualty insurance company
wanting to acquire or increase a substantial investment in a financial institution must
control the financial institution (that is, must have more than 50% of the votes to elect
directors), except as permitted under subsection 495(5).
Unearned Commissions
The estimated amount of commission revenue on ceded premiums relating to the
coverage period beyond the current year end. Unearned Commissions arising from
ceded business must not be reduced by Deferred Commissions arising from direct and
assumed business, and must be estimated by class of insurance.
Unrecognized (Assets and Liabilities)
Assets and Liabilities that are not “recognized” as financial instruments under GAAP,
and are “off-balance sheet”.
Unregistered Insurer (Company)
Refer to the definition of Registered Insurer
Unregistered Reinsurer
Refer to the definition under Registered and Unregistered Insurers
(2010) III-9 INSTRUCTIONS P&C-1