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ERICA M. HAMILTON COMMISSION SECRETARY
[email protected] web site: http://www.bcuc.com
SIXTH FLOOR, 900 HOWE STREET, BOX 250 VANCOUVER, BC CANADA V6Z 2N3
TELEPHONE: (604) 660‐4700 BC TOLL FREE: 1‐800‐663‐1385 FACSIMILE: (604) 660‐1102
Log No. 33783
ICBC2010RR/GenCor/A‐4_BCUC_IR‐1
VIA EMAIL [email protected]; [email protected]; [email protected] June 29, 2010
ICBC – 2010 REVENUE REQUIREMENTS
EXHIBIT A‐4 Ms. June Elder Manager, Regulatory Affairs Insurance Corporation of British Columbia 339 ‐ 151 W Esplanade North Vancouver, BC V7M 3H9 Dear Ms. Elder:
Re: Insurance Corporation of British Columbia Project No. 3698599/Order G‐85‐10
2010 Revenue Requirements Application Further to Commission Order G‐85‐10, which established a Regulatory Timetable with respect to the above noted Application, please provide a response to the enclosed Commission Information Request No. 1 by Tuesday, July 20, 2010. Please file the responses as per the filing instructions set out in the BC Utilities Commission Document Filing Protocols, effective May 16, 2005. Yours truly, Erica M. Hamilton cms Enclosure
ICBC 2010 RRA 1 BCUC Information Request No. 1
BRITISH COLUMBIA UTILITIES COMMISSION Commission Information Request No. 1
A Streamlined Application by the Insurance Corporation of British Columbia (ICBC) for Approval of the 2010 Revenue Requirements for Universal Compulsory Automobile Insurance (2010 SRRA)
1.0 Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B‐2, Chapter 3, p. 3‐7 and Appendix D Claims Costs
Appendix D demonstrates very significant correlations in the statistical models used to forecast trends in cost categories. However, ICBC identifies that a “much lower trend line has emerged than that earlier forecast.” The 5.2% lower loss costs is attributed to good weather and the recession impact on kilometers driven. 1.1 Please discuss the accuracy of the loss costs forecasts in each of the years of BCUC regulation
compared to the actual loss costs that occurred thereafter. For each of these years please identify and quantify the factors that lead to the variances between the trend forecast and the actual incurred.
2.0 Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B‐2, Chapter 3, p. 3‐23, para. 69 Merchant Fees
The addition of merchant fees to credit card service providers increases the PY 2010 indicated rate change by 0.8%.
2.1 Please explain the nature of the credit card service provider fees and how the costs are allocated between ICBC and the Brokers.
2.2 Please explain how these costs were excluded from the rate indication in prior periods.
2.3 Since the 2007 rate indication turned out to be much higher than actual, is it possible that the merchant fees were implicitly included in the cost statistics used to generate the 2007 rate indication?
3.0 Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B‐2, Chapter 3, Exhibit Set E, p. E‐2 Prospective loss adjustment – HST
The HST prospective loss adjustment assumes cost reductions/increases apply to a percentage of total costs by category [i.e. “Category 2: costs are mostly (assumed 75%) for services”].
3.1 Please provide the rationale for selected percentages by category.
ICBC 2010 RRA 2 BCUC Information Request No. 1
4.0 Reference: ACTUARIAL RATE LEVEL INDICATION ANALYSIS Exhibit B‐5: Workshop slides 52 to 55, Attachment 4 Exhibit B‐2, Chapter 4 Actuarial trends
ICBC indicates in Workshop slide 52 the criteria for recognizing costs or savings into the rate indication. The following slides indicate certain claims savings, recognition through trends and items excluded. The criteria based on the actuaries Standards of Practice was discussed by Mr. Weiland at the workshop and in the June 25, 2010 filing (Exhibit B‐5). 4.1 Does ICBC believe that both the actuarial and ICBC policies result in ICBC’s rate trends being
conservative (i.e. higher trend than actual) because the effect of new safety or cost saving measures are not included in the trend analysis until after they have accumulated enough data to demonstrate ongoing benefits? Please discuss.
4.2 Does ICBC believe that, subject to financial market gyrations and unexpected weather events impacting claims, its MCT ratio is more likely to rise over time as a result of conservative actuarial trend analyses and conservative financial benchmarks used when preparing its future rate indications? Please explain ICBC’s answer with reference to ICBC’s trend and actual financial performance since coming under BCUC regulation.
5.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐2, Chapter 5, Figure 5.13 Exhibit B‐5, Attachment 5, Capital Provision in the Actuarial Rate Indication, p. 3 Impact of MCT and Actuarial Rate Indication ‐ Capital maintenance
“In the case of the capital maintenance provision it would mean that a reduction in the MCT level by 3% to 4% per year.”
5.1 All other things being equal, how long would it take for the effect of not providing capital maintenance to reduce the MCT ratio back to 130%?
5.2 What would the impact be to the actuarial rate indication in PY 2010 if there was no capital maintenance provision included?
5.3 What does ICBC forecast the MCT ratio to be after PY 2010 has ended (at the next quarterly calculation date on December 31, 2011) if rates are set as applied for?
5.3.1 All else being equal what would ICBC forecast the MCT ratio to be at December 31, 2011 without a capital provision?
5.4 Figure 5.13 in Chapter 5 indicates that ICBC has exceeded its total investment plan benchmark in each of the last 3 years. Could not providing for capital maintenance when the MCT ratio is in excess of (say) 150% be a natural offset to the likelihood of exceeding ICBC’s investment benchmarks used in Chapter 5? Please discuss.
ICBC 2010 RRA 3 BCUC Information Request No. 1
6.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐2, Chapter 4, Appendix 4A ICBC 2007 Revenue Requirement, Chapter 6.1, p. 6.1‐2, para. 10 Capital Management Plan OIC 287
OIC 287 states, “for rate stability and predictability while minimizing the need for Basic rate increases.” 6.1 Please confirm that the “Capital Management Plan” referred to in the OIC would be the Plan as
approved by the BCUC from time to time, and that there is nothing in the OIC to preclude the Commission from modifying the currently approved Plan.
6.1.1 Please explain ICBC’s position.
6.2 Since the Capital Management Plan was approved as part of the 2007 Revenue Requirement the MCT ratio has grown from 107% at December 31, 2006 (2007 RRA, p. 6.1‐2) to a forecasted 168% at December 31, 2010. Would it not assist the objective of rate stability and predictability to discontinue the capital maintenance provision when MCT is significantly over 130%?
6.2.1 Does ICBC believe the Commission should discontinue a provision for capital maintenance when MCT exceeds 150%, 175%, or 200%?
7.0 Reference: BASIC EXCESS CAPITAL ICBC 2007 Revenue Requirement, Exhibit B‐1‐1, Chapter 6.2, para. 1, 2, 3, 10, Capital Management Plan
“Insurance companies require capital to ensure their ability to meet policyholders obligations and ultimately to protect themselves from insolvency.” (Chapter 6.2, para. 1)
OSFI uses the Minimum Capital Test (MCT) as the target ratio to determine the adequacy of capital levels and requires P&C insurance businesses to maintain a statutory minimum MCT ratio of 100%. (Chapter 6.2, para. 3)
In order to maintain capital levels that are adequate to protect its policy holders from financial risk, while maintaining low and stable rates and to reduce the likelihood of falling below the statutory minimum (Chapter 6.2, para. 2) ICBC selected a target MCT ratio of 130%. ICBC’s “Capital Maintenance Plan” as accepted by the Commission as part of the 2007 RRA decision set out to “achieve capital available of 130% MCT by December 31, 2027 and to maintain it thereafter.” (Chapter 6.2, para. 10)
7.1 When the Capital Management Plan was designed and proposed to the Commission as part of the 2007 RRA, was it ICBC’s intention to achieve an MCT ratio of 130% and to then maintain it at 130%? Please explain your answer in the context of the MCT levels which have resulted since 2007.
8.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐2, Chapter 3, Exhibit G‐2 ICBC 2007 Revenue Requirement, Exhibit B‐1‐1, Chapter 6.2, para 9, 10 Capital Management Plan
The capital provision has two components – the Capital Maintenance Provision and the Capital Build Provision. Given the recently issued Government Directive of May 18, 2010, no issue regarding the Capital Build has been identified. However, the requirement to continue to grow the MCT ratio though the Capital Maintenance Provision when the MCT ratio is in excess of 130% needs further exploration.
ICBC 2010 RRA 4 BCUC Information Request No. 1
The Capital Maintenance Provision itself has two components as calculated in Exhibit G‐2 of the Application being (1) the desired level at which to maintain the MCT ratio; and (2) the assumed growth rate in the required provision.
8.1 In regards to the first component the desired level at which to maintain the MCT ratio, ICBC states in the Capital Management Plan that “from 2026 forward, ICBC would base its calculation of the Basic insurance capital maintenance provision in the management target MCT ratio of 130%.” Given that the MCT ratio (163.4%) is greater than the transient target MCT ratio of 106% please explain why any capital maintenance provision is required to keep the MCT ratio above 130% in 2010?
8.2 The second consideration in the calculation of the capital maintenance provision is the assumed growth rate in required capital. ICBC proposed, and the Commission accepted, that a proxy to determine the long‐term growth rate in required capital would be the long‐term growth rate in claims costs. According to Exhibit G‐2, ICBC has selected a growth rate in claims costs of 3.0%. Please provide an explanation and support for this estimate.
8.2.1 Considering that the MCT would be in excess of 130% without the addition of the assumed growth rate in required capital being applied, please explain why ICBC considers it necessary to continue to grow the MCT.
8.3 Please provide a reference to the Capital Maintenance Plan that supports ICBC position that the capital maintenance additions should be applied when it results in an ending MCT ratio in excess of 130%.
9.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐2, Chapter 3, p. 3‐28, para. 92 Capital maintenance
ICBC states that the “capital maintenance provision is set at a lower level than that included in the PY 2007 rates …” 9.1 What was the capital maintenance provision in PY 2007 and why is it lower now?
10.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐5 Workshop, Attachment 5 – Capital Provision in the Actuarial Rate Indication, para. 5 Capital Management Plan
“Section 2610.06 requires that a rate indication provide for all costs so that the insurance system is financially sound. Therefore, it would be inconsistent with accepted actuarial practice to omit a cost element from the rate indication. One of these cost elements is the amount of capital required to meet and maintain the target capital levels, which ICBC refers to as the capital provision. In a situation where there is a law or Government Directive that the actuary must follow and which conflicts with accepted actuarial practice, then under the Standards of Practice the actuary is to comply with the law or Government Directive.”
10.1 Would the financial soundness of ICBC be in jeopardy if the Capital maintenance provision of $30.759 million were removed from the actuarial rate indication calculation in PY 2010?
ICBC 2010 RRA 5 BCUC Information Request No. 1
10.2 If it were determined that the approved Capital Management Plan does not specifically provide for a maintenance provision when the MCT ratio was in excess of 130% would accepted actuarial practice still require a maintenance provision to be included.
11.0 Reference: BASIC EXCESS CAPITAL Exhibit B‐5 Workshop slides 88 – 95 MCT volatility
11.1 Please update slide 90 to June 30, 2010.
11.2 For each policy year since 2006, please quantify each of the drivers that changed the MCT level from the previous year. (These would include accounting changes, investment returns, unrealized gains and losses, capital build, capital maintenance, current year claims, prior year claims and any other significant items.)
11.3 Please discuss whether ICBC sees any trends that would bias the overall rate indication towards creating conservative or growing MCT levels over time.
11.4 Please explain why removing the capital maintenance provision would induce volatility is the rates year over year.
12.0 Reference: Investments Exhibit B‐2, Chapter 5: p. 5‐7, Figure 5.9; p. 5‐13, Figure 5.15; Appendix 5 B, p. 12 & 13 Exhibit B‐5, Workshop slide 93 MCT ‐ Volatility
12.1 Slide 93 states that a 1% change in equity prices would result in a 17% change in the MCT ratio. If ICBC were to change its investment policy and significantly reduce that Equity component of the asset mix how would this impact the volatility of the MCT ratio?
12.2 If ICBC were to designate, all or some of, the Canadian Bonds and US/Global Bonds as being “held to maturity” how would this impact the volatility of the MCT ratio?
12.3 Slide 93 states that a 1% change in interest rates on fixed income investments would result in a 13% change in the MCT ratio. How would the volatility of the MCT ratio be affected if ICBC were to change its investment policy and significantly reduced the percentage of bonds in the asset mix.
12.4 The Statement of Investment Policy filed in Appendix 5 B to the Application states that the target duration of both the Canadian and US bond portfolio is 2.5 years. On page 5‐13 of the Application ICBC identifies that the actual duration from 2007 to 2009 ranged between 3.33 and 2.45 years. However; at the workshop presentation ICBC states that the bond portfolio turns over three times a year.
12.4.1 Please explain how turning over the bond portfolio three times per year is in accordance with ICBC’s investment policy.
12.4.2 Please provide an explanation on why ICBC does not consider holding the bonds to maturity as a suitable investment strategy for the Corporation.
12.4.3 What would the impact on the MCT be if ICBC were to designate all bonds as held to maturity?
ICBC 2010 RRA 6 BCUC Information Request No. 1
12.5 Is it ICBC’s opinion that a higher MCT ratio is required in order to allow for the risks related to ICBC’s decision to hold a significant amount of equities and designating bonds as held for trading? Is this risk and potential volatility of ICBC’s investment policy not already recognized when the Commission allowed a target MCT of 130%?
13.0 Reference: Investments Exhibit B‐5, Workshop slide 96 MCT ‐ Volatility
Slide 96 states that much of the excess MCT over 130% is from unrealized gains.
13.1 Does ICBC feel that there is a strong possibility that these unrealized gains may not be realized?
13.2 Does Canadian GAAP allow companies to recognize unrealized gains if there is uncertainty that those gains were realizable at the end of the year?
13.2.1 If so, explain what sorts of uncertain gains does GAAP allow a company to recognize?
14.0 Reference: Investments Exhibit B‐2, Chapter 3, p. 3‐15 para. 36 Exhibit B‐5, Workshop slide 63 New money rate and yield on RE
ICBC states: “This change provides a simplified approach to the calculation of the new money rate and yield on retained earnings, and produces in this case higher investment rates of return than would have been used under the calculation that was in place for the 2007 application, mostly due to incorporating a higher expected return on equities.” (Exhibit B‐2)
14.1 Please reconcile this statement with Workshop slide 63 which states that the lower New Money Rate and Yield on Retained Earnings are lower than 2007 and have a combined adverse impact on rates of .6%.
15.0 Reference: Investments Exhibit B‐2, Chapter 5, p. 5‐4, para. 12 Market Equity Risk Premium
15.1 Please provide the references identified in paragraph 12 and footnote 5.
16.0 Reference: Investments Exhibit B‐2, Chapter 5, p. 5‐6, Figure 5.8 Yield on retained earnings
16.1 For comparative purposes what would the Yield on Retained Earning and the New Money Rate
have been if calculated at December 31, 2007, 2008, and 2009?
17.0 Reference: Investments Exhibit B‐2, Chapter 5, p. 5‐6 &5‐9, Figure 5.8 and 5.11 Annual Management Expense Ratios.
17.1 Why have management expenses been growing since 2007?
17.2 Why was 0.12% chosen for 2010?
ICBC 2010 RRA 7 BCUC Information Request No. 1
18.0 Reference: Investments Exhibit B‐2, Chapter 5, p. 5‐7 to 5‐13, Figure 5.9, 5.12 and 5.13 Real estate.
18.1 Why has the provision for real estate in the asset mix increased?
18.2 What accounts for the large returns in the real estate portfolio in 2008 and 2007?
19.0 Reference: Investments Exhibit B‐2, Chapter 5: p. 5‐6, para. 16; Appendix 5 A Statement of Investment Policy
19.1 Please provide a black lined version of the Statement of Investment Policy and Procedures (dated April 29, 2010) as filed as Appendix 5 A, identifying changes with the version filed in the September 2009 Amended Application for a Streamlined Regulatory Process (dated July 30, 2009).
20.0 Reference: Actuarial Rate Level Indication Analysis Exhibit B‐2, Chapter 3, p. 3‐30, para. 100 Driver Risk Premiums (DRP)
“Although DPP premiums continue to be collected as well as DRP Phase 1 premiums, revenues have been lower than expected due to lower conviction counts than were previously projected.”
20.1 Why? Are the lower conviction counts a trend to safer driving?
21.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐1, para. 3 Claims Centralized Injury Centre (CCIC).
21.1 With the success of CCIC since 2006 and its expansion to 20% of BI injury file retention in 2010,
is there a specific reduction to the rate indication beyond the trend?
21.1.1 If not, why not?
22.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐2, para. 4 “World Class Status”
22.1 Please explain the significance of the World Class Status designation?
23.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐2, para. 4 & 5 2009 enhanced customer service training
23.1 Please indicate the impact that the 2009 enhanced customer service training has had on the
2010 rate decrease indication?
ICBC 2010 RRA 8 BCUC Information Request No. 1
23.2 Please indicate the impact that the Claims Quality Review Service has had on the 2010 rate decrease indication?
23.2.1 What recommendations for process changes and best practices has the Claims Quality Review Service made?
24.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐3, para. 6 Claims Division
24.1 Please indicate the results of the December 2007 reorganization of the Claims Division and
identify any cost reductions included in the 2010 rate indication?
24.2 Please provide a short review of the business case used to support the decreased manager span of control to 7:1.
25.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐5, para. 8 Claims leading indicator report
25.1 Please show how management uses the claims leading indicator report to reduce claims costs
since 2007.
25.1.1 Have any reduced costs been factored in to the 2010 rate indication?
26.0 Reference: Bodily Injury (BI) Claims Costs Update Exhibit B‐2, Chapter 6, p. 6‐5, para. 9 Bodily injury claim costs
26.1 Please quantify the statement: “ICBC has made significant progress in its approach to addressing
bodily injury claim costs.”
26.1.1 By how much was the 2010 rate indication reduced?
26.2 Please update the Commission on ICBC’s ongoing efforts to reduce court awards for BI litigation.
27.0 Reference: OPERATING EXPENSE SCHEDULES AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Section A, p. 7‐1, para. 1 Introduction
“Overall, operating expenses represent a very small percentage of ICBC’s total costs (approximately 15%)...” 27.1 If operating expenses were to decrease by 1 percent what would the percentage impact on the
Basic Insurance actuarial rate indication be?
27.2 How does this percentage compare with other auto insurers?
28.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Appendix 7 A: p. 7A‐2, Figure 7A.1; p. 7A‐1, para. 2 Total Corporate Operating Expenses Excluding Olympics and TP by Expense Category
Based on the information provided by ICBC in Figure 7A.1‐ Total Corporate Operating Expense Excluding Olympic and TP by Expense Category, Commission Staff prepared the following Table as titled Staff Table 1
“Total corporate operating expense excluding Olympics and TP increased by $80 million from 2006 to 2010.” (p. 7A‐1, para 2 and line 10 of Staff Table 1) )
28.1 Please confirm that the table is accurate. If not, please update.
29.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A: pp. 7A‐2&3; p. 7A‐4, Figure 7A.2 Compensation
29.1 In Exhibit B‐2, pp. 7A‐2&3 ICBC provided a breakdown of the $55 million increase in compensation expense since 2006 between the amount attributable to compensation rate increases, the amount attributable to increase in FTE’s and the amount attributable to higher average compensation rate changes . Of the $55 million increase (Staff Table 1, line 1) in compensation expense, $18 million is forecast to occur in 2010. Please provide a breakdown for the $18 million 2010 forecast increase by the same three categories as provided for the overall $55 million increase.
30.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, p. 7A‐5, para 13 Compensation
Based on the information provided by ICBC in Figure 7A.2‐ Compensation by Employee, Commission Staff prepared the following Table as titled Staff Table 2
ICBC 2010 RRA 9 BCUC Information Request No. 1
30.1 Of the $18 million forecast increase in compensation expense in 2010 (line 4), $2 million (line 1) relates to the Bargaining Unit (BU) employees while $16 million (line 2) relates to the Management and Confidential (M&C) group. Please explain in detail why the M&C group is forecast to increase at a much higher rate than the BU employees.
30.2 The overall increase in compensation since 2006 for the M&C group is $42 million (line 2) or 42.9 percent line 2), representing 52 percent of the overall increase in corporate operating costs of $80. Please provide specific data, including explanations, that accounts for the $42 million increase.
30.3 ICBC states that “The average compensation rate of increase for the M&C group is approximately 3.7%. Some of the increase is related to a larger number of senior level employees that have higher than average compensation.” (p. 7A‐5, para 13) Please reconcile this statistic with line 2 of Staff Table 2 which appears to be much higher.
30.4 Please fill out the following table:
30.4.1 Please provide details of the rationale for requiring an increase in the number of FTE’s at the higher than average salary employees group for 2009 and 2010 including brief job descriptions for each.
30.5 Please explain if the M&C group is being held to the Government’s mandate of 0% wage increases in the PY 2010 rate indication? If not, why?
30.6 Please provide the actual compensation for each of ICBC’s top 5 paid executives (broken down by base salary, bonus, OPEB and Pension) for the following years: 2006, 2007, 2008, 2009, and forecast 2010.
ICBC 2010 RRA 10 BCUC Information Request No. 1
30.6.1 If the average compensation of these 5 executives increased by more than inflation please provide further explanation on why the higher than average increase is warranted. Please ensure that the response is at the individual executive level.
30.7 Please provide the compensation used for the three comparator groups identified in footnote 8 on page 7A‐5.
30.8 Please confirm that a union wage increase of 0% has been used to forecast PY 2010 BU compensation. If not, please explain.
31.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, p. 7A‐6: Figure 7A.3 FTE’s by Group
Based on the information provided by ICBC in Figure 7A.3 ‐ FTE’s by Employee Group, Commission Staff prepared the following Table as titled Staff Table 3
31.1 Please provide Figure 7A.2 and 7A.3 broken down by Base Operations and Government Initiatives FTE’s for the BU, M&C and Contractors for each year 2006 thru 2010.
31.1.1 Please provide the growth in policies percentage for 2007, 2008, 2009 and forecast 2010.
31.1.2 Please compare the percentage growth rate in FTE’s for Base Operations from 2007, 2008, 2009 and forecast 2010 with the growth in policies for the same period.
31.2 Please confirm that the number of FTE’s relating to the M&C group has increase by 24.5% between 2006 and forecast 2010 while the number for BU FTE’s has dropped by 1.9%.
31.3 Please confirm that there has been an increase of 205 FTE’s since 2006 in the M&C group.
31.3.1 Please elaborate on ICBC’s rationale for requiring the M&C group to increase by 205 FTE’s while the number of BU FTE’s has decreased by 78. Please provide the response at a divisional level base on the statistics provided in Figure 7A.4 – FTE’s by Division.
31.4 Please provide further explanation on why ICBC is forecasting an increase of 71 new FTE’s in the M&C group in 2010 and what their role within the operations is expected to be.
31.4.1 What is the expected compensation expense for the forecast 71 new FTE’s to the M&C group.
31.5 Please explain how and why management intends to reduce the number of contractors by 25 FTE equivalents, almost 30%, in forecast 2010.
ICBC 2010 RRA 11 BCUC Information Request No. 1
32.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7: Appendix 7 A, Figure 7A.3; Appendix 7 D, p. 7D‐1 FTE’s per Policy
32.1 Please provide the calculation for forecast FTE’s per policy for PY 2010.
32.2 Please explain why there is a consistent upward trend of increasing the number of FTE’s per policy since 2006.
33.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, Figure 7A.4 FTE’s by Division
Summary of Table 7A.4 – FTE’s by Division
33.1 Figure 7A.4 indicates that the Information Services Division has forecast a reduction of 37 FTE’s in 2010.
33.1.1 Is this due to the TP program? If not, what is the reason for the decrease?
33.2 For each division, how many of the FTE positions are now filled?
33.3 Does ICBC’s 2010 Rate Indication include a provision for unfilled vacancies? What % of total FTE’s is assumed to be unfilled?
34.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A: p. 7A‐2, Figure 7A.1; pp. 7A‐7‐8, para. 21‐25 Building and Operating Expense
Figure 7A.1 and Staff Table 2 show that building and operating expense has grown by 28.0% since 2006 at a relatively steady rate of approximately 7% per year.
34.1 Given that a significant amount of the increase is due to ICBC’s reinvestment in additional repairs and maintenance since 2006 (p. 7A‐7, para. 21) does ICBC expect this 7% annual increase to continue into the future?
ICBC states that in 2007 the $1 million increase related to cyclical expenses, in 2008 there was an additional $1 million for snow removal and $0.5 million of updating of certain services, in 2009 an additional $1 million was added for additional cyclical expenses. ICBC states that the 2010 forecast is approximately $2 million higher than the 2009 actual due to expenses such as increases in property taxes and office space (p. 7A‐7, para. 22‐25).
ICBC 2010 RRA 12 BCUC Information Request No. 1
ICBC 2010 RRA 13 BCUC Information Request No. 1
34.2 Has ICBC taken into account the presumption that the 2010 forecast amount includes $1 million for snow removal, $2 million for cyclical expenses and $0.5 for updating certain services. Please explain why this $3.5 million is still required in forecast 2010, and if no longer required please provide further details of what makes up the forecast $32 million of building and operating expenses in F2010.
35.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, p. 7A‐10, para. 29 Professional Services
ICBC states that Profession Services have increased by $7 million between 2006 and 2010.
35.1 Please confirm that this represents a growth rate of over 63% as calculated in Staff Table 1.
35.2 Please provide a breakdown of the actual increase in professional services between 2006 and 2009 of $2 million relating to each of outside legal, actuarial, audit, pension and strategic consulting expertise.
35.3 Please provide further detail, including dollar amounts, for the forecast increase of $5 million or 38.5% between 2009 and 2010 (Staff Table 1) and explain why it is significantly greater than in the prior three periods.
35.4 Please provide a summary of the proposed translator services (including the costs to set up the service and the forecast ongoing cost to maintain the service) and a summary of the business case for adding these services (please identify if the services are to be in‐house employees or contracted out).
36.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, p. 7A‐10, para. 29&30 Other Operating Expenses
ICBC states that Other Operating Expenses have increased by $9 million between 2006 and 2010.
36.1 Please confirm that this represent a growth rate of over 75% as calculated in Staff Table 1.
36.2 Please provide a breakdown of the actual increase in other operating costs between 2006 and 2009 of $2 million due to each of the drivers described on p. 7A‐10, para. 30.
36.3 Please provide further detail, including dollar amounts, for the forecast increase of $6 million, or 40.0%, from 2009 to 2010 (Staff Table 1) broken down by bad debt expense from expected defaults on Driver Risk Premiums, severance and regulatory costs, and explain why it is significantly greater than in the prior three periods.
37.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 A, p. 7A‐10, para. 30 Project Costs
On p. 7A‐10, para. 32, ICBC states that all the TP projects costs have been removed from this category.
37.1 How does ICBC’s ensure that all costs (completeness) relating to the TP project have been removed from the project cost category.
38.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 C, p. 7C‐1, Table 7C.1 Variances in Forecast versus Actual Corporate Operating Expenses
Based on the information provided by ICBC in Figure 7C.1 – Total Corporate Operating Expenses Excluding Olympic and TP, Commission Staff prepared the following Table as titled Staff Table 4
During the period between 2006 and 2009 ICBC total corporate operating expenses forecast has turned out to be, on an average, 2.8% higher than actual.
38.1 In consideration of the trend over the past four years, please explain why ICBC is confident that the 2010 forecast is not over stated.
38.2 Please breakdown Figure 7C.1 between Base Operating Expense, Government Initiatives, and Unique items showing actual and forecast for each breakdown for 2006, 2007, 2008 and 2009.
38.3 Please calculate what the total corporate operating expense would be for 2010 if it were to be reduced by 2.8%.
38.3.1 What would the impact be on the Actuarial Rate Indication?
39.0 Reference: OPERATING EXPENSE SCHEDULES AND ALLOCATION INFORMATION Exhibit B‐2, Appendix 7 D, para. 1 Historical Information
39.1 The Expense Ratio, Loss Ratio and Combined Ratio all increased in 2009 compared to 2008.
What is ICBC doing to control this trend?
40.0 OPERATING EXPENSE SCHEDULES AND ALLOCATION INFORMATION Exhibit B‐2, Appendix 7 F, Marketing and Broker Services
40.1 Please update figures 1 and 2 to add years 2008 and 2009.
41.0 Reference: OPERATING EXPENSE SCHEDULES AND ALLOCATION INFORMATION Exhibit B‐2, Appendix 7 F, para 30 Marketing and Broker Services
41.1 Please expand on the process undertaken by the manager of Marketing and Broker Services to
come up with the work effort breakdown in Figure 4.
ICBC 2010 RRA 14 BCUC Information Request No. 1
ICBC 2010 RRA 15 BCUC Information Request No. 1
42.0 Reference: OPERATING EXPENSE AND ALLOCATION INFORMATION Exhibit B‐2, Chapter 7, Appendix 7 G, p. 3 Government Directive Regarding the Transformation Project
Page 3 of the OC states “In determining its forecast revenue requirements for universal compulsory automobile insurance, ICBC will deduct the budgeted amount of Optional‐Funded Transformation Program Costs approved by Treasury Board for the calendar year from ICBC’s forecast corporate operating costs,…”
42.1 Please provide the amount of the budgeted Optional‐Funded Transformation Program Costs approved by Treasury Board for the calendar year that relates to Policy Year 2010.
42.1.1 Please confirm that this amount has been deducted from total corporate operating expenses.
42.1.1.1 If another amount has been deducted please provide an explanation.
42.2 If actual Optional‐Funded Transformation Program Costs exceed the amount budgeted and approved by the Treasury Board how does ICBC plan on recovering these costs?
43.0 Reference: Service Plan Exhibit B‐2, Chapter 11, Appendix 11 B, p. 9 Industry comparison
43.1 Please elaborate on the statement: “… ICBC’s position is sound and we continue to fare well
relative to the industry.”
43.1.1 How well is ICBC doing compared to the industry?
43.1.2 Does ICBC have comparable MCT statistics from the auto insurance industry and how does ICBC use those statistics?
44.0 Reference: 2009 Annual Report Exhibit B‐2, Chapter 11, Appendix 11 C, p. 4 Claims
ICBC’s key financial and operating comparatives shows that the dollar value of claims incurred during the year and claims reported during the year have not shown much variance in the last three years. 44.1 Please reconcile these statistics with the 2010 rate reduction application based on “more
favourable Basic claims cost per policy trend due to both frequency and severity …” (B‐2, p. 2‐1)
