Re: Insurance Corporation of British Columbia Order G /Project No Revenue Requirements Application

Transcription

1 A Avenue Surrey, British Columbia. V3R 7T6 C February 2014 Ms. Erica Hamilton Commission Secretary British Columbia Utilities Commission Sixth Floor, 900 Howe Street Vancouver, British Columbia V6Z 2N3 Dear Ms Hamilton, Re: Insurance Corporation of British Columbia Order G /Project No Revenue Requirements Application ORAL HEARING SUBMISSION OF INTERVENER EVIDENCE, INFORMATION REQUEST 1 & 2 WITH RESPONSES AND OPENING STATEMENT Further to Commission Order G with respect to the above noted Application, I am pleased to file the referenced subject information ahead of the Oral Hearing commencing February 6 th Please note that Information Requests 1 & 2, Exhibits C1-4 & C1-7, response Exhibits B-4 & B-8 and, Intervener Evidence Exhibit C1-9, response C1-10 is on file. The response to Intervener Evidence from ICBC received January 31 st Exhibit B-12 is also on file. I am filing herewith my rebuttal questions to ICBC s Exhibit B-12, which I will present before the Oral Hearing, along with my brief Opening Statement on or about February 7 th. Please refer to Mr. Paul Miller BCUC Council for my reasons for being absent on February 6 th. The attached rebuttals cover the 8 subjects outlined by me during the Pre-Hearing Conference as noted in that hearing s transcript on page 58 and 59. (November 19 th. ). I have also previously raised noted interest within Letters of Comment from Mr. Richard McCandless Exhibits E-9 and E-9-1, and Mr. Arthur Entlich E-10 Kind regards, Richard T. Landale cc: ICBC and Registered Interveners RTL-ICBC RRA Oral Hearing Letter of Evidence Feb doc

2 Re: Insurance Corporation of British Columbia Order G /Project No Revenue Requirements Application RTL - BCUC ORAL HEARING OPENING ADDRESS February 7 th Thank you Mr. Chairman, Commissioners, Council - Mr. Miller, ICBC et al, and Interveners. My opening statement is more to do with appreciation for the Process facilitated by the British Columbian Utilities Commission, and their wonderful staff. Who I might add have helped, nudge and responded to my many infant requests. Thank you. ICBC has been very accommodating to me over these past few months, we certainly have exchanged a wide range of topic and view points, I thank ICBC and staff for their accommodations. It is good to acknowledge in our democratic system, differences are still an acceptable discourse between peoples for the contributing enlightenment and betterment of decisions. Turning to my two rounds of Information Requests and their respective community responses from the BCUC, ICBC and Interveners, along with my submission of Intervener Evidence, and its responses, with ICBC s following rebuttal, I respectfully have filed them with the Commission, and the Commission Panel for their due evaluation, considerations and up coming deliberations. If there are any questions, I am available. I might ask you speak slowly, not because I am a Senior (mind you - thank you very much), but more to do with the acoustics and my hearing aid devices. Thank you. Richard T. Landale. Intervener C1

3 Information Request No..1 RR RL.1.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.1.1 Reference: Claims Transformation Program (CTP) How/where did the model for the TCP come from, and has this model ever been used in Canada before, ie: Quebec, Manitoba, Saskatchewan. The Claims Transformation program involves a change to the claims business process, a new claims system, as well as the functional organizational model and Claims hierarchy. Prior to embarking on its Transformation Program, ICBC engaged a number of external transformation experts (e.g., BearingPoint, Deloitte, McKinsey Group, Accenture, IBM), and contacted other organizations who had done transformation themselves, to leverage lessons learned in industry. In addition to researching IT-enabled transformation, ICBC gathered lessons learned specific to Claims Transformation from insurers such as Aviva, Economical, TD Insurance, Dominion, Saskatchewan Government Insurance, and Manitoba Public Insurance. The primary software product being implemented to support Claims transformation is Guidewire ClaimCenter. Customers of Guidewire s ClaimCenter product in Canada include the Dominion of Canada General Insurance Company, Intact, and Wawanesa.

4 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2 fa.1 RR RL Reference: Claims Transformation Program (CTP) 1.2. When did ICBC staff first start work on the development of this program How many departments, focus groups, and training sessions were employed to "Develop" the program Please provide an updated Organization Structure hierarchy diagram of the TCP as it is today. For reference see 1.2 Organization Structure Figure 1 page 11 of the BC Government Review of ICBC August The Transformation Program (TP) was launched in TP is funded by ICBC s Optional insurance business. The Commission does not regulate ICBC s Optional insurance business. The requested information is not relevant to the determination of this Application ICBC understands this question to refer to the functional organization structure, which is shown below.

5 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2

6 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL Reference: Claims Transformation Program (CTP) 1.5. How many External Consultants were used to develop and bring this Program online How much "Money" did ICBC spend from development stage to bringing the CTP online Since inception of the CTP, has the CTP followed a pre-described Schedule, and Budget. If so, please publish this information. 1.5 The Transformation Program is funded by ICBC s Optional insurance business. The Commission does not regulate ICBC s Optional insurance business. The requested information is not relevant to the determination of this Application. 1.6 Please see the above response to information request.1 RR RL Please see the above response to information request.1 RR RL.1.5.

7 Information Request No..1 RR RL.1.8 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.1.8 Reference: Claims Transformation Program (CTP) What if any are the on going staff training/retraining and reorganization costs, including technology costs. Any costs incurred for ongoing staff training/retraining and technology will be managed within the regular operating expense budget. Please see the response to information request.1 RR BCUC

8 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL Reference: Claims Transformation Program (CTP) 1.9. How much money has been saved since the CTP implementation to date, during these past 8 months What are the total number of Claims by category to date that have utilized this program for each compartment shown in the Hierarchy slide handed out during the workshop Please present before the Pre Hearing Conference in November "Actual data" to support the successful measurements ICBC claims the CTP is working. 1.9 The functional organizational model and Claims hierarchy are included in the financial projections used in this Application, and the long-term benefits as well as the transition impacts associated with Claims Transformation, including the Claims hierarchy, are included as prospective adjustments (please refer to the Application, Chapter 3, Exhibit E.5). As shown in Chapter 3, Exhibit E.5, ICBC has estimated the Basic insurance savings amount from Claims Transformation based on the most recent estimates. The portion that is attributable to Basic insurance is $34.5 million per year, which ICBC anticipates would not be fully realized before It should be noted that, while the most recent estimates are used, these estimates are expected to be refreshed periodically in order to account for the latest information. Some amounts of claims savings are expected to begin to be realized prior to 2016, and there will be claims savings in policy year. Also shown in Chapter 3, Exhibit E.5 is the estimation of the effect on Basic insurance claims costs of the transitional impacts on efficiency and file handling quality The table below sets out the intake of bodily injury (BI) exposures for each position for the sixmonth period, April to September, since the new Claims hierarchy was implemented.

9 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 BI Exposures Intake - 6 months Claims Hierachy Positions (April to September ) Injury Adjuster 16,931 Senior Injury Adjuster 10,619 Claims Examiner 2,969 Senior Claims Examiner 237 Total 30, Please see the above response to information request.1 RR RL.1.9.

10 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL Reference: Claims Transformation Program (CTP) In addition please attach dollar costs in relation to the Workshop slides # 64, 65, 66, 67, 68, 69, 70 as presented at the workshop so that we can independently validate or not, the success of the Claims Transformation Program as presented at the workshop In slide 65, please quantify cost savings in respect to staff, resources (facilities, computers etc) that lead to "Management Accountability" 1.12 It should be noted that the September 24, Workshop (the Workshop) slides referenced above relate to a combination of claims initiatives as well as Claims Transformation. Claims handling initiatives, management accountability, and claims analytics make up the claims cost management strategies, developed starting in 2005 and still in place today. While ICBC s claims handling philosophy has not changed, ICBC continues to adapt its claims handling approaches to help manage bodily injury claims costs. The current approaches and initiatives can be seen in slides 66 to 68 of the Workshop presentation. The Claims Transformation program referenced on slide 69 of the Workshop presentation will help manage claims costs by introducing new systems and business processes, which support the recently implemented functional organizational change and Claims job hierarchy. ICBC believes increased focus by claim type and complexity will improve the customer experience, streamline business processes, and help manage costs. The new functional organizational model and Claims hierarchy were important to implement prior to the introduction of the new claims system in order to minimize the transitional effects to both customers and employees. Introducing the new claims system after revising the process of the assignment of files will allow for immediate and efficient allocation of new claims in order to meet the needs of customers. Furthermore, in order to facilitate a smooth transition from the old claims system to the new system, it was fundamental to provide claims staff with the opportunity to become

11 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 accustomed to their new roles and new business processes prior to commencement of training on the new claims system. The Basic insurance impacts associated with claims cost management initiatives and Claims Transformation are reflected in the Application. Please see the responses to information requests.1 RR RL.1.9, filed in response to information request.1 RR RL , and.1 RR.IBC Please see the above response to information request.1 RR RL.1.12.

12 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. 2.1 Based on the Workshop presentation Slide 83 - Proposed New Capital Management Target. Please explain the steps taken to establish the 130% MCT Solvency Target and under who s direction / orders In the Application, Chapter 4, paragraph 9, ICBC explains that the current Capital Management Plan incorporates a capital management target of 130% MCT. The current Capital Management Plan was proposed by ICBC in the 2007 Revenue Requirements Application and subsequently approved subject to a revised capital release provision in the January 2008 Decision on Revenue Requirements (see the Application, Chapter 1, paragraphs 6 and 7). As explained in Chapter 4, page 4-11, footnote 14, the 130% MCT capital management target was determined based on industry standard financial stress testing and reviewed and accepted by the Commission. As part of the proposed new Basic Capital Management Plan, ICBC is referring to the 130% MCT capital management target as the Solvency Target. In Chapter 4, paragraph 37, ICBC states that Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended now requires an additional margin (the rate smoothing margin) addressing the fact that the Solvency Target does not account for the use of capital for rate smoothing.

13 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. 2.1 Based on the Workshop presentation Slide 83 - Proposed New Capital Management Target. It was put forward by ICBC during the workshop Q&A, that the percentage range above 130% MCT to 150% called New Management Target is "New Money" that will be collected from Basic Rate premiums. This new money will be invested to generate income to help reduce future rate increases, while maintaining the new capital generated, and topping up the earned income from the new money to meet the 130% MCT Solvency Target should the MCT drop below 115% Who came up with this scheme. ICBC believes that the intervenor has confused some of the concepts explained at the workshop and wishes to set the record straight: Money collected from Basic insurance rate premiums is indeed invested to generate income to help reduce future rates. This occurs independent of any capital management plan (either the one currently in place or the proposed new one). Money collected from policyholder premiums is called new money to distinguish it from Basic equity which is also invested to generate income to help reduce future rates. Please see the Application, Chapter 3, paragraph 18 for an explanation of how investment income has impacted the indicated rate change. The term new money does not refer to the capital associated with the difference between the 130% MCT Solvency Target and the proposed capital management target

14 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 of 150% MCT, which has been introduced to comply with the rate smoothing requirements of Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended. However, when the higher capital management target of 150% MCT is reached, it would result in more Basic capital, which can be invested to benefit Basic insurance policyholders as a result of the closed system nature of ICBC s Basic insurance business as further explained in the response to information request.1 RR BCUC New money is not used to top up earned income to meet the 130% MCT Solvency Target should the MCT drop below 115%. The Government directive of December 13, 2012 with respect to Optional Excess Capital Transfer approved by Order in Council 082/13, February 19, (provided as Chapter 4, Appendix 4 B) approved the transfer of $373 million from ICBC s Optional insurance business as of the end of 2012 because the Basic MCT level was projected to drop below the regulatory minimum of 100% MCT.

15 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. 2.1 Based on the Workshop presentation Slide 83 - Proposed New Capital Management Target. Also during the workshop the point was put forward, that in the past ICBC would receive an IOC directive ordering ICBC to transfer Capital from the Optional Insurance to the Basic Insurance to return the MCT to the 130% Solvency Target. Who and when was this practice ordered to stop. The transfer of capital from the Optional insurance business to the Basic insurance business can only be done on the basis of an Order of the Lieutenant Governor in Council. Most recently the Government directive of December 13, 2012 with respect to Optional Excess Capital Transfer approved by Order in Council 082/13, February 19, (the 2012 Government Directive regarding Optional Excess Capital Transfer) approved such a transfer. This was a one-time order and not an ongoing practice. In the absence of a government directive authorizing an Optional transfer, ICBC must make use of the Capital Management Plan as approved by the Commission to maintain the capital management target. This is achieved through capital provisions in the indicated rate change. The transfer of capital from the Optional insurance business to the Basic insurance business was not done to return the MCT to the 130% MCT Solvency Target. The Optional transfer authorized by the 2012 Government Directive regarding Optional Excess Capital Transfer occurred to restore Basic capital level equal to or above the regulatory minimum of 100% MCT.

16 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. 2.1 Based on the Workshop presentation Slide 83 - Proposed New Capital Management Target. Slides 17 to 22 inclusive reviews the current Capital Management Plan. Particularly note worthy are Slides 20 & 21, which demonstrate the monitored Minimum Capital Test (MCT) levels, and the remedial injection of "Optional Transfer" to return to 137% MCT. Does ICBC agree this demonstrates the current Capital Management Plan is working to address MCT Volatility. The question is implying that the remedial injection of Optional transfer is part of the current Capital Management Plan, which is not the case. The purpose of the remedial injection is not to address MCT volatility but to restore Basic capital to above the regulatory minimum. Any transfer of capital from the Optional insurance business to the Basic insurance business is a decision that rests with government. In the past, ICBC has only transferred capital from Optional to Basic at the direction of government. As indicated in the response to the information request.1 RR RL.2.1.3, this requires an Order in Council approved by the Lieutenant Governor in Council. Please see the response to the information request.1 RR BCUC for actions that ICBC must take in the future if the Basic capital level is projected to fall below the regulatory minimum of 100% MCT.

17 Information Request No..1 RR RL.2.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.2 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. Within either the BC Government Special Directive or the BCUC Orders do they tell ICBC the MCT 100% is the Minimum level and the MCT 130% is the Solvency Target. Or did ICBC just make this distinction itself. Please be specific as to the origins of these limits. Section 3(b) of Special Direction IC2 to the BCUC Utilities Commission, BC Regulation 307/2004, as amended (Special Direction IC2) specifies that the Commission must set rates for the corporation s universal compulsory vehicle insurance business in a way that will allow the corporation to maintain, in relation to its universal compulsory vehicle insurance business, at least 100% of MCT. The definition of the capital management target in Special Direction IC2 also requires a risk margin as specified in part (b) of the definition and a rate smoothing margin as specified in part (c) of the definition. The Solvency Target is the sum of the regulatory minimum and the risk margin. The addition of a rate smoothing margin to the Solvency Target is part of the proposed new Basic Capital Management Plan. Please see the response to the information request.1 RR RL for an explanation of the origin of the 130% MCT Solvency Target.

18 Information Request No..1 RR RL.2.3 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.3 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. Being mindful of the application para's 16a,b,c,d, 17& 18a,b where does the Special Directive IC2 or the various IOC's direct ICBC to establish the 150% New Management Target for Basic Universal Insurance. The paragraphs from the Application, Chapter 1 that reference the proposed new capital management target are 15(a) and 16(c). Paragraph 15(a) refers to a definition of the capital management target in section 1 of Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended, which includes the third element described in the excerpt in the information request. Paragraph 16(c) refers to the requirement stated in the Government directive of March 19, with respect to Rate Smoothing approved by Order in Council 153/13, March 18, to bring forward to the Commission for approval by May 31, 2014, a new Basic Capital Management Plan that continues to protect the solvency of Basic insurance while also improving the ICBC s ability to use Basic capital to promote more stable and predictable Basic insurance rates. A proposed new capital management target of 150% MCT is part of the proposed new Basic Capital Management Plan.

19 Information Request No..1 RR RL.2.4 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.4 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. This question was never properly answered during the workshop, Why not continue the previous practice of using Optional Insurance capital to top up the Basic Insurance capital to meet the 130% MCT. Please see the responses to the information requests.1 RR RL and.1 RR RL

20 Information Request No..1 RR RL.2.5 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.5 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. Following along the lines of the previous question, does ICBC continuously monitor the MCT for Basic Insurance, if so, please explain why this monitoring process can not deliver predictability, leading to rate smoothing. Provide spreadsheet examples of previous years monitoring to show why monitoring has not worked, even in light of IOC capital top up directives returning Basic Capital to 100%-130% MCT levels. ICBC does continuously monitor the MCT for Basic insurance. However, ICBC would like to point out that merely monitoring a metric (e.g., MCT) does not necessarily cause it to take on a particular desirable characteristic (e.g., predictability). Please see the response to the information request.1 RR BCUC.60.2 for information regarding the MCT ratio for each year-end since Also please see the responses to information requests.1 RR RL and.1 RR RL where it is stated that transfers from the Optional insurance business to the Basic insurance business can only occur at the direction of government.

21 Information Request No..1 RR RL.2.6 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.6 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. Slide 86 from the workshop claims the New Capital Provisions quote: "Conform with requirements of IC2", but the application and this slide fail to arithmetically support this claim moving forward through 2014, 2015, 2016 and onwards. Please provide evidence to support this claim. ICBC has discussed a number of scenarios which illustrate how the requirements of Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended (Special Direction IC2) will be applied in future years. Please see the Application, Chapter 4, Figures 4.4, 4.5, 4.6, and 4.7. Whether or not the new capital provisions conform to the requirements of Special Direction IC2 will be tested annually in each revenue requirement application as from The revenue requirement application provides the evidence supporting the rate change to cover costs based on accepted actuarial practice. Any rate exclusion or capital build provision will be dependent on the details of the components that make up the rate change to cover costs, including the loss cost forecast variance, and on the level of Basic capital at that time.

22 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. 2.7 Please advise exactly the origins of this statement, extract from above: ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. 2.8 Please provide ICBC s definitions for the following: Risk Profile, Ability to Respond to adverse event, Any additional Margin. As they are applied to the text extract in question 2.7 above. 2.7 The statement in the information request is drawn from the definition of the capital management target in section 1 of Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended (Special Direction IC2). 2.8 The terminology used in the statement ( risk profile and ability to respond to adverse events ) is similar to that used in the MCT guideline, which is defined in Special Direction IC2 as the Guideline for Minimum Capital Test for Federally Regulated Property and Casualty Insurance

23 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 Companies issued by the Office of the Superintendent of Financial Institutions Canada as that guideline is amended or replaced from time to time. Please see The term any additional margin refers to the rate smoothing margin that addresses the fact that the Solvency Target does not account for the use of capital for rate smoothing. ICBC is proposing a 20 percentage point rate smoothing margin over and above the 130% MCT Solvency Target to bring the proposed new capital management target to 150% MCT.

24 Information Request No..1 RR RL.2.9 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.2.9 Reference: Minimum Capital Target (MCT) See ICBC's Application, section 15(a) A definition of the capital management target, meaning the MCT target as determined in a capital management plan approved by the Commission, which consists of three components: the minimum regulatory level 100% MCT; plus the margin, expressed in percentage points of MCT, that reflects ICBC s risk profile in relation to the Basic insurance business and its ability to respond to adverse events that arise from those risks; and any additional margin, expressed in percentage points of MCT, consistent with relatively stable and predictable Basic insurance rates. The first two elements are already reflected in ICBC s existing capital management target. The third element is a new consideration and reflects the fact that, with rate smoothing, additional capital will be needed to smooth through rate volatility. In relation to the Slides 88 to 96 inclusive, please demonstrate in a spreadsheet and graphs how the +/-1.5ppt will not compound year over year as it applies to any Rate Change in each future year starting in PY2014. ICBC would consider the scenario where the rate change continues to increase at the rate change ceiling year after year as an extraordinary circumstance. Please see the response to information request.1 RR BCUC for a discussion of actions that will be taken in the event of an extraordinary circumstance.

25 Information Request No..1 RR RL.3.a Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.3.a Reference: Basic Premium Policies and BC Population. This information concerns the driving population of British Columbians, and the actual number of Basic Premiums written from a historical and current PY perspective. It is worth noting that following a word search of the current application the word Population appears 13 times, for example: To quote from Exhibit Description of Model Exposure paragraph 3: Historically ICBC has selected an econometric model using population as an explanatory variable for a majority of the territory forecasts. Territory exposures are assumed to be directly influenced by their population and the population forecasts are provided by a reliable source (Statistics Canada). For this reason, ICBC has continued to select the econometric model for these business segments where the model has continued to provide a good fit to the data. Another extract is from page 7F-5 foot notes: 8 Based on BC Stats 2010 population estimates. A community is defined as a city, town, village or district municipality. Almost all other references to population refer to vehicles. The intervenor indicates that he has provided the extracts from the Application in this preamble by using a word search for population. The extracts pertain to different parts of the Application and to different elements of ICBC s costs. The first excerpt is from the Application, Chapter 3, Exhibit B.0.1. This Exhibit explains how ICBC models the exposures for the policy year. Exposures refer to the numbers of vehicles on the road in BC which in turn is related to the population. The second excerpt is from Chapter 7, Appendix 7 F, which addresses a Commission directive regarding Autoplan Agency Agreements with brokers. The cited footnote refers to a comment in the appendix regarding the availability of service provided to communities by an Autoplan agency and is unrelated to the indicated rate change.

26 Information Request No..1 RR RL.3.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.3.1 Reference: Basic Premium Policies and BC Population. This information concerns the driving population of British Columbians, and the actual number of Basic Premiums written from a historical and current PY perspective. Almost all other references to population refer to vehicles. It is worth noting that following a word search of the current application the word Population appears 13 times... With whom is ICBC dealing with, "Vehicles" or "Real live people" that actually pay the real basic premium dollars "or"? Please fill in the question. ICBC understands this question to be asking what basis is used by ICBC for determining its required premium, and is the population used for determining the required premium based on vehicles or policyholders ( real live people ). As explained in the Application, Chapter 3, Exhibit B.0.1, in order to determine ICBC s overall revenue requirements for Basic insurance, a forecast of the total number of exposures for the policy year is required. As noted in.1 RR RL.3.a, the number of exposures refers to the number of vehicles on the road, which in turn is related to population. ICBC uses various techniques to model or forecast what the number of exposures will be with the overall objective being to forecast the expected population of customers who will insure vehicles during the policy period in question.

27 Information Request No..1 RR RL.3.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.3.2 Reference: Basic Premium Policies and BC Population. It is beyond comprehension why ICBC references Stats Canada and BC Stats of 2010, when BC Stats were updated in April, which says there is a population of some 4,669,022 million people in the Province of British Columbia, with a growth rate annually of 1.3% through to 5,229,463 people by Please explain why ICBC is using Stats Canada, and not current BC Stats for the most current BC Population figures. As indicated in the Application, Chapter 3, Exhibit B.0.1, paragraph 5, ICBC uses current population-related data for explanatory variables from Statistics Canada and BC Stats for its modeling of exposures (or number of vehicles on the road in BC). As explained in the response to the preamble of information request.1 RR RL.3.a, the reference to 2010 BC Stats population estimates pertains to Chapter 7, Appendix 7 F in regards to the availability of service provided to communities by an Autoplan agency and is unrelated to the indicated rate change for Basic insurance.

28 Information Request No..1 RR RL.3.3 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.3.3 Reference: Basic Premium Policies and BC Population. Keeping in mind the last question, "Forecast Risks and Sensitivities" page 28 of the Financial Summary Outlook, suggests a 1% change in Market Share represents $4-6 million dollars on net income, and $38-42 million dollars on Premiums. Could ICBC use this information to forecast future Basic Premium incomes, rather than actuarial numbers that do not relate to "Real People" and the driving population. If not, why not. As discussed in the response to the preamble of information request.1 RR RL.3.a the actuarial analysis includes the modeling of exposures (number of vehicles on BC roads) as described in the Application, Chapter 3, Exhibit B.0.1. So the premise of the question is incorrect. The excerpt provided in the preamble to the information request is from the Revised Service Plan provided in Appendix 10 B of the Application. The market share sensitivity refers to the Optional insurance side of ICBC s business whereas the sensitivity on premiums is for the total corporation, including both the Basic and Optional insurance businesses. The information can therefore not be used to forecast future Basic insurance premiums. Please see Chapter 3, Exhibit A.0.1 for a summary view of the components of the required premium in a format similar to an income statement.

29 Information Request No..1 RR RL.3.4 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.3.4 Reference: Basic Premium Policies and BC Population. Will ICBC please provide in a spreadsheet the number of Basic Insurance Policies for PY 2007 through inclusive, including the Basic Premium Earned for these policies. The Basic insurance policies as well as the Basic insurance premiums earned for the fiscal year (same as calendar year, i.e., January to December) for the years 2007 through Forecast are summarized below. The information for 2008 to 2012 is provided in the Application, Chapter 7, page 7E-1 and the Forecast Autoplan Policies Earned are provided in Chapter 7, page Additional information for 2007 and Net Premiums Earned for Forecast has been included Forecast BASIC only Net Premiums Earned ($000 s) $1,957,078 $2,047,635 $2,061,254 $2,066,572 $2,054,598 $2,178,607 $2,333,689 Autoplan Policies Earned 2 3,108,000 3,193,000 3,225,000 3,281,000 3,321,000 3,372,000 3,419,000 1 Financial information for 2007 to 2010 is prepared in accordance with pre-ifrs changeover CGAAP. 2 Formerly known as vehicles insured; annualized values have been used for policies with a term of less than 12 months.

30 Information Request No..1 RR RL.4.a Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.4.a Reference: BC Population and Basic Insurance Premium Inflation This part of the Information Request selects extracts from the current application to establish the framework for the IR. My apologies for the extra reading, and variations in text font imports. A word search of the application for "Inflation" yields 97 hits, out of this number of hits, there is no direct links to CPI or CPP as these pertain to British Columbian Drivers and Policy holders. From ICBC RRA Executive Summary of Rate Indication - A.1 Introduction Page 3-2 (paragraphs 5 and 6) A.2 RATE INDICATION CALCULATION (paragraph 7) Paragraph 51 on page 3-20 Paragraph 22 on page 5-20 Using ICBC Exhibit Scotiabank International Forecast Changes table, Global Forecast Update page 2 extract: f 2014f Simply put that's an average Inflation Rate of 1.625% just % above CPI for January In this preamble, the intervenor has provided some extracts from the Application by using a word search for the word inflation. The extracts pertain to different parts of the Application. Three of the extracts are from the Application, Chapter 3: o Executive Summary of Rate Indication A.1 Introduction Page 3-2 and paragraphs 5 and 6. o A.2 Rate Indication Calculation paragraph 7. o Paragraph 51 on page Two of the extracts are from the Application, Chapter 5: o Paragraph 22 on page 5-7 (as opposed to page 5-20 in the preamble).

31 Information Request No..1 RR RL.4.a Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 o Scotiabank International Forecast Changes table, Global Forecast Update page 2 is from Chapter 5, Appendix 5 A, Attachment 1 Scotiabank Economics Forecast, June 27,. The inflation figures referred to in the extract are not used by ICBC in any calculations in the Application. The inflation figures used in the calculation of the New Money Rate are provided in Chapter 5, Figure 5.5 and referenced to the six financial forecasts included in Chapter 5, Appendix 5 A.

32 Information Request No..1 RR RL.4.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.4.1 Reference: BC Population and Basic Insurance Premium Inflation From ICBC RRA Executive Summary of Rate Indication - A.1 Introduction Page As a result of the filing date of this Application having been extended by three months and the new requirement that in future years ICBC file its application annually by May 31, for rates effective on August 1, ICBC has based its required revenue for PY on the average cost level of policies effective in the first nine months of PY. The additional inflation in costs, above and beyond that cost level and relating to policies effective from August 1, 2014 to October 31, 2014, will be reflected in the 2014 Revenue Requirements Application, which will have a rate effective date of August 1, This is described further in Section C below. Para 51 page 3-20: extract: the cost associated with the first nine months of PY is forecast directly using an appropriate inflation assumption applied to the current costs. This forecast is then grossed up, dividing by 75% (9/12 months), in order to reflect a full year of costs, while still maintaining the average cost level of the first nine months. 4.1 In regard the above extracts and to the PY, how many months are there in a PY year. The question challenges the "Rate Indication" for the PY Can ICBC assure all British Columbian's that the application under review is only 75% of the PY year And can it be assumed if the application were for 12 months the application could have been 6.53% It is almost impossible to follow the logic. (formula: if 9 months =75%=4.9%, then 12 months =100%=6.53%) which is 4.905% above the CPI for. 4.1 The policy year still reflects a 12 month period. However, since the next rate change will be effective August 1, 2014, the actuarial analysis reflects the average cost level of policies effective in the first nine months of the policy year starting on November 1,. This is done to eliminate the potential double counting of inflationary changes to costs over those 3 months, since those changes will be reflected in the 2014 revenue requirements application.

33 Information Request No..1 RR RL.4.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of ICBC is using the average cost level of policies effective in the first nine months of the policy year to determine a new Basic insurance rate, which will be valid for all Basic insurance policies purchased as from November 1, It is not useful to think of the Application as being for 12 months, or any particular length of time. The rate level set by an application endures, and any future rate application uses the prior application as a reference level from which to modify the rate. That said, annual amounts are presented in the revenue requirements application to facilitate comparisons from application to application. Please see the response to information request.1 RR RL.4.7 which explains that the major contributor to the indicated rate change for PY is the loss trend (claims cost per policy), which increases annually at more than inflation.

34 Information Request No..1 RR RL.4.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.2 Reference: BC Population and Basic Insurance Premium Inflation It is beyond comprehension why ICBC references Stats Canada and BC Stats of 2010, when BC Stats were updated in April ( wherein it says there is a population of some 4,669,022 million people in the Province of British Columbia, with a growth rate annually of 1.3% through to 5,229,463 people by Please explain why ICBC is using Stats Canada, and not current BC Stats for the most current BC figures. Please see the response to the information request.1 RR RL.3.2.

35 Information Request No..1 RR RL.4.3 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.3 Reference: BC Population and Basic Insurance Premium Inflation Keeping in mind the last question, "Forecast Risks and Sensitivities" page 28 of the Financial Summary Outlook, suggests a 1% change in Market Share represents $4-6 million dollars on net income, and $38-42 million dollars on Premiums. Could ICBC use this information to forecast future Basic Premium Rate incomes, rather than actuarial numbers that do not relate to "Real People" and the driving population of BC. If not, why not. Please see the response to the information request.1 RR RL.3.3.

36 Information Request No..1 RR RL.4.4 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.4 Reference: BC Population and Basic Insurance Premium Inflation Will ICBC please provide in a spreadsheet the number of Basic Insurance Policies for PY 2007 through inclusive, including the Grossed Up Basic Premium Earned for these policies. Please see the response to information request.1 RR RL.3.4. There are no ceded premiums on the Basic insurance business. premiums and net premiums are the same. As a result, the gross

37 Information Request No..1 RR RL.4.5 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.5 Reference: BC Population and Basic Insurance Premium Inflation I could not follow along the claims made in regard to D.3 Capital Maintenance pages 4-13 and Please translate the numbers portrayed in this section within a spreadsheet accompanied with graphs / pie charts over the time periods outlined in paragraphs 46, 47,48, & 49 Please see the response to the information request.1 RR BCUC.71.1 for an explanation of the purpose of the capital maintenance provision. Please see the response to the information request.1 RR BCUC.71.6, which shows in a chart the transient target for each year under the proposed new Basic Capital Management Plan. Please see the response to the information request.1 RR BCUC.72.1 for a discussion of the growth rate in capital required.

38 Information Request No..1 RR RL.4.6 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.6 Reference: BC Population and Basic Insurance Premium Inflation Explain why ICBC continues to keep Basic Insurance Policy holders at "Arms Length" with it's disingenuous relationship to interpolating the Canadian CPI data provided in the "Canadian Economic Outlook table" exhibit Attachment 2 by BMO Capital Market Economic June 7th with the Basic Insurance Premium Rate increase for PY and perhaps looking forward into PY2014 ( May 2014), with it's affixation to "Models". It might be worth mentioning BC Policy Holders are People not Models. The Canadian Economic Outlook table" referred to by the intervenor is from the Application, Chapter 5, Appendix 5 A, Attachment 2 BMO Capital Markets Forecast, June 7,. It is one of the six forecasts of Canadian financial institutions provided by ICBC in Appendix 5 A. ICBC understands the disingenuous relationship to interpolating the Canadian [consumer price index] CPI data to be a reference to the Commission-approved formula for determining the New Money Rate as shown in the Application, Chapter 5. The New Money Rate represents the investment yield expected to be achieved on future premiums between the time they are received and the time costs related to those premiums are paid out. It is used in the actuarial analysis to calculate the premium required to provide for all losses and expenses anticipated to arise from the specific policy year for which the calculation is being done. ICBC is required to use CPI data as of the second quarter of 2014 from the six forecasts to determine an average inflation forecast, which is then used in the calculation of the New Money Rate. ICBC is required pursuant to Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended to use accepted actuarial practice to determine the rate indication for a future policy year. As part of the actuarial analysis to determine the rate indication, ICBC models exposures as explained in the response to the information request.1 RR RL.3.a. The term exposures refers to the number of vehicles on BC s roads and ICBC recognizes that BC policyholders are owners of the vehicles it insures.

39 Information Request No..1 RR RL.4.7 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.7 Reference: BC Population and Basic Insurance Premium Inflation Appendix 5 Forecast from Multi-Dealer Survey June, This whole section "Screams" how the financial outlook is "Rate Smooth", whether BMO, TD, National Bank and so on. ICBC selectively highlights Rate indicators of around the 1.5% -1.7%, with RBC at 2% CPI. Again it is beyond comprehension why ICBC is requesting a 4.9% Rate increase, by ignoring data it has in hand produced in the first and second quarter of this year. An explanatory discussion is requested. With reference to the preamble of the information request, ICBC does not understand the intervenor s comment: This whole section Screams how the financial outlook is Rate Smooth. The six financial forecasts in the Application, Chapter 5, Appendix 5 A provide differing perspectives of the financial outlook but do not discuss rate smoothing as it is presented in the Application. ICBC also does not understand the comment: ICBC selectively highlights Rate indicators of around the 1.5%-1.7%, with RBC at 2% CPI as no reference or context is provided. ICBC used data as of the second quarter of in the actuarial analysis provided in Chapter 3 to determine the 4.9% indicated rate increase. This includes inflation data, but more importantly claims cost data, which is the largest contributor to ICBC s Basic insurance rates. The 4.9% indicated rate is largely a result of the increasing trend in loss costs (claims cost per policy) which contributes 4.4 percentage points of the rate indication. As explained in Chapter 3, paragraphs 14 and 15, the time period for this loss trend is 19.5 months. The loss trend, when converted to an annual percent change, is 2.8%. ICBC acknowledges that this is higher than the current level of inflation. Please see the response to the information request.1 RR TREAD.13.1 for a discussion of why claims costs are increasing at a rate higher than inflation.

40 Information Request No..1 RR RL.4.8 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.8 Reference: BC Population and Basic Insurance Premium Inflation In Section 7 Overview para 2. page 7-1 ICBC "corporate-wide cost control and containment initiatives" to quote :(1) ICBC s corporate operating expense base was reduced, and (2) operating expense increases were contained below the level of inflation. Please explain what was the Level of Inflation, and quantify this with dollars and cents numbers. In reference to operating expenses in the Application, inflation generally refers to the British Columbia Consumer Price Index (BC CPI). Level of inflation is a term referring to a normal range of BC CPI, which is generally at a rate between 1.0% to 2.5% (please refer to the table below). ICBC uses BC CPI as a guide for forecasting inflationary costs for operating expenses. The rate of inflation is reviewed regularly for the operating expense forecast. For planning and budgeting purposes, ICBC has chosen a rate lower than the rate projected in the current BC CPI. For years 2014 to 2017, inflationary pressure on forecast operating expenses is expected to be between $10 and $12 million per year. % Change in British Columbia Consumer Price Index (BC CPI) *** Actual 2007 Actual 2008 Actual 2009 Actual 2010 Actual 2011 Actual 2012 Forecast Forecast 2014 Forecast 2015 Forecast 2016 Forecast % 2.1% 0.0% 1.3% 2.4% 1.1% 0.9% 1.9% 2.1% 2.1% 2.1% *** Source: BC Economic Review & Outlook- June Budget Update- /14 to 2015/16 and Statistics Canada, January

41 Information Request No..1 RR RL.4.9 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.4.9 Reference: BC Population and Basic Insurance Premium Inflation In concert to question 8, ICBC says in various phrases quote: "ICBC is expecting this initiative to contain costs within inflation." or "appropriate inflation". Please clearly state and show in a spreadsheet what is the CPI and ICBC Rates of Inflation for each PY from 2007 to inclusive, and what ICBC anticipates the future inflation rate for PY2014, 2015 ICBC reports operating expenses based on its fiscal year (same as calendar year, i.e., January to December), not policy year. The following tables illustrate that ICBC s base operating expenses have been within the level of inflation for the last few fiscal years. From a compound annual growth perspective, ICBC s base operating expenses are lower than the BC Consumer Price Index (BC CPI) for the 2007 to period. ICBC anticipates that for the forecast period, operating expense increases will be managed below the current economic forecast of BC CPI. Also, please see the response to information request.1 RR RL.4.8. Actual 2007 CGAAP Actual 2008 Actual 2009 Actual 2010 Actual 2011 IFRS Actual 2012 Forecast CAGR * of Base Operating Expenses Base Operating Expenses** Year over Year % Increase (Decrease) $507 $525 $539 $544 $537 $528 $ % 5.4% 3.6% 2.7% 0.9% (1.3%) (1.7%) 0.9% British Columbia Consumer Price Index Year over Year % Increase (Decrease) Actual 2007 British Columbia Consumer Price Index (BC CPI) *** Actual 2008 Actual 2009 Actual 2010 Actual 2011 Actual 2012 Forecast % 2.1% 0.0% 1.3% 2.4% 1.1% 0.9% CAGR * of British Columbia Consumer Price Index 1.3% * CAGR (compound annual growth rate) ** Source: Figure 7A.1 RRA May 31, 2010 and Figure 7.2 RRA August 30, *** Source: BC Economic Review & Outlook- June Budget Update- /14 to 2015/16 and Statistics Canada, January

42 Information Request No..1 RR RL.4.9 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 Actual 2007 % Change in British Columbia Consumer Price Index (BC CPI) *** Actual Actual Actual Actual Actual Forecast Forecast Forecast 2015 Forecast 2016 Forecast % 2.1% 0.0% 1.3% 2.4% 1.1% 0.9% 1.9% 2.1% 2.1% 2.1% *** Source: BC Economic Review & Outlook- June Budget Update- /14 to 2015/16 and Statistics Canada, January

43 Information Request No..1 RR RL.4.10 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.10 Reference: BC Population and Basic Insurance Premium Inflation Why does it appear from reading the application that CPI is not a variable used in every model to calculate rate impact or change indicators. Please see the response to the information request.1 RR RL.4.7 for a discussion regarding the main driver of the 4.9% rate indication, the loss cost trend which is increasing at just over inflation on an annualized basis. Please see the responses to the information requests.1 RR RL.4.8 and.1 RR RL.4.9 for the level of inflation that ICBC uses in forecasting operating expenses. Please see the response to the information request.1 RR RL.4.6 for the consumer price index that is used in the calculation of the New Money Rate.

44 Information Request No..1 RR RL.4.11 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.11 Reference: BC Population and Basic Insurance Premium Inflation Please explain why ICBC totally ignores the Canada Pension Plan (CPP), with only reference in regard to ICBC employer contributions. The complete absence to CPP in this application is shameful. As a Senior my fixed income has not gone up, except for CPP, which increased 1.79% in January. ICBC's RRA 2011/2012 & completely overwhelms my limited budget. If this application is approved by the Commission, my Basic Rate will have increased by 16.1%, that's a fact, and not an actuarial model number, I can prove that statement by showing the Commission my Insurance papers, all you have to do is ask. ICBC assumes that the intervenor is summarizing his previous information requests.1 RR RL.4.7,.1 RR RL.4.8,.1 RR RL.4.9, and.1 RR RL.4.10 by asking: if his Canada Pension Plan payments are going up at the rate of inflation why is it that his insurance rate is increasing at higher than inflation? ICBC refers the intervenor to the responses to these information requests for an explanation. As explained in the response to the information request.1 RR RL.4.6, ICBC is required to set rates according to accepted actuarial practice pursuant to Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended. Accepted actuarial practice requires that Basic insurance rates should reflect the full costs of providing Basic insurance, subject to applicable laws. The increase in CPP payment is the purview of the Government of Canada and not a determinant associated with ICBC s Basic insurance rates.

45 Information Request No..1 RR RL.4.12 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.4.12 Reference: BC Population and Basic Insurance Premium Inflation As a means of reducing the "Indicated Rate Change", please explain why the transfer from Optional Insurance to Basic is not employed, as has been the case in recent years. What are the mechanisms that prohibit the transfer for PY & PY2014 and in future years. Rate increases are inherently inflationary by nature, so anything to reduce the impact on MCT, like the transfer from Option Insurance can only benefit all British Columbians. Please see the responses to information requests.1 RR RL and.1 RR RL about the mechanisms required to transfer capital from ICBC s Optional insurance business to ICBC s Basic insurance business.

46 Information Request No..1 RR RL.6.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.6.1 Reference: BC Government Review of ICBC August 2012 BCUC Exhibit A2-9 The above noted document was filed by the BCUC on October 7th. for the Record. Minimum Capital Test page 18 The Federal regulator, Office of the Superintendent of Financial Institutions (OSFI), oversees insurance companies in Canada and sets the Minimum Capital Test (MCT). MCT calculates the minimum level of capital necessary for an insurance company to cover unexpected events. As a crown corporation, ICBC is not subject to OSFI regulation, but is mandated by the province to follow the OSFI rules for MCT. In an effort to minimize Basic rate increases, the province has recently directed that the Basic MCT be allowed to fall to 100% through January Without this intervention, the MCT target of 130% would apply, and the 2012 increase would have been higher. In ICBC Appendix 10 C 2012 ICBC Annual Report, see Notes 20 & 22 Note 20. Capital Management page 82 Note 22. Regulation over Basic Insurance page 84 Who is in charge here?, is the Government of British Columbia in charge of setting ICBC s the MCT levels as suggested above, or is it the OSFI regulations, or is it the BC Utilities Commission. Please discuss the issue, and set the record straight in the matter of setting the MCT levels for Basic Universal Insurance. The Commission is an independent regulatory agency of the Provincial Government that operates under and administers the Utilities Commission Act. The Commission s primary responsibility is the regulation of British Columbia's natural gas and electricity utilities, but was appointed in 2003 as the independent regulator for ICBC with the responsibility to approve rates for Basic insurance. Under the current regulatory framework set by government, including Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended, the Commission sets Basic insurance rates based on forecasted claims costs, expenses, and investment income, while keeping ICBC s Basic capital levels at or above the regulatory minimum (100% Minimum Capital

47 Information Request No..1 RR RL.6.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 Test (MCT), as defined by the Office of the Superintendent of Financial Institutions (OSFI)). Adopting OSFI s MCT is a means to measure and monitor ICBC s capital levels. Like all insurers, ICBC requires sufficient capital to absorb adverse events such as unexpected increases in claims costs and volatility in financial markets, so that customers can be assured that their claims will be fully paid. For the Basic insurance business, the Commission has approved a Basic capital management target MCT ratio at a higher level, sufficient to prevent Basic capital falling below the 100% MCT regulatory minimum in most years.

48 Information Request No..1 RR RL.6.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.6.2 Reference: BC Government Review of ICBC August 2012 BCUC Exhibit A2-9 The above noted document was filed by the BCUC on October 7th. for the Record. Minimum Capital Test page 18 The Federal regulator, Office of the Superintendent of Financial Institutions (OSFI), oversees insurance companies in Canada and sets the Minimum Capital Test (MCT). MCT calculates the minimum level of capital necessary for an insurance company to cover unexpected events. As a crown corporation, ICBC is not subject to OSFI regulation, but is mandated by the province to follow the OSFI rules for MCT. In an effort to minimize Basic rate increases, the province has recently directed that the Basic MCT be allowed to fall to 100% through January Without this intervention, the MCT target of 130% would apply, and the 2012 increase would have been higher. In ICBC Appendix 10 C 2012 ICBC Annual Report, see Notes 20 & 22 Note 20. Capital Management page 82 Note 22. Regulation over Basic Insurance page 84 Further discuss with the appropriate history and Order references as applicable, the directives that order ICBC to maintain the MCT at 100%, or at 130%, and 150%, and 173% As discussed in the response to the information request.1 RR RL.2.2, the requirement for the Commission to set rates that will allow ICBC to maintain at least 100% of MCT is specified in Special Direction IC2 to the BC Utilities Commission, BC Regulation 307/2004, as amended (Special Direction IC2). As discussed in the response to the information request.1 RR RL.2.2, Special Direction IC2 the definition of the capital management target requires a risk margin and a rate smoothing margin over and above the 100% MCT regulatory minimum. The existing capital management target of 130% MCT is an element of the existing Capital Management Plan approved by the Commission in the January 2008 Decision on Revenue Requirements as explained in the response to the information request.1 RR RL

49 Information Request No..1 RR RL.6.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 ICBC refers to the existing capital management target of 130% MCT as the Solvency Target in its proposal on a new Capital Management Plan. The proposed new capital management target of 150% MCT is the sum of the Solvency Target and a rate smoothing margin of 20 percentage points. As discussed above the additional rate smoothing margin is required pursuant to Special Direction IC2. The 173% MCT value referred to in the question was not actually included in the Application, but was discussed at the September 24, Workshop as the minimum threshold Basic capital level at which a customer renewal credit (CRC) will be paid according to the illustration that was provided in the Application, Chapter 4, Section D.6. In the proposed Basic insurance Capital Management Plan (Basic Capital Management Plan) a CRC will be paid only if MCT is in excess of 165%. Finally, ICBC would like to clarify the reference to the 2012 Government Review of ICBC report dated August This document predates ICBC s proposed Basic Capital Management Plan. In particular the reference to the MCT on page 20 pertains to the current Capital Management Plan as modified by the Government Directive of November 25, 2011 with respect to Basic Rate Stability and Capitalization approved by Order in Council 560/11, November 30, Notes 20 and 22 of the 2012 Annual Report refer to the Commission s jurisdiction over ICBC s Basic insurance business and to the minimum regulatory Basic capital level and the existing Basic capital management target referred to above.

50 Information Request No..1 RR RL.6.3 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.6.3 Reference: BC Government Review of ICBC August 2012 BCUC Exhibit A2-9 The above noted document was filed by the BCUC on October 7th. for the Record. Minimum Capital Test page 18 The Federal regulator, Office of the Superintendent of Financial Institutions (OSFI), oversees insurance companies in Canada and sets the Minimum Capital Test (MCT). MCT calculates the minimum level of capital necessary for an insurance company to cover unexpected events. As a crown corporation, ICBC is not subject to OSFI regulation, but is mandated by the province to follow the OSFI rules for MCT. In an effort to minimize Basic rate increases, the province has recently directed that the Basic MCT be allowed to fall to 100% through January Without this intervention, the MCT target of 130% would apply, and the 2012 increase would have been higher. In ICBC Appendix 10 C 2012 ICBC Annual Report, see Notes 20 & 22 Note 20. Capital Management page 82 Note 22. Regulation over Basic Insurance page 84 Is there a direct link with the maintenance of the MCT to the +/- 1.5ppt Rate Change as noted in Question 2.8 herein. Other than that both concepts are related to the management of Basic capital, there is no direct link. The 1.5% for the capital maintenance provision is the annual increase in the transient MCT target for the current Capital Management Plan. The 1.5% for the capital maintenance provision is not a rate impact. Please see the Application, Chapter 4, Section D.3 for further information. The +/- 1.5 percentage points of rate change refers to the allowed rate change band per Requirement (B) which is illustrated in Chapter 4, Figure 4.3.

51 Information Request No..1 RR RL.6.4 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.6.4 Reference: BC Government Review of ICBC August 2012 BCUC Exhibit A2-9 Is there any correlation between the MCT levels of ICBC, and the Province s of Quebec, Manitoba and Saskatchewan. Where it appears ICBC MCT levels are the highest in the Country. Please discuss the differences and the compelling reasons why ICBC MCT levels for Basic Universal Insurance are the highest. Please see the response to information request.1 RR BCUC.69.1, which explains that ICBC and the Commission must operate within the regulatory framework established in legislation of BC. Also please see the responses to information requests.1 RR BCUC and.1 RR BCUC.69.6 regarding ICBC s capital management target in comparison to other jurisdictions and private insurers.

52 Information Request No..1 RR RL.7.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.7.1 Reference: BC Government Review of ICBC August Compensation pg 28 As a result of the economic downturn in 2008, the BC government limited salary increases to deal with fiscal pressures. However, in the last five years, total management compensation cost at ICBC has increased 50% ($52.5M) due to new hires and salary increases. From 2007 to 2011, the compensation for: Senior Management (CEO, Senior VP's, VP's and Directors) increased by 70%, from $12.3M to $20.9M; Managers increased by 45%, from $67.2M to $97.6M; Confidential increased by 55%, from $24.3M to $37.7M; and Bargaining Unit increased by 9%, from $265.6M to $289.8M. The following has been extracted from page 29 of the Review What is interesting to note over the given period 2007 to 2011 is the totalized increases awarded to the Senior Management, Managers and Confidential staff of $156.2 million as compared to the Bargaining unit of $289.8 million. Please update these figures to be inclusive of PY 2012 and PY in the same manner as noted herein for direct comparative reasons.

53 Information Request No..1 RR RL.7.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 The 2012 Government Review of ICBC (the 2012 Government Review) was based on ICBC s fiscal year (same as calendar year, i.e., January to December), not policy year. In the table below, ICBC updates the compensation information presented in the 2012 Government Review report to include 2012 actual results. As this table reflects actual employee earnings, the actual gross earnings data is unavailable until Compensation (2012 Government Review) $ millions 2007 to Senior Management $12.3 $20.9 $21.0 Managers $67.2 $97.6 $97.9 Confidential $24.3 $37.7 $39.8 Bargaining Unit $265.6 $289.8 $279.3 In the 2012 fiscal year, ICBC provided for a one-time non-recurring $25 million in restructuring costs associated with staff reductions (please see the response to information request.1 RR BCUC.128.1). The 2012 compensation shown in the table above reflects only a partial impact of the restructuring costs provision. Severance payments (lump sum payments and salary continuance with related benefits) against the restructuring costs provision will continue until Please also see the response to information request.1 RR TREAD.18.3 in regards to employees earning between $75,000 and $200,000 and those earning over $200,000.

54 Information Request No..1 RR RL.7.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL.7.2 Reference: BC Government Review of ICBC August Compensation pg 28 As a result of the economic downturn in 2008, the BC government limited salary increases to deal with fiscal pressures. However, in the last five years, total management compensation cost at ICBC has increased 50% ($52.5M) due to new hires and salary increases. From 2007 to 2011, the compensation for: Senior Management (CEO, Senior VP's, VP's and Directors) increased by 70%, from $12.3M to $20.9M; Managers increased by 45%, from $67.2M to $97.6M; Confidential increased by 55%, from $24.3M to $37.7M; and Bargaining Unit increased by 9%, from $265.6M to $289.8M. The following has been extracted from page 29 of the Review Please demonstrate the impact the Claims Transformation Program will have positively or negatively on the Staffing levels and Compensations looking forward from January through to 2017 when the final implementation phase of the CTP is slated to be completed by.

55 Information Request No..1 RR RL.7.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 ICBC expects there will be a reduction of 341 FTEs when Claims Transformation is fully implemented. At the corporate level, compensation savings of $26.6 million are anticipated to be fully realized by the year The benefit of Claims Transformation is expected to be realized gradually over time, anticipated as follows: FTE Reductions Realized by Year End Annual Compensation Savings Realized ($ million) $ 1.1 $ 2.2 $ 12.7 $ 26.6 $ 26.6 Note 1: Estimated costs and benefits impacts associated with the Transformation Program are at a point in time. These estimates are expected to be refreshed periodically in order to account for the latest information. Please see the response to information request.1 RR BCUC for a discussion of the anticipated impact of Claims Transformation on the Basic insurance line of business.

56 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.1 RR RL Reference: BC Government Review of ICBC August Compensation pg 28 On page 31 of the Review, the following Bonus figures are discussed: Bonus Please demonstrate the impact the Claims Transformation Program will have positively or negatively on the Management Bonus scheme looking forward from January through to 2017 when the final implementation phase of the CTP is slated to be completed by. ICBC s Board of Directors approves the measures and targets for the Short Term Incentive Pay (STIP) Plan each year. The amount of STIP payment varies in direct proportion to success in meeting pre-determined corporate, divisional, and individual performance measures.

57 Information Request No..1 RR RL Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 For the STIP Plan, certain Claims Transformation objectives are included as one of ICBC s corporate and divisional STIP measures. ICBC s STIP payments will be negatively impacted if the respective measures and targets are not met. The weighting of divisional STIP measures for Claims Transformation varies by division and could go up to 18% of the STIP payment at target depending on the degree of a Division s direct influence on meeting the Claims Transformation measures and targets. For the STIP Plan weighting of corporate STIP measures and targets respecting the Claims Transformation STIP objectives, please see the response to information request.1 RR BCUC.123.1, Attachment A ICBC Corporate STIP Targets. For future years, ICBC is not at present able to confirm the Claims Transformation impact on the incentive plan targets, measures, or outcomes until its Board of Directors approves the incentive measures and targets in each respective year from 2014 to 2017.

58 Information Request No..1 RR RL.7.5 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.7.5 Reference: BC Government Review of ICBC August Compensation pg 28 Please demonstrate how ICBC has followed or implemented the following Recommendations from the above noted Report, given on page 31: The actions taken by ICBC are provided in its formal response, dated August 15, 2012, to the 2012 Government Review of ICBC. ICBC has completed the two recommendations listed in the information request. Please see the response to information request.1 RR TREAD Please see the response to information request information request.1 RR TREAD.12.3 for ICBC s Response to the 2012 Government Review and an updated status on the recommendations.

59 Information Request No..1 RR RL.7.6 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 3.1 RR RL.7.6 Reference: BC Government Review of ICBC August Compensation pg 28 Please provide a summary update of the progress ICBC has achieved by implementing the following Recommendations found in the above noted Report in Appendix A pages 47 & 48 therein.

60 Information Request No..1 RR RL.7.6 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 2 of 3

61 Information Request No..1 RR RL.7.6 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 3 of 3 The actions taken by ICBC are provided in a formal response to the 2012 Government Review of ICBC, which was completed on August 15, See the response to information request.1 RR TREAD.12.3 for ICBC s Response to the 2012 Government Review and an updated status on the recommendations.

62 Information Request No..1 RR RL.8.1 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.8.1 Reference: Chapter 7 - Appendix 7D Cost Allocation Tables pages 7D- 1 to 7D-7 When were the Allocation tables last reviewed by the BCUC and ICBC, either jointly or separately. In the Application, Chapter 7, Appendix 7 D, Figures 7D.1 and 7D.2 show detailed views of the amount of ICBC s 2012 corporate operating expenses excluding the Transformation Program that were allocated to the Basic insurance, Non-insurance, and Optional insurance lines of business, using the Commission- approved financial allocation methodology and the resulting allocation percentages. Figure 7D.1 describes the allocators used. Figure 7D.2 shows the results of applying these allocators using 2012 actual cost detail. Since the Commission was established as the independent regulator for Basic insurance rates in 2003, the financial allocation methodology has been subject to numerous filings by ICBC and decisions by the Commission. Please refer to the response to information request.1 RR IBC.31.2, which discusses current filings as related to the financial allocation methodology.

63 Information Request No..1 RR RL.8.2 Dated 10 October 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.1 RR RL.8.2 Reference: Chapter 7 - Appendix 7D Cost Allocation Tables pages 7D- 1 to 7D-7 Given the Claims Transformation Program and the New Capital Management program, is it time to review these Allocation tables, especially before the ICBC RRA 2014 May submission deadline. The allocation tables included in the Application, Chapter 7, Figures 7D.1 and 7D.2 were developed using the Commission-approved financial allocation methodology. Please refer to the response to information request.1 RR IBC.31.2, which discusses current filings as related to the financial allocation methodology and the associated filing dates. ICBC does not expect the allocation to significantly change for the 2014 revenue requirements application, as any Commission decisions stemming from current filings that would update the financial allocation methodology are not expected to be received prior to the Revenue Requirements Application for the 2014 Policy Year being filed in May 2014.

64 Information Request No..2 RR RL.2.1 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.2 RR RL.2.1 Reference:.1 RR RL Reference: Minimum Capital Target (MCT) 2.1 Based on the Workshop presentation Slide 83 - Proposed New Capital Management Target. Please explain the steps taken to establish the 130% MCT Solvency Target and under who s direction / orders ICBC is requested in this Second IR to answer completely as asked. It appears from the explanatory discourse associated with this information request that the intervenor is actually satisfied with ICBC s response to information request.1 RR RL However dissatisfaction is expressed regarding ICBC s use of the terminology solvency target and rate smoothing. The original question was: Please explain the steps taken to establish the 130% MCT solvency target and under who s direction/orders. ICBC believes it has responded in full to this original question and the intervenor has acknowledged understanding ICBC s response by stating: It is understood the Commission s approval for the high 130% MCT ceiling level. ICBC has used the terminology solvency target and rate smoothing in its proposed new Capital Management Plan with: A full definition of what is meant by solvency target. The use of the term rate smoothing in line with the name of the Government directive of March 19, with respect to Rate Smoothing approved by Order in Council 153/13, March 18, (the Government Directive regarding Rate Smoothing). The intervenor s dissatisfaction appears to be a matter of semantics. ICBC has been directed to bring forward to the Commission for approval by May 31, 2014 a revised Basic Capital Management Plan pursuant to the Government Directive regarding Rate Smoothing. ICBC has complied with this directive in the Application, Chapter 4 and believes that its proposal is in accordance with Special Direction IC2 and the Government Directive regarding Rate Smoothing.

65 Information Request No..2 RR RL.2.2 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 5.2 RR RL.2.2 Reference: Exhibit G.1 RTL Please explain sources of these figures. And are these figures for 9 months or 12 months. (Lines (a) and (b)) Please explain sources of these figures. And are these figures for 9 months or 12 months. (Lines (e), (f), and (g)) Please explain reasons for a 4.5% discount. Why not more or less. Is this discount for 9 months or 11. (Line (j))

66 Information Request No..2 RR RL.2.2 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 5 Exhibit G.2 RTL Please explain sources of these figures. And are these figures for 9 months or 12 months. (Lines (a) or (b)) Please explain "transient target". Why is the 2012 transient target relevant to formula in Line H. (Lines (g) and (h)) Please explain sources and reasons for the divisor 20 in this formula. Why not 30, 40, 50 etc. (Line (h)) Please explain why "growth in capital required" is at 4.6%. Is it by "OIC" and or "BCUC" order. And why on Exhibit G.1 4.5% is used verses 4.6% or visa - versa or in line with the Bank of Canada prime rate. (Line (j))

67 Information Request No..2 RR RL.2.2 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 3 of 5 In general the figures presented in the Application, Chapter 3, Exhibit G represent values at a point in time; they do not reflect 9 months or 12 months of data. For the information that is labeled PY, these represent 12 month figures. In addition please see the Application, Chapter 3, Exhibits G.1 and G.2 for ease of reading The purpose of this section of Exhibit G.1 is to develop an allocation base used to distribute the adjusted equity (lines (e) through (l)) and capital maintenance (lines (m) through (o)) between coverages. The unpaid claims in line (a) are calculated by subtracting the amount of claims payments from the total ultimate value on a per coverage basis for all accidents that have occurred prior to. The unearned premium in line (b) is the amount of premium that has been written in the 2012 calendar year, but has yet to be earned. As indicated in notes (a) and (b) of Exhibit G.1, the allocation of both of these items to the various coverages shown is based on internal calculations The amount of Basic equity at December 31, (line (e) of Exhibit G.1) is based on ICBC s internal quarterly forecast analysis. This amount represents the estimated Basic equity as at December 31, based on the information known as of June 30, (see note (e) of Exhibit G.1). The amount of discount (line (f)) represents the difference between the present value and future value of future claim payments. The Provision for Adverse Deviation (PfAD) (line (g)) represents deviations of actual from expected experience to reflect the degree of uncertainty of best estimate assumptions. Each of these estimates in line (f) and (g) follow actuarial standards of practices and the assumptions used have been approved by ICBC s external appointed actuary. As indicated in note (f) & (g) of Exhibit G.1, lines (f) and (g) are calculated using a comprehensive internal analysis.

68 Information Request No..2 RR RL.2.2 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 4 of The reference to 4.5% (line (j)) in the information request is incorrect. The Yield on Basic Equity that is used and summarized in line (j) is 4.25%. Please refer to Chapter 5, Figure 5.7 which summarizes the calculation of the Yield on Basic Equity for the policy year based on the information known as of June 30, The amount for Basic capital available (line (a) of Exhibit G.2) is the same as line (e) of Exhibit G.1 labeled Basic Equity. This is discussed in the response to information request.2 RR RL The minimum capital required (line (b)) is the amount of Basic capital that ICBC must have in order to meet the requirement for the 100% MCT regulatory minimum. As indication in note (a) & (b) of Exhibit G.2, the amounts of Basic capital available and minimum capital required as at December 31, are based on ICBC s internal quarterly forecast analysis as of June 30,.

69 Information Request No..2 RR RL.2.2 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 5 of and From 2007, when the current Capital Management Plan was implemented, ICBC was transitioning from a capital management target of 100% MCT to a capital management target of 130% MCT. ICBC was doing this transition over a period of 20 years to ease the impact of the transition on rates by not increasing the capital management provision all at once in the rates of a single year. In order to do this it used the term transient MCT target as a construct during the transition period to the full maintenance provision. In order to transition from 100% to 130% MCT ratio over a 20 year span, the transient target must increase by 1.5 percentage points a year [ (130% -100%) / 20 ]. Since each year s transient target increases by 1.5 percentage points of MCT, the transient target (line (h)) is equal to the 2012 transient target (line (g)) plus 1.5 percentage points The 4.6% growth in capital required (line (j) of Exhibit G.2) is the long-term growth rate in claims costs which is used as a proxy for the long-term growth rate in required capital. Please see the following excerpt from the response to information request.1 RR BCUC.9.2 on this topic: The 4.6% growth rate represents the growth in capital required, which is based on the combined impacts of long-term exposure growth and loss cost trends The long term exposure growth is assumed to be 1.4 percentage points and the long term loss cost trend is assumed to be 3.2 percentage points.

70 Information Request No..2 RR RL.2.3 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 3.2 RR RL.2.3 Reference: RTL - EXHIBIT 01 Will ICBC please translate RTL EXHIBIT 01 into real dollars, and fill in the blanks as best they can.

71 Information Request No..2 RR RL.2.3 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 3 The MCT ratios shown in RTL EXHIBIT 01 are a combination of corporate MCT ratios and Basic MCT ratios. The Actual MCT ratios reflected in the Exhibit are ICBC s actual corporate MCT ratios as provided in ICBC s Annual Report. The Plan MCT ratios reflected in the Exhibit represent ICBC s capital management target for ICBC s combined Basic insurance and Optional insurance lines of business. The Basic MCT ratios shown in the Exhibit are the same as those provided in the response to information request.1 RR BCUC The Diff line in the Exhibit is the mathematical difference between the corporate MCT ratio and the Basic MCT ratio and has no meaningful application. ICBC does not view that the actual or planned corporate MCT ratios nor the difference between the corporate MCT and the Basic MCT ratios as being relevant to this Application. In the table below for 2007 to 2012, ICBC provides the Basic MCT ratio, including the related capital available and capital required components, as derived from the actual results of ICBC s Basic insurance line of business in accordance with the MCT guidelines of the Office of the Superintendent of Financial Institutions. For the and 2014 forecast, ICBC presents the same figures as those in the response to information request.1 RR BCUC These figures are based on ICBC s current forecast assumptions at the time of the Application, which represent one possible outcome that does not account for any future volatility. ($ Thousands) * (forecast) 2014 * (forecast) Capital Available 1,171,200 1,216,003 1,579,312 1,514,458 1,129,681 1,427,495 1,371,437 1,315,132 Capital Required 862, , , , ,805 1,039,682 1,113,041 1,135,798 Basic MCT Ratio 136% 141% 162% 153% 115% 137% 123% 116% * Figures were provided in the response to information request.1 RR BCUC.81.1.

72 Information Request No..2 RR RL.2.3 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 3 of 3 ICBC s financial forecast is contained in its Service Plan , which is anticipated to be tabled in the Legislature on February 18, 2014.

73 Information Request No..2 RR RL.2.4 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.2 RR RL.2.4 Reference: ICBC has chosen to use words rather than arithmetically or graphically demonstrating their model to support their case of a negative -1.1 percentage point impact (paragraph 18 page 3-6). Please translate your case into real figures, rather than vague actuarial model words to support ICBC s argument. The -1.1 percentage point impact from investment income reflects the change in investment income to be received for policy year compared to policy year Comparing to policy year 2012, there is an expected increase in investment income which has enabled ICBC to reduce the rate indication. ICBC has prepared two attachments that provide arithmetical support to the -1.1 percentage point impact on the PY rate change. 1) Please see Attachment A Indicated Rate Change Calculation by Components which provides the high level calculation of the Investment Income component of the rate change in line item (3). This attachment was originally provided in the response to information request.1 RR BCUC ) The following table summarizes the individual components of the -1.1 percentage point impact as discussed in the Application, Chapter 3, paragraph 18. Investment Income Components Impact On Rates New Money Rate 0.0% Policyholder Premium (payment pattern cash flow) -1.1% Yield on Basic Equity 0.2% Change in Basic Equity -0.2% Premium Financing Fees 0.0% Investment Income Impact on Rates -1.1% Please see Attachment B Investment Income Breakdown for a detailed calculation of each of these components of investment income. This attachment was originally provided in the response to information request.1 RR BCUC.89.2.

74 ICBC s Information Request Response.2 RR RL.2.4 Attachment A Indicated Rate Change Calculation by Components Insurance Corporation of British Columbia December 23,

75 Indicated Rate Change Calculation by Components ($ 000's) Line # Components in Figure 3.2 (a) Rate Impact for PY (Figure 3.2) (b) Components in Exhibit A.0.1 (c) PY (d) PY 2012 (Adjusted for Policy Growth) (e) Change from Previous PY exp: (f) = (d) - (e) rev: (f) = (e) - (d) Projected Premium at Current Rate Level (Net Premium Tax) (g) 3 Percentage Points Indicated Rate Change (h) = (f) (g) Reference (i) 0 Total Claims Cost 11.0% Loss and ALAE Payments 2,293,395 2,048, ,852 2,226, % Exhibit A.0.1, Line (a) 1 PY 2012 Loss Cost Variance 6.6% n/a see Notes 1 2,195,1824 2,048, ,640 2,226, % For PY, please see the response to information request.1 RR BCUC.25.2, Attachment A - Loss Cost Variance 6.6% Breakdown. 2 Loss Trend to PY % n/a see Notes 1 2,293,395 2,195,182 98,213 2,226, % Exhibit A.0.1, Line (a) 3 Investment Income -1.1% Investment Income on Policyholder Supplied Funds 336, ,491 (23,682) 2,226, % Exhibit A.0.1, Line [(p) + (t) + (u)] 4 Impact of IAS 19R and Assumption Changes 0.2% 4,573 n/a 4,573 2,226, % IAS 19R costs allocated based on calendar year projections from Accounting. 5 Operating Expense (Excluding Line 4) -0.6% ULAE + Road Safety and Loss Management + Total General Expense (excluding Line 4) 2 399, ,637 (14,265) 2,226, % Exhibit A.0.1, Line [(b)+(c)+(h)] - Line 4 Col (d) 6 Capital Maintenance Provision 0.9% Capital Maintenance Provision 56,621 37,243 19,378 2,226, % Exhibit A.0.1, Line (n) 7 Change in Average Premium 1.0% Projected Premium at Current Rate Level 2,328,881 2,351,227 22,346 2,226, % Exhibit A.0.1, Line (x) 8 Other 0.1% Broker Fees + Merchant fee - Other Misc Revenue 63,586 60,842 2,744 2,226, % Exhibit A.0.1, Line [(i) + (j) - (q) - (r) - (s)] 9 PY Indicated Rate Level Change 11.5% Required and Projected Premium 2,595,578 2,328, ,697 2,226, % Exhibit A.0.1, Line (w) Notes: 1 Claims Cost is broken down by the Lost Cost Variance and Loss Trend. 2 Policy year operating expense excludes IAS 19R Pension adjustment. 3 (g) = 2,328,881 ( 1-4.4% ) 4 Current Application update of PY 2012 losses.

76 ICBC s Information Request Response.2 RR RL.2.4 Attachment B Investment Income Breakdown Insurance Corporation of British Columbia December 23,

77 .2 RR RL.2.4 Attachment B - Investment Income Breakdown (1) (2) (3) (4) (5) (6) (7) (8) (9) Policy Year PY 2012: NMR Update PY : Policyholder Premium 4 Underwriting Profit 1 Operating Profit 2 Investment Income on PHSF (2) - (1) Underwriting Profit 1 Operating Profit 2 Investment Income on PHSF (2) - (1) Underwriting Profit 1 Operating Profit 2 Investment Income on PHSF (2) - (1) Year 1 - Q1 24.4% 25.2% 0.8% 24.4% 25.2% 0.8% 26.5% 27.4% 0.9% Year 1 - Q2 22.7% 23.2% 0.5% 22.7% 23.2% 0.5% 24.8% 25.4% 0.6% Year 1 - Q3 20.5% 20.8% 0.3% 20.5% 20.8% 0.3% 22.8% 23.1% 0.3% Year 1 - Q4 17.8% 17.9% 0.1% 17.8% 17.9% 0.1% 20.1% 20.2% 0.1% Year 2 - Q1-9.7% -9.6% 0.0% -9.7% -9.6% 0.0% -9.3% -9.3% 0.0% Year 2 - Q2-8.6% -8.5% 0.1% -8.6% -8.5% 0.1% -8.3% -8.2% 0.1% Year 2 - Q3-6.6% -6.5% 0.2% -6.6% -6.5% 0.2% -6.6% -6.5% 0.2% Year 2 - Q4-5.6% -5.4% 0.2% -5.6% -5.4% 0.2% -5.8% -5.6% 0.2% Year % -13.4% 0.8% -14.1% -13.4% 0.8% -15.9% -15.0% 0.9% Year % -13.8% 1.3% -15.2% -13.8% 1.3% -18.0% -16.4% 1.6% Year % -12.5% 1.7% -14.2% -12.5% 1.7% -16.9% -14.9% 2.0% Year 6-9.1% -7.7% 1.4% -9.1% -7.7% 1.4% -10.8% -9.2% 1.7% Year 7-4.6% -3.7% 0.8% -4.6% -3.7% 0.8% -5.1% -4.2% 0.9% Year 8-2.4% -1.9% 0.5% -2.4% -1.9% 0.5% -2.6% -2.0% 0.5% Year 9-0.5% -0.4% 0.1% -0.5% -0.4% 0.1% -1.1% -0.9% 0.3% Year % -0.4% 0.1% -0.5% -0.4% 0.1% -0.7% -0.5% 0.2% Year % -0.4% 0.2% -0.5% -0.4% 0.2% -0.4% -0.3% 0.1% Year % -0.4% 0.2% -0.5% -0.4% 0.2% -0.3% -0.2% 0.1% Year % -0.3% 0.2% -0.5% -0.3% 0.2% -0.2% -0.1% 0.1% Year % -0.1% 0.1% -0.2% -0.1% 0.1% -0.1% -0.1% 0.1% Year % -0.1% 0.1% -0.2% -0.1% 0.1% -0.1% -0.1% 0.1% Year % -0.1% 0.1% -0.2% -0.1% 0.1% -0.1% -0.1% 0.0% Year % -0.1% 0.1% -0.2% -0.1% 0.1% -0.1% 0.0% 0.0% Year % -0.1% 0.1% -0.2% -0.1% 0.1% -0.1% -0.1% 0.1% Year % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Year % -0.1% 0.1% -0.1% -0.1% 0.1% -0.2% -0.1% 0.1% (a) Total -8.3% 1.7% 9.9% -8.3% 1.7% 9.9% -8.5% 2.5% 11.0% Impact of Investment Income (b) Impact on Investment Income on New Money Rate 0.0% = Row (a), Col [(3) - (6)] (c) Impact on Investment Income on Policyholder Premium -1.1% = Row (a), Col [(6) - (9)] (d) Impact on Investment Income on Yield on Basic Equity 5 0.2% (e) Impact on Investment Income on Change in Basic Equity 5-0.2% (f) Impact on Investment Income on Change in Premium Financing Fees 5 0.0% Investment Income Impact on rates -1.1% = (b) + (c) + (d) + (e) + (f) 1 Underwriting Income = total cash flow (% of projected premium at current rate level net premium tax) 2 Operating Income = discounted cash flow (i.e. underwriting income + investment income on Policyholder Supplied Funds) 3 Policy Year 2012 accounts for premium trend. 4 Shift in premium dollar to cost components with longer investment horizon. This means a higher allowable underwriting loss (as discussed in Chapter 3, Section A.2). 5 Impact on updating the change in these cost components. Quantified by incremental change in Current Application Exhibit A.0.1, Line (p) + (t) + (u)

78 Information Request No..2 RR RL.2.5 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.2 RR RL.2.5 Reference: RTL - EXHIBIT 03 ICBC has excluded the 6.6 percentage point PY2012 Loss Costs Forecast Variance rate indicator for the year, as directed by IOC and BCUC orders. ICBC will attempt to recover this exclusion in the coming 2014 application and beyond. Will ICBC deny this claim, if not, will ICBC please clarify it s position so that exhibit RTL - Exhibit 03 can be updated for the benefit of the Commission s deliberations and inclusion in their decision.

79 Information Request No..2 RR RL.2.5 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 Yes, the 6.6 percentage point rate exclusion from PY will be accounted for in PY 2014 as highlighted in the Application, Chapter 4, Figure 4.8.

80 Information Request No..2 RR RL.2.6 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 4.2 RR RL.2.6 Reference: RTL - EXHIBIT 04 Between 2007 and 2014 the projected CPP has risen steadily at an averaged rate of 4.5 percentage points year over year. With 2010 being a high point and appearing to be a flat point. The obvious question is Why? Since this averaged rate has no correlation to the Basic Rate Increase (BPI) which seems modest during the years 2007 and What is going to stop ICBC from expanding the gap between the Cost Per Policy (CPP) and the Basic Rate Increase (BPI).

81 Information Request No..2 RR RL.2.6 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 4

82 Information Request No..2 RR RL.2.6 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 3 of 4 ICBC respectfully submits that the information in regards to Cost Per Policy (CPP) in RTL Exhibit 04 is not correct. In the Application, Chapter 9, Figure 9.3, ICBC presents a table showing Cost Per Policy In Force for 2010 actual to forecast. ICBC has expanded that table to include the additional data requested for the historical period 2007 to 2009, as follows: Figure 9.3 Cost Per Policy In Force (Revised to include 2007 to 2009 actual results) Cost Per Policy 2007 In Force 1 Actual 2008 Actual 2009 Actual 2010 Actual 2011 Actual 2012 Actual 3 Forecast 4 Internal Operating Costs External Expenses Premium Taxes and Commissions Deferred Premium Acquisition Costs (DPAC) Adjustments 2 $140 $140 $145 $147 $146 $145 $ (8) (5) (3) (9) Total $322 $334 $347 $354 $356 $337 $331 1 The results for 2007 to 2010 are presented in accordance with pre-international Financial Reporting Standards (IFRS) changeover Canadian Generally Accepted Accounting Principles, while the 2011 to financial information is presented under IFRS. 2 DPAC are commissions and premium taxes that are deferred and charged against income when the related premiums are earned over the course of the year. 3 During 2012, ICBC incurred a one-time, non-recurring expense associated with restructuring the organization and reducing staff positions. The total amount ($25 million) is included in ICBC s internal operating costs. The impact of this amount is an approximate $7 per policy increase in internal operating costs. Also, in 2012 ICBC benefited from one-off, non-recurring recoveries totaling $9 million, a decrease of approximately $2 per policy. Both of these amounts are presented in the 2012 actual result of $145 per policy. Please see Chapter 7, Figure In the forecast, ICBC is impacted by a net increase of $12 million in pension and post-retirement benefit expenses as a result of the amendment to the IFRS accounting standard on employee benefits. The impact of this amount is an approximate $3 per policy increase in internal operating costs as presented in the forecast of $143 per policy. Please see Chapter 7, Figure 7.20.

83 Information Request No..2 RR RL.2.6 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 4 of 4 ICBC understands the information request to be asking for a correlation between the Basic insurance rates requested in ICBC s revenue requirement applications (past and current) and ICBC s costs. The problem with the use of the Cost Per Policy in Force is that this measure does not reflect the largest component of ICBC s costs (i.e., claims incurred). As discussed in Chapter 9, Section B.3, paragraph 71, page 9-14, the Cost Per Policy in Force is a standard insurance industry measure used by ICBC for assessing the costs of its operations, inclusive of internal operating costs, external expense payments incurred to investigate and settle claims, and premium taxes and commissions incurred to acquire premiums. Claims incurred, which is the largest portion of ICBC s total costs at approximately 73% (see Chapter 7, Section A, page 7-1), is not included in the Cost Per Policy in Force calculation. Of the various cost components within the Cost Per Policy in Force calculation, ICBC has the ability to influence internal operating costs, commissions, and to some extent, external expense payments. Premium taxes at 4.4% are collected and paid to the provincial government. Please refer to Chapter 9 for further details in regards to the Cost Per Policy in Force measure. ICBC has been successful in managing and controlling the increase in operating expenses so as to minimize its impact on Basic insurance rates. In fact, operating expenses have a favourable impact on the rate indication in this Application. For a detailed discussion of ICBC s operating expenses, please refer to Chapter 7. ICBC determines its Basic insurance rate requirements using detailed actuarial rate indication analysis, as shown in Chapter 3. In recent years, ICBC has experienced increasing bodily injury claims costs, which is the primary driver of Basic insurance rate increases in both 2012 and policy years.

84 Information Request No..2 RR RL.2.7 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 3.2 RR RL.2.7 Reference: RTL - EXHIBIT 05 On one hand ICBC reports savings of $50 million dollars, and claims they are working to keep expenses under control, yet this graph indicates otherwise, expenses continue to climb. It would be most helpful to see a Comprehensive Table inclusive of all expenses as applicable to Basic Insurance.

85 Information Request No..2 RR RL.2.7 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 3 ICBC confirms that the information shown in RTL Exhibit 05 is correct regarding to corporate financial information contained in ICBC s 2011 and 2012 Annual Reports. Specifically: Total Revenue is comprised of: o o o Premiums earned. Service fees. Investment income. Total Expenses are comprised of: o o o o Claims incurred (current and prior years) at approximately 73% of ICBC s total costs. Acquisition costs (premium taxes, commissions and deferred premium acquisition cost adjustments) at approximately 12% of ICBC s total costs. Transformation Program expenses, which are 100% funded from Optional, therefore excluded from the Basic insurance rate indication as it has no impact on Basic insurance rates. Operating expenses at approximately 15% of ICBC s total costs: Claims services, road safety and loss management services, and insurance operating costs. Non-insurance expenses. Restructuring costs (one-time, non-recurring $25 million in 2012 actual). Pension and post-retirement benefits costs related to changes in International Accounting Standard on Employee Benefits (IAS 19R), assumptions changes for accounting purposes and discount rate changes (beginning in forecast in the amount of $19 million, and thereafter).

86 Information Request No..2 RR RL.2.7 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 3 of 3 As indicated in the Application, Chapter 7, page 7-1, paragraph 1, claims incurred accounts for the largest portion of ICBC s total costs at approximately 73%. It is this component which has been increasing in recent years due to the higher number of bodily injury claims which put pressure on Basic insurance rates. Operating expenses represent only a small percentage of ICBC s total costs (approximately 15%). However, ICBC does have the ability to manage and control these costs and it did so by meeting the commitment made in response to the 2012 Government Review of ICBC to reduce budgeted costs by more than $50 million as compared to its 2011 original plan. For further information on the $50 million operating cost savings, please refer to Chapter 7, Section B.3. In Chapter 7, page 7-3, paragraph 10, ICBC explains that it operates and manages the company on an integrated basis, providing both Basic insurance and Optional insurance products and services. This model provides benefits to ICBC s customers in terms of ease of service and economies of scale, which in turn leads to cost efficiencies and lower Basic insurance rates. From a regulatory perspective, ICBC identifies and allocates costs as either Basic insurance or Optional insurance, pursuant to a Commission-approved financial allocation methodology. For the forecast, ICBC s operating expenses for the Basic insurance line of business is presented in Chapter 7, Figure 7.22, page For the actual results, ICBC presents its Corporate, Basic insurance, and Optional insurance financial information (inclusive of revenue, expenses, and equity) in the notes to its financial statements. For example, in ICBC s 2012 Annual Report (see Chapter 10, Appendix 10 C), page 85, note 22 Regulation over Basic Insurance shows ICBC s 2012 Basic insurance revenues of $2.2 billion, investment income of $281 million, and claims and operating costs of $2.5 billion.

87 Information Request No..2 RR RL.2.8 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 2.2 RR RL.2.8 Reference: RTL - EXHIBIT 06 ICBC should re-evaluate their +1.0 percentage point indictor using Real Basic Policy Premium Rates paid by British Columbians, by bringing the Indicated Rate Change down to a horizontal line that does meet the criteria of Stable and Predictable Rates. The preamble of this information request seems to suggest that ICBC should determine its indicated rate change from historical trends observed in premium. But this thinking does not take into consideration that ICBC must set rates to cover its costs, and that claims costs are the predominant factor in the setting of the rate level. (Note that the graph in the preamble uses number of claims as opposed to claims costs). To a much lesser degree, the trend in average premium is a factor in the indicated rate change, and in this regard ICBC does use Real Basic Policy Premium Rates paid by British Columbians in determining its indicated rate change. The rate change component, change in average premium, captures the drift in average premium, which is the amount of change in premium due to movement of policyholders between different business segments that are defined by rate classes, territories, and/or discount levels. The average premium analysis isolates the overall drift in average premium by re-stating premiums at current rate level. In this way, any year over year change in average premium at current rate level must be due to drift. This analysis is important to the overall rate indication since over time ICBC will collect less premium as policyholders move into business segments with lower average premium (e.g., seniors). As a result, there is an additional component of the rate change to cover costs (change in average premium) to capture this loss in average premium over time. The following provides a simple example using three policyholders to illustrate how average premium can decline over time from policyholder movement between business segments. The tables below describe the policy characteristics for each of the three policyholders within BC for year 1 and 2 along with the fictional premium for each policyholder after discount.

88 Information Request No..2 RR RL.2.8 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 2 Year 1 Policy holder Rate Class Territory Claim-Rated Scale Discount Premium 1 Senior D (Lower Mainland) 43% $750 2 Pleasure Use D (Lower Mainland) 43% $1,000 3 Pleasure Use D (Lower Mainland) 43% $1,000 Average $917 Year 2 Policy holder Rate Class Territory Claim-Rated Scale Discount Premium 1 Senior D (Lower Mainland) 43% $750 2 Senior D (Lower Mainland) 43% $750 3 Pleasure Use D (Lower Mainland) 43% $1,000 Average $833 In Year 2, the second policyholder moves into the seniors rate class, thus creating a decline in the overall average premium. This is similar to what ICBC is currently experiencing as the proportion of seniors continues to increase in BC as described in the Application, Chapter 3, page 3-7, paragraph 24. The data used in this Application does in fact reflect the entire Basic insurance policy premium (including applicable discounts) from all of ICBC s policyholders.

89 Information Request No..2 RR RL.2.9 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 1.2 RR RL.2.9 Reference: RTL - EXHIBIT 07 Will ICBC please re-align itself, and the various models and actuarial formulas to BC Stats. After all this is the Province in which you do business. ICBC is using BC s data in its analysis as the following paragraphs highlight: 1) Please refer to the Application, Chapter 3, Exhibits B.2.1 and B.2.2, which summarizes the economic and demographic variables used in selecting the exposure (i.e., the number of insured vehicles on the road) models. As shown in these tables, the majority of the models are based on BC s actual demographic data. This includes how many people are in the various age groupings: above 15 years old, 15 to 64 years, seniors (above 65 years), and which territories within BC that they live. 2) Please refer to the Application, Chapter 3, Exhibit B.1.2, which summarizes the historical year over year change in written exposure (the number of insured vehicles on the road) that is in line with the overall population growth of BC. 3) As discussed in the response to information request.2 RR RL.2.8, average premium is directly impacted by the change in the policyholder distribution between rate class, territory, and discount levels.

90 Information Request No..2 RR RL.2.10 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 3.2 RR RL.2.10 Reference: RTL - EXHIBIT 08 In the first round of IR s ICBC submitted upon request an updated Organizational Chart. Will ICBC please populate staffing levels, so a comparison can be drawn to the apparent data indicated in the application and in the RTL Exhibit 08.

91 Information Request No..2 RR RL.2.10 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 2 of 3 ICBC understands the information request to be asking for: Autoplan policies earned for years, 2014, and Staffing forecast for years, 2014, and The Policies Earned x 6 in RTL Exhibit 08 for 2009 actual to forecast is correct and reconciles to the Application, Chapter 7, Figure 7.7, page ICBC had forecast Autoplan policies to increase at 1.4% over 2012 actual results to equal 3,419,000. The forecast for ICBC s policy growth for 2014 and 2015 is not currently available. ICBC respectfully submits that the information in regards to Mngr / 1000 Policies and Exec / Manager x 8 in RTL Exhibit 08 is not correct. As discussed in the response to information request.2 RR RL.2.11, and as indicated on page 27 of ICBC s Revised Service Plan 2015 (Chapter 10, Appendix 10 B), ICBC does not plan in detail its operating cost targets beyond the current year. This is also true of its staffing resources, i.e., full-time equivalents (FTEs) by employee group. As a result, the forecast for 2015 ICBC FTEs is not currently available. ICBC is currently undergoing its normal budgeting cycle for the 2014 fiscal year. The 2014 forecast staffing levels will impact compensation, which is the largest component of ICBC s overall operating expenses. ICBC s 2014 forecast operating costs by expense category are presented in its Service Plan , which is anticipated to be tabled in the Legislature on February 18, ICBC is unable to publicly disclose contents of its Service Plan prior to this date and as a result, the forecast for 2014 ICBC FTEs is not currently available. ICBC has presented 2009 actual to forecast staffing levels in the Application, Chapter 7, as follows: Figure 7.5, page 7-16 showing ICBC s FTEs by employee group. Appendix 7 C, Figure 7C.5, page 7C-9 showing ICBC s FTEs by division by employee group.

92 Information Request No..2 RR RL.2.10 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 3 of 3 Figure 7.7, page 7-22 showing ICBC s Autoplan policies earned as compared to its staffing resources. Figure 7.8, page 7-23 and Appendix 7 C, Figure 7C.6, page 7C-12 showing ICBC s ratio of managers with staff to total employees by division.

93 Information Request No..2 RR RL.2.11 Dated 02 December Insurance Corporation of British Columbia Response Issued 23 December 30 August Insurance Corporation of British Columbia November 1, Page 1 of 3.2 RR RL.2.11 Reference: RTL - EXHIBIT 09 Will ICBC please correct the data for the forecast years, 014, 2015, and update remunerations for all Bonus, Incentives and approved expenses.