To help the Insurance Corporation of British Columbia (ICBC) in its precarious financial situation, the provincial government has suspended the insurer’s minimum target for capital reserves.
BC attorney general David Eby has signed a cabinet order that ordered the suspension of the capital minimum.
“The reason we are doing this is because currently ICBC has about 54 cents in the bank for every dollar in outstanding claims,” Eby explained to CBC News.
The attorney general also added that “urgent and dramatic action” is required to get the public insurer back on its feet.
Prior to the order, ICBC had to pass a minimum capital test – basically, the insurer had to maintain one dollar in the bank for every dollar of liability – before it could propose new rates plans.
With such a low capital ratio, ICBC would have been left vulnerable to a major catastrophic loss scenario (such as a flood or other natural disaster). After one such major loss event, the insurer could be looking at filing for bankruptcy.
“It does raise the possibility of what seems a lot to me like insolvency,” Eby remarked. “That’s why we’re making really dramatic changes.”
Eby made clear that the provincial government is currently not considering a bailout for the insurer, but did not rule out the possibility of one in the near future.
“Ultimately, the government is the backstop for ICBC’s losses,” he prefaced. “We are taking every single step that we can to prevent that from happening.”