ICBC's minimum capital reserves suspended, raising questions of government bailout
Public auto insurer has 54 cents in the bank for every dollar in outstanding claims, says attorney general
Even before the B.C. NDP government forecast a $1.3 billion dollar shortfall for ICBC's fiscal year, the public auto insurer's capital reserves had been declining.
This week, B.C. Attorney General David Eby signed a cabinet order suspending the minimum target for those reserves, raising questions of whether a government bailout is the next step.
"The reason we are doing this is because currently ICBC has about 54 cents in the bank for every dollar in outstanding claims," Eby told Stephen Quinn, the host of CBC's The Early Edition.
He said urgent and dramatic action is needed to restore the corporation's finances.
Before the order was signed, ICBC needed to pass a minimum capital test — essentially, one dollar in the bank for every dollar of liability — before it could present a new rates plan to independent regulators.
A low capital ratio increases the risk that in a catastrophic loss scenario, like a massive flood or other natural disaster, ICBC would not be able to cover its existing liabilities.
"It does raise the possibility of what seems a lot to me like insolvency," Eby said. "That's why we're making really dramatic changes."
Government a 'backstop'
ICBC is instigating a suite of other changes as well, including a cap of $5,500 for pain and suffering on minor injury claims. A full business audit is also underway.
Eby said the provincial government is currently not injecting any money into ICBC to help keep it afloat. He didn't rule out the possibility of a bailout in the future.
"Ultimately, the government is the backstop for ICBC's losses," he said. "We are taking every single step that we can to prevent that from happening."
ICBC is expected to continue in the red for the next few years with a predicted loss of $1 billion next year and half a billion the following year before returning to solvency, Eby said.
"It's obviously a very serious issue that didn't happen overnight," he said. "We are rushing to get ICBC back to solvency."
With files from The Early Edition.