2007 General Meeting Assemblée générale 2007 Montréal, Québec 2007 General Meeting Assemblée générale 2007 Montréal, Québec Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires IP-18 Group Expenses John Have, FSA, FCIA

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Includes: – Future expenses only – For relevant policies and claims only Excludes: – Expenses incurred prior to valuation date ie: prior merger / acquisition expenses – Expenses related to capital or surplus acct – New market development costs

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation AA Report – validate expense assumptions – Maintenance Need to show actual vs expected for last 3 years – Expense gaps One time non re-occuring -> new systems Ongoing for next few years? – Actuary need to disclose why - discuss future plans – All overhead expenses must be included – Trends

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Expense assumptions – Best estimate Recent expense study Source of Earnings Report Compare with intercompany studies Future plans – Inflation Consistent with interest rate scenario – Margin for Adverse Deviation 2.5% to 10% per insurer circumstances Recent high actual unit expense volatility – higher MfAD

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Assume productivity improvement? – Once recent merger / acquisition in place – New system being implemented – Future economies of scale OK if high certainty Also watch for worse economies of scale

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Product Types – Regular group ->1 or 2 Year Renewable Short term claims - IBNRs Long term claims (WP and LTD) – Group Permanent and SP Life For most insurers this is very small

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation IBNR claim liabilities – typical methods – Life and AD&D %, $ per 1,000 and/or $ per claim – STD and LTD % and /or $ per claim – Health and Dental %, $ per claim unit and/or $ per cheque

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Ongoing claim liabilities – typical methods – STD % and/or $ per cheque/month (reducing over time) – LTD % of future claims payments $ per month (reducing over time) – First 12 months, months, ….. etc – WP % or $ per month/year reducing over time % or $ of expected death claims

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Permanent Policies – typical methods – SP Life and Permanent Life Annual maintenance -% or $ per month/year % or $ of expected death claims

2007 General Meeting Assemblée générale General Meeting Assemblée générale 2007 Group Expenses - Valuation Any questions??