1. 2008 General Meeting Assemblée générale 2008 Toronto, Ontario 2008 General Meeting Assemblée générale 2008 Toronto, Ontario Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2. CALM for Group Insurance PD 4 13 November 2008 Whitman Wu & Gary Walters

3. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 History of CALM How long is the history of CALM? Year-end 2001. How was group valuation done before 2001? How was your year-end 2001 valuation different from the past? How is it different now? Why would some valuation process changes take place long after a standard was in place?

4. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Standards of Practice provide high level guidance Group is lumped in with Life New Education note being finalised on valuation of Group Insurance CALM for Group in 2008

5. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Project liability cash flows with MfADs Find appropriate assets to broadly match those cash flows The market value of those assets is best estimate reserve (base scenario) Stress-test the reserve with different reinvestment scenarios to see what extra assets are required Padded reserve is market value of this larger group of assets CALM 101

6. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Get Ready to Think Questions to stimulate you to think, in the context of Group valuation How you do your work? Why take a complex way instead of a simple way? Or vice versa? Ever justified “I did it my way”? Ever came across “Regrets, I have a few”? Still like “It has always been that way”?

7. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Cash flows Which policies to include? And for how long? Policies where pv future benefits may exceed pv future premiums under any interest rate scenario For the term of the liability How do cash flows interact with each other and the interest rate scenario? Matching to assets In particular market value adjustments 2 Key Areas to Question

8. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Selected Topics COLA Increases Premium Rate Guarantees LTD IBNR Market Value Adjustment LTD Expense (if time available) ERR covered by another presentation at the CLIFR session (PD-27) on Friday

9. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Question: Do you model scenario dependent cash flows for benefits with COLA? If yes, how do you model the seriatim cash flows by scenario taking into consideration COLA caps that vary by policy? If no, why? Did you justify that not varying COLA cash flows by scenario is a reasonable approximation? COLA Increases

10. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Question: Do you include cash flows arising from the premiums until the end of the premium guaranteed period? If no, why? Should you? If yes, do you reflect the guaranteed period policy by policy or use approximation? If approximation, what approximation? If policy by policy, go to the next slide. Premium Rate Guarantees

11. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Premium Rate Discounts Question: Do you reflect premium rate discounts? If no, why? Should you? If yes, how? How about expense discounts for refund accounting business and ASO?

12. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Premium Rate Commitments Question: You have committed a new business or renewal rate in Nov 2008 with an effective date of Feb 1, 2009. At year-end 2008 valuation, do you reflect the liabilities related to the period from Feb 2009 to Jan 2010 for this policy? If no, why? What are the challenges? If yes, how?

13. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 LTD IBNR Question: How do you project cash flows for LTD IBNR? Over a short period? A long period? If you apply a cash flow pattern, what is the basis of the implied interest rate? And how does this interest rate relate to that in the premium? If IBNR is based on factor x premium, how do you account for premium deficiency or handle significant rate increases?

14. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Market Value Adjustment Question: Do you run CALM using asset values on 3855 basis? Or do you maintain the pre-3855 basis when running CALM? If on 3855 basis, how you deal with refund policies where policyholder reserves are not based on asset value? If on pre-3855 basis, and if you invest long term to back stable short term liabilities (EHC IBNR, AoD), how do you handle the market value changes on these assets?

15. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 LTD Claims Expense Question: For LTD DLR, do you use level or varying expense assumption by duration for claims administration? If level assumption, does it reflect how disabilities at different duration are managed, or it is just a simplified assumption? If varying expense, how is it determined? What is the impact on reserves between level and varying expense?

16. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 LTD IBNR Expense Question: For LTD IBNR, do you use the same expense assumption as for DLR? If the same, is it appropriate? If different, why different? How do you model the expense cash flows for LTD IBNR?

17. 2008 General Meeting Assemblée générale 2008 2008 General Meeting Assemblée générale 2008 Questions? Enough questions from us? Any questions from you?