2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

June 28, 2007 Gylles Binet 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 PD 43 - Reviewing the Standards of Practice for Public Personal Injury Compensation Plans

Topics Actuary’s Role in Pricing Future Administration Costs Future Occupational Disease Claims 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Actuary’s Role in Pricing Current situation …actuary’s advice on… the pricing of benefits of …( ) …apply to pricing to the extent that work on pricing depends upon the valuation of benefits ( ) 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Actuary’s Role in Pricing Is the standard too limited? Apply to benefits components of pricing only if Estimation of benefit cost is linked to valuation of liabilities 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Actuary’s Role in Pricing Actuary’s role and responsibility in: Funding strategies and pricing implications Rate setting system Experience rating systems 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Pricing: mix of actuarial concepts techniques and policy decisions

Actuary’s Role in Pricing Responsibility towards stakeholders Proper application of actuarial techniques Prerequisite: Clarify: actuarial techniques vs policy considerations 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Actuary’s Role in Pricing Illustration - Quebec Actuarial expertise required by legislation (S. 304) Statement of opinion issued on - estimation of expected benefits cost - unit rates - parameters of experience rating system 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Actuary’s Role in Pricing Stakeholders may refer to actuaries for advice on pricing issues Potential divergence of position regarding generally accepted actuarial principles Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Administration Costs Current situation ( ): “If the benefits liabilities make no provision for administrative expenses …, then the report should so disclose.” 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Administration Costs Evolution in Boards’ practices : All WCB include “Future administration expenses liability” in balance sheet In 1997: only 5 WCB 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Administration Costs

Illustration - Quebec’s approach: Administration costs split in 4 categories: claims management / financing / Prevention programs and inspection / general expenses Only claims management and financing expenses are incurred beyond contribution year Claim administration liabilities = –% applied to benefits liabilities (variable by type of benefits) –The % is balanced and adjusted every year according to experience Financing expenditures: based on resources needed for follow-up after contribution year 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Administration Costs Diversity in Boards’ practices: Identification of the administration costs to be considered Disclosure in notes to financial statements: Included in benefits liabilities or disclosed separately 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Administration Costs Issues to be addressed: In Standards of Practice: Clarification: future administration expenses should be included in liabilities In an educational note Discussion on methodology 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Occupational Disease Claims Current situation ( ): “If the benefits liabilities make no provision..….or for future claims arising from latent occupational diseases, then the report should so disclose.” 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Occupational Disease Claims Recognition of cost accrual 1.Exposure to risk has occurred but symptoms have not yet appeared 2.Causal connection not yet established but exposure has taken place 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Occupational Disease Claims Diversity in Boards’ practices: Liabilities:3 Boards Reserves:2 Boards Nothing:7 Boards Is this acceptable? 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Occupational Disease Claims Standards of Practice issues: Inclusion of such reserve: an actuarial, an accounting or a governance issue? What are the characteristics of a method consistent with acceptable practice? Consistent with expected impact of prevention programs? What money is allocated to the fund and what costs are financed through it? 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Future Occupational Disease Claims How to address the issue? a)Standards of practice b)Educational note c)a and b 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Conclusion Where does the actuarial expertise begin and where does it end? 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007