2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) 2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2 Update from PPFRC Agenda Annuity Guidance Discount rates for accounting valuations Exposure Draft for Pension Specific Standards of Practice and related draft Educational Notes Incremental cost Sensitivity analysis Best estimate going concern discount rates 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

3 Annuity Guidance Annual Educational note issued April 2009 Substantial change in assumptions for non-indexed pensions from prior year Significant retroactivity Current considerations More frequent / timely updates Large plans 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

4 Annuity Guidance Update Process Past guidance based primarily on annual data from insurers on actual sold cases Insurers not prepared to provide similar data more frequently and amount of data might not be very credible in any event Alternative approach to be tested – insurers will provide quarterly quotes on sample data provided only the average of interest rates underlying the three best quotes is published First such quotes will be collected as of June Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

5 Annuity Guidance Large Cases Current Educational Note Limited capacity over $500 million ? Limited capacity for indexed annuities Reasonable hypothesis as to method of settlement Principles of annuity pricing would apply 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

6 Annuity Guidance Large Cases Issues Legal requirements re: settlement methodologies Degree of security provided by alternative settlement Under immunized approach Credit rating of investments Realistic mortality including improvements Provision for mismatch risks Expenses 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

7 Accounting Discount Rates Significant differences in discount rates suggested by different actuarial firms have appeared in recent months Related to limited number of corporate AA rated bonds with term over 10 years combined with limited trading in volatile markets 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

8 Accounting Discount Rates Sub-committee formed, including Investment committee representative Post-employment benefits committee representative Marlene Puffer – independent bond market expert Audit firm actuary To examine whether guidance (Educational Note) can be developed with preferred methodology 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

9 Exposure Draft Changes to the Practice Specific Standards for Pension Plans Issued April 1, 2009 Comment deadline June 30, 2009 ASB intends to decide on revised standards in 2009 Effective date to be determined 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

10 Exposure Draft Role of SOP Enable determination of minimum / maximum funding in accordance with legislation Enable advice on funding in excess of minimum requirements Require enhanced disclosures regarding security of benefits and related sensitivities 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

11 Exposure Draft Disclosure requirements include Hypothetical wind-up funded status Maximum cost basis Excluding contingent benefits not related to wind-up (e.g. consent) Exceptions wind-up benefits not defined designated plan for connected persons Incremental cost on hypothetical wind-up or solvency basis Draft educational note Permitted offset for expected investment return over inter-valuation period 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

12 Exposure Draft Disclosure requirements (cont’d) Sensitivity analysis Draft educational note Going concern or solvency basis as appropriate to case Gain / loss analysis Going concern or solvency basis as appropriate to case Second simplified analysis encouraged where appropriate 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

13 Exposure Draft Going Concern Valuations Only if required by law or terms of engagement Forecast method permitted for all plans Assumptions are best estimate or best estimate plus margin for adverse deviations where specified by law or the terms of engagement Draft Educational note on best estimate discount rates 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

14 Best Estimate Discount Rates Draft Educational Note Distinct approaches Reflect expected return on plan assets, or based on the yield on investment grade bonds matching projected cash flows 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

15 Best Estimate Discount Rates Draft Educational Note Building block approach Expected return on various asset classes Reflect plan investment policy considering diversification and rebalancing Consider benefits, if any, of active vs. passive management Provision for expenses Generally, should not select the most optimistic or most pessimistic view for all components 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

16 Best Estimate Discount Rates Draft Educational Note Asset Class Returns Fixed income Yield on investments or appropriate index Possible allowance for reinvestment and / or future interest rate changes Equities – publicly traded Highly subjective Typical to use premium of 2-4% over long term government bonds Other Consistent with above May consider correlations between asset classes 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

17 Best Estimate Discount Rates Draft Educational Note Investment policy Generally assume policy is maintained indefinitely Diversification / rebalancing may add 0-0.5% to weighted average asset class expected median returns 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

18 Best Estimate Discount Rates Draft Educational Note Active management value added Cover related fees Historically: No additional added value on the average actively managed fixed income or US equity portfolio Some additional added value on Canadian and International equity portfolios Future expectation Highly subjective Generally, not more than 0.5% for typical portfolio with 60% active equity 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

19 Best Estimate Discount Rates Draft Educational Note Other methodologies Illustrated methodology is not unique and does not preclude other approaches A logically constructed stochastic asset model is a valid approach In any event, the actuary will provide a rationale for their assumption 2009 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2009

20 Questions?