1. 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver
Canadian
Institute of
Actuaries
L’Institut canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver

2. Post-Retirement Assumptions
Market practices
Medical inflation assumption tends to follow a "high-low" pattern
Premise is that current levels (4-5 times CPI) are not sustainable
Common pattern for medical– begin at 10%-12% per annum, grade down to 5%-6%
Number of years of grade down varies (5-10 years)
May vary by component (0 inflation for vision, for instance)
For dental, more commonly flat, at 3%-4%
May be combined with an aging assumption
Ranges from 2% to 5%-6% per year of age
Reflects impact of provincial drug programs e.g. ODB
Assemblée annuelle 2007
2007 Annual Meeting

3. Post-Retirement Assumptions
Market practices-Gaps
Combination of inflation and aging may fall short of factors used by carriers at renewal
Little detailed guidance for selection of assumption(s) (CIA sub-committee is investigating the need for guidance)
Historical record does not support immediate grading down (nor the ultimate level)
Market practices – concerns
Little explicit guidance from CIA
CICA 3461 states that assumptions are to be "management's best estimate"
In practice, sponsors rely on consultants to define acceptable assumptions
Assemblée annuelle 2007
2007 Annual Meeting

4. Post-Retirement Assumptions
Market practices – concerns (continued)
CICA 3461 states that assumptions are to be "management's best estimate"
Assumptions vary by consultant, so changing consultant can change assumptions
So do they really constitute "management's best estimate"?
Assemblée annuelle 2007
2007 Annual Meeting

5. Experience Trends Non-emergency health Assemblée annuelle 2007
Services by hospitals, physicians and other medical professionals, (so services covered by provincial plan)
Reflects experience within a single province
Trends vary by age, type of service and gender, (but variance is not large)
For working ages, annual trend varies from about 5.25% to nearly 8% for hospital and from 7.5% to about 9.5% for other expenses
Experience trends show variance by province, as well as by age, gender and type of service
Variation is large – highest provincial trends net of CPI may be as much as 5 or 6 times lowest
Highest tend to be experienced in remote areas e.g. the Territories, (but from since 1997, many of the western provinces have experienced higher than average trends in these costs)
Assemblée annuelle 2007
2007 Annual Meeting