1. 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

2. 22 PD - 43 Standards of Practice for Public Personal Injury Compensation Plans (PPICP) –Willard A Ramsey 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

3. 33 Topics The relationship of assets and liabilities for PPICP financial statements Best estimates for assumptions Dynamic capital adequacy 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

4. 44 Assets and Liabilities Current practice, is not Canadian Asset Liability method (CALM) – is CALM an alternative? International Accounting Standards Board (IASB). Committee on Workers’ Compensation (CWC) plans. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

5. 55 Current Practice Current method used for valuation of liabilities is the present value of future expected cash flows. The discount or valuation interest rate is typically a level rate and does not change from year to year. Hence, this method is not directly dependent on investment performance or funded status. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

6. 66 CALM Should we consider adopting a method such as CALM (Canadian Asset Liability Method)? CALM would address the issue that assets and liabilities are not on a consistent basis. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

7. 77 CALM However, CALM presents several hurdles. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

8. 88 CALM Shortage of, or at least not an abundance of, CALM expertise in those practicing in the PPICP field. Implementation would be costly and time consuming – would likely require extensive help from consulting firms. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

9. 99 CALM Significant portion of invested assets are in equities. A few WC Boards are not fully funded – still building assets to support liabilities. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

10. 10 IASB It appears at this point in time that the evolving International Standards are moving towards a liability value that does not depend on the value of the assets. If we did adopt CALM were adopted it could be for a relatively short period of time. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

11. 11 CALM Conclusion of the CWC (Committee on Workers’ Compensation) is that CALM is not a viable option at this time. Perhaps an approach similar to CALM? 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

12. 12 CWC Plans The CWC would like to clarify in the standards: A definition of the market value of liabilities. If the current approach is still appropriate. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

13. 13 CWC Plans Outline ways to manage the current approach, e.g. allowing flexibility in the choice of discount rate derived from the fair value of assets. Issuance of a guidance note regarding the adjustment of the valuation discount rate. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

14. 14 CWC Plans A plan to implement moving from current practice to tomorrow’s IASB (International Accounting Standards Board) methodology. Whether other methodologies need to be considered. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

15. 15 Best Estimates For Assumptions Current standards consider: Plan’s policy: –pricing stability –smoothing of short term deviations –and equity among generations In addition: –ad hoc indexing –intermittence pattern of benefits due to remission or relapse –Changes in claim practices or economic conditions 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

16. 16 Best Estimates For Assumptions The CWC is considering providing guidance on: –Areas where assumptions are required. –Where it may be appropriate to combine assumptions. –How to select best estimates. –Margins for adverse deviation – if or when they may be appropriate. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

17. 17 Dynamic Capital Adequacy Current environment –PPICP’s are not subject to solvency standards. Not regulated by OSFI. No solvency requirements from provincial governments. –Entities can operate with unfunded liabilities. All have plans to address excess surpluses or deficits. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

18. 18 Dynamic Capital Adequacy Actuaries are sometimes asked to provide advice on what is an appropriate level of capital for a PPICP. –Or, to provide sensitivity tests for various risks and the impact on funding ratios (assets / liabilities) and premium rates. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

19. 19 Dynamic Capital Adequacy CWC interest is in examining or defining what is adequate / appropriate capital for a PPICP. –Could be quite challenging as different views are developing. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

20. 20 Dynamic Capital Adequacy What type of guidance should be provided? –Change to standards or educational note? 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

21. 21 Dynamic Capital Adequacy Dependent on the funding policy of the PPICP. –The actuary must work within the funding policy. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007

22. 22 Next Steps We have several interesting and challenging topics. Probably a lot of work ahead. Look forward to your feedback and input. 2007 Annual Meeting Assemblée annuelle 2007 2007 Annual Meeting Assemblée annuelle 2007