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

Agenda Process Details of Revised Exposure Draft Next Steps

Process Policy on Due Process Policy on Due Process for Adoption of Standards of Practice: Advance the public interest Provide for the appropriate application of professional judgment within a reasonable range Ensure that compliance with the Standards is practical for actuaries with relevant training Be clear, concise and written in a consistent style

Notice of Intent (NOI) was issued in March Process Stages to Date Notice of Intent (NOI) was issued in March Announcing proposal to make changes to both the CV Standard and the MB Standard Exposure Drafts were issued in June A large number of submissions were received Members of the ASB also met with various stakeholders in various forums Designated Group met in early October Full ASB meeting was held in mid October

Process Future Expected Progress Due process requires the Designated Group to decide whether the changes are substantial enough to necessitate re-exposure Revised Exposure Draft was issued in October One month comment period Hope to issue a final Standard in December Effective date of April 1, 2009 Assuming that the final Standard is approved in December

Details of Revised Exposure Draft Considerations Mortality Interest rates for non-indexed pensions Inflation rate / interest rates for indexed pensions Time lag Rounding Effective date

Details of Revised Exposure Draft Mortality Current Assumption: UP94 Table projected to 2015 using Scale AA Exposure Draft: UP94 Table projected to 2025 using Scale AA Revised Exposure Draft: UP94 Table projected to 2020 using Scale AA Effective January 1, 2011, UP94 Table projected generationally using Scale AA Hope is that a new Canadian Table / projection scale will be available by 2011

Details of Revised Exposure Draft Mortality ASB strongly believes that a full generational approach is preferable We have sympathy with plan administrators and the time required to make changes to administration systems With the short period remaining for use of the static projection table it was decided that a shorter projection period was appropriate

Revised Exposure Draft: Details of Revised Exposure Draft Interest Rate for Non-Indexed Pensions Current Assumption: Two tier rate structure One rate for 10 years (based on 7 year GoC bond yields) Second rate therafter (based on 7 year and very long-term GoC bond yields) 50 bps adjustment made to GoC bond yields Exposure Draft: Current structure but with an adjustment of 75 – 100 bps Revised Exposure Draft: Current structure but with an adjustment of 90 bps

Details of Revised Exposure Draft Interest Rate for Non-Indexed Pensions Many submissions were received – most focusing on the liquidity argument Some rejected the liquidity argument Some agreed with the liquidity argument but said that it was impossible to determine the appropriate adjustment Liquidity and credit risk are intertwined The ASB recommends that further research be done on the size of the liquidity adjustment However, given the information available to us, we are comfortable that 90 bps is appropriate

The number of submissions advocating this approach was small Details of Revised Exposure Draft Interest Rate for Non-Indexed Pensions Comments were also received with respect to the concept of “reversion to the mean” The number of submissions advocating this approach was small But their opinions were quite strong The ASB considered these arguments: We felt there was nothing new We continue to support the market approach We believe that projecting the yield curve is preferable to mean reversion

Revised Exposure Draft Details of Revised Exposure Draft Inflation Rate / Rates for Indexed Pensions Current Assumption: Similar to rates for non-indexed pensions, but based on yields of real return bonds Adjustment of 50 bps over GoC bond yields Exposure Draft: Current rate structure plus 100 – 125 bps (also communicated as 25 bps higher than non-indexed rates) Revised Exposure Draft Current rate structure plus 90 bps

ASB spent considerable time on this issue Details of Revised Exposure Draft Inflation Rate / Rates for Indexed Pensions ASB spent considerable time on this issue We feel that the Break Even Inflation Rate (BEIR) is the best indicator of the price that the market is willing to pay for inflation protection This is in contrast to a predictor of long-term inflation Examples sited which indicate that it has not adequately predicted inflation are suspect as the time periods are not comparable No concrete evidence to deviate from the BEIR

Details of Revised Exposure Draft Time Lag Current Assumption: 1 – 2 month delay Exposure Draft: Maintain current time lag Revised Exposure Draft: Maintain current time lag until January 1, 2011 Decrease time lag to 0 – 1 month effective Jan 1, 2011 ASB prefers the shorter time lag Delay in implementation will allow plan sponsors / administrators time to modify practices / systems

Details of Revised Exposure Draft Rounding Current Assumption: Round to nearest 25 bps Exposure Draft: Round to nearest 10 bps Revised Exposure Draft: There was very little comment on this issue

Details of Revised Exposure Draft Effective Date By re-exposing the changes to the Standard, it is not practical to have an effective date of February 1, 2009 Revised effective date of April 1, 2009 Assuming the final Standard is approved in December Early implementation will be permitted for solvency valuations In appropriate circumstances; and If permitted under applicable regulation / legislation Measures will be taken to extend the sunset clause for the current Standard From January 31, 2009 to March 31, 2009

Next Steps Comments Deadline for submissions is November 28 ASB will be meeting in early December to (hopefully) adopt a revised Standard

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