If I were your Actuary Steve Krupicz, FSA, FCIA AVP Advanced Sales, Actuarial & Underwriting Consulting Manulife Financial Insurance

Agenda Commentary Observations Responses to questions that I am frequently asked With a focus on information that may be of value to you in your practices.

My background I joined Manulife in May, 1982 35.9 years ago I have experience in a variety of roles Corporate Annuity & Pension pricing Financial Reporting Life Insurance Pricing Inforce Insurance Management Dividend Actuary Actuarial Consultant

My most common question from people outside the industry Hey Steve, you probably know something about insurance. My son/daughter just graduated from university (or, I am planning to retire) and will drop off of my benefit plan. What are their (my) options?

My most FAQ from people who could be your clients! My observations: Every person who asked me this question was in their 50’s Every person who asked me already deals with one or more advisors: Group benefits Individual insurance Savings Bank(s) Who has the “trusted advisor” status?

My most FAQ from people who could be your clients! My answers: Did you check your group benefits plan? Ask your employer for a booklet and I can help you understand…. Affinity products: Group coverage through an association Alumni Associations, Engineers, Accountants, Doctors, CAA, etc. Follow Me by Manulife Allows people who are losing group benefits to purchase continuing coverage without evidence of insurability Regardless of current provider Individual Health Plans Flexcare, FollowMe Health, Association Health & Dental Plans

My most FAQ from people who could be your clients!

My most FAQ from people who could be your clients!

My most FAQ from people who could be your clients! Wholesaler support is available to you Can help you be the Trusted Advisor To parents and to the next generation The same coverage and rates as if the client goes the self-serve route Commissionable: 20% first year, 5% renewal

My most common question from Manulife clients How was the dividend on my par policy calculated?

My most FAQ from Manulife clients It was set by Manulife (and I can’t give you details). It was set by Manulife’s Board after evaluating experience in our par business in Canada for all of the factors that contribute to the profit or loss on Manulife’s participating business (i.e. investment return, lapses, mortality, etc.) and due consideration of the need to retain some of this experience as a buffer against future risks. “Policy dividends” have parallels with shareholder dividends. Both are set by the management of the company after evaluating everything they know about the business. You get the same level of disclosure for both; the amount of the dividend but none of the rationale or calculations.

Dividend Formula for Par Policies Dividend = (DIR – I Gcsv) x Guaranteed Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest rate used in pricing cash values q = mortality rate w = lapse rate

My most FAQ by advisors about Manulife par products What is the Dividend Interest Rate (DIR) for my client’s Performax policy?

What is Manulife’s DIR for Performax par policies? My answer to date: We do not publish our DIR. This is just one number in a complex formula that has no meaning on its own. What is more relevant and meaningful and what I can tell you is the extent to which this number has changed since the policy was issued. If you give me a policy number, I can provide you with that information.

Dividend Formula for Par Policies Dividend = (DIR – I Gcsv) x Guaranteed Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest q = mortality rate w = lapse rate

What is Manulife’s DIR for Performax par policies? Today, companies design par policies so that DIR’s approximately equal the smoothed investment return on their par fund Performax was different: We set a “base rate” that was intended to be 1.5% – 2% lower than smoothed investment returns 8.80% in the late 90’s and early 2000’s We add different amounts to this base rate to get the DIR for different coverages Closed Fund Performax policies Open Fund policies issued before June 2003 Open Fund policies issued after June 2003 Base Rate 4.55% 4.30% 4.80% DIR for base insurance coverages 7.45% 7.20% 7.70% DIR for regular PUAs 6.70% DIR for Deposit Option coverage 5.45% 5.20% 5.70%

Dividend Formula for Open Par Performax Policies issued after June 2003 Dividend = (7.70% – I Gcsv) x Guaranteed Cash Value + (6.70% – I pua) x PUA Cash Value + (5.70% – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest q = mortality rate w = lapse rate

My most FAQ by advisors about illustrations What Performance Credit Rate (or Dividend Scale) is it reasonable for me to illustrate to my clients?

What “scale” to illustrate? The Performance Credit Rate in Performax Gold is intended to track the smoothed yield of the Performax Gold fund Can never be set lower than this smoothed yield Is currently higher for competitive reasons DIR’s in competing par products are similarly intended to track smoothed investment yield on par funds With no commitment on minimum levels My answer: It can take up to 20 years for a change in investment returns to fully work its way through the different smoothing used by the different companies What do you think investment returns will average in the future?

What “scale” to illustrate? What if current returns on fixed-interest assets continue into the future? What do we need the return to be on Stocks and Real Estate to support different scales? Asset Class “Current” Yields Cash (T-Bills) 1.10% Government Bonds 2.35% Corporate Bonds 3.50% Private Placements 4.00% Mortgages 3.25 – 6.25% Stocks let’s calculate what is needed Real Estate “Current” = April 13, 2018; yields are those on long-term assets (i.e. 10 – 20 years)

What “scale” to illustrate? Distribution of Investable Assets in the Company’s Fund Asset Class “Current” Yield Performax Gold Fund Company “A” Company “B” Company “C” Cash 1.1% 2.6% 4.1% 3.1% 0% Government Bonds 2.3% 15.8% 21.2% 16.3% 20.0% Corporate Bonds 3.5% 19.3% 15.4% 34.8% 25.9% Private Placements 4.0% 6.1% 17.0% 4.9% 10.6% Mortgages 4.5% 15.6% 10.9% 21.7% 12.9% Stocks T.B.D. 21.1% 13.4% 17.7% Real Estate 19.5% 16.0% 5.8%

What “scale” to illustrate? What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields) Desired PC Rate or DIR Performax Gold (39.6% in S & RE) Company “A” (31.4% in S & RE) Company “B” (19.2% in S & RE) Company “C” (30.6% in S & RE) 6.5% 11.1% 13.6% 19.3% 13.5% 6.0% 5.5% 5.0% 4.5% 4.0%

What “scale” to illustrate? What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields) Desired PC Rate or DIR Performax Gold (39.6% in S & RE) Company “A” (31.4% in S & RE) Company “B” (19.2% in S & RE) Company “C” (30.6% in S & RE) 6.5% 11.1% 13.6% 19.3% 13.5% 6.0% 9.8% 12.0% 16.7% 11.9% 5.5% 8.6% 10.4% 14.1% 10.2% 5.0% 4.5% 4.0%

What “scale” to illustrate? What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields) Desired PC Rate or DIR Performax Gold (39.6% in S & RE) Company “A” (31.4% in S & RE) Company “B” (19.2% in S & RE) Company “C” (30.6% in S & RE) 6.5% 11.1% 13.6% 19.3% 13.5% 6.0% 9.8% 12.0% 16.7% 11.9% 5.5% 8.6% 10.4% 14.1% 10.2% 5.0% 7.4% 8.8% 11.5% 4.5% 6.1% 7.2% 8.9% 7.0% 4.0% 4.9% 5.6% 6.3% 5.3%

What “scale” to illustrate? What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes and “current” yields + 1%) Desired PC Rate or DIR Performax Gold (39.6% in S & RE) Company “A” (31.4% in S & RE) Company “B” (19.2% in S & RE) Company “C” (30.6% in S & RE) 6.5% 9.6% 11.4% 15.1% 11.2% 6.0% 8.4% 9.8% 12.5% 5.5% 7.1% 8.2% 9.9% 8.0% 5.0% 5.9% 6.6% 7.3% 6.3% 4.5% 4.7% 4.6% 4.0% 3.4% 2.0% 3.1%

Universal Life guarantees Can I get a comfort letter for my client stating that the UL illustration, that I ran at the minimum interest rate guaranteed for the product, is guaranteed?

Can a Universal Life illustration be guaranteed? Yes, but this “comfort letter” may not be very comforting The illustration is not the contract Client is always free to invest in variable accounts Illustrations depend on a number of assumptions Some are explicit (e.g. interest rate) Some are implicit There are at least 5 issues/assumptions to consider

Can a Universal Life illustration be guaranteed? Reasons performance can differ from illustrations: Backdating to save age Lost investment return because premiums are not backdated Impacts cost of insurance charges on Level Death Benefit policies EXACT timing of deposits (to the day) Potential for changes in Premium Taxes Or for Sales Taxes Bonus payments are paid into Savings Account (in InnoVision) Use auto-transfer form (NN0947) to rectify Potential for Market Value Adjustments

Can a Universal Life illustration be guaranteed? You can comfort clients with the information we present in our UL statements: Rate of Return reported at account level and total policy level Using same method as the interest rate in an illustration An easy gauge of performance Anniversary values compare to illustration values Death benefit Cash Value Account Value

Whole Life policy performance Why are the values in my whole life (par or non-par) policy lower than what I illustrated even though the scale has not changed? (new sale or inforce)

How can performance be different when the scale has not changed? Answer = Premiums Amount or timing The Cash Values (used in the dividend formula) are affected by the timing of premiums Especially for optional deposits Div. = (DIR – I Gcsv) x Gtd Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (D.B. – Reserve) x (qpricing – qactual) + (Reserve – CV) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual)

Steve, be honest, what’s better, Par or Nonpar? The question I’ve been asked since Performax Gold was launched in 2008? Steve, be honest, what’s better, Par or Nonpar?

Par or Nonpar? My answer = neither is universally better. Both types of products have horror stories that we could share Both types of products have success stories too In general: Par is an adjustable product where experience is flowed through to clients via policy dividends Less guaranteed and less guarantee-able Non-par products may or may not be adjustable Adjustability is typically constrained in some fashion More guaranteed components and more guarantee-able

The most common question about my role at Manulife? So what does an actuarial consultant do and why would I ever need you?

When would I contact an actuarial consultant? Actuarial Consultants (Steve Krupicz in Waterloo & Bill MacMillan in Winnipeg): If you are an Elite advisor Our primary clients (we are on your Elite contact information page) A source on information on Manulife’s products In addition to our wholesalers and our product support teams Especially when your question is “why?” Especially when your question crosses multiple areas of expertise Product and Industry expertise when you need it Drawing on our depth of experience in a variety or roles Case support if/when you need it

Thank you