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 Update on Mortality Improvement Sub-committee Goal: Propose mortality improvement basis for annuity and life insurance valuation Sub-Committee Members: – Marc-Andre Belzil, Jacques Boudreau, Edward Gibson, Claude Normand, Helene Pouliot, Les Rehbeli, Mario Robitaille 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

3 Update on Mortality Improvement Sub-committee Current draft of proposal: – Best estimate improvement scales would be the same for life insurance and for annuity business – Mortality Improvement assumption would have its own MfAD (insurance and annuity MfADs would be in opposite directions, special consideration for death supported insurance policies) – Mortality improvement rates based on Hardy’s paper (Data from 1921 to 2002) 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

4 Historical Mortality Improvement Rates: Hardy Study Population Data ( ) 2007 Annual Meeting Assemblée annuelle 2007

5 Draft Proposal for Mortality Improvement Population data over maximum duration better source than insurance or annuity study data (which are less reliable and have more influences, such as underwriting improvements over time) Rates will be the same for males and females (more on this shortly) Improvement rates for first 25 years only, then set to 0% Introduce concept of “hedge” credit for companies with blends of insurance and annuity business 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

6 Draft Proposal for Mortality Improvement Why unisex rates? – Menard/Wade Report released in May 2007 – Uses population data – Shows mortality improvement rates over various time periods – For longer durations (e.g. 70 years) female rates higher than male rates; for shorter durations (e.g. 10 years) the converse is true 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

7 Historical Mortality Improvement- Males* 2007 Annual Meeting Assemblée annuelle 2007 * Source: Menard/Wade Report

8 Historical Mortality Improvement- Females* 2007 Annual Meeting Assemblée annuelle 2007 * Source: Menard/Wade Report

9 Historical Mortality Improvement Rates: Hardy Study ( ) vs Proposed Best Estimate 2007 Annual Meeting Assemblée annuelle 2007

10 Mortality Improvement, Menard/Wade vs Proposed Best Estimate 2007 Annual Meeting Assemblée annuelle 2007

11 Mortality Improvement, Menard/Wade vs Proposed Best Estimate 2007 Annual Meeting Assemblée annuelle 2007

12 Mortality Improvement, Menard/Wade vs Proposed Best Estimate 2007 Annual Meeting Assemblée annuelle 2007

13 Draft Proposal for Valuation Life Insurance mortality improvement: – Maximum improvement rates are equal to 50% of best estimate rates (effectively a 50% MfAD on the improvement rate) – Maximum duration of improvements is 25 years – Special consideration for death supported policies Annuities mortality improvement – Minimum improvement rates are 150% of best estimate rates – Minimum duration is 25 years 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

14 Mortality Improvement Rates 2007 Annual Meeting Assemblée annuelle 2007

15 Annuity Valuation Mortality Improvement Rates 2007 Annual Meeting Assemblée annuelle 2007

16 Final Comments Proposed change for life insurance business would require a change in the Standards of Practice – currently 100% of mortality improvement must be in MfADs Proposed change for annuities would be simpler but sub-committee feels it is better to implement both at the same time, as they are inter-related – therefore unlikely to have any changes for 2007 valuation 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

17 Final Comments Proposed change has had limited review from CLIFR, but has not yet been endorsed and is still in early draft stage – Comments from the industry are very welcome Limited testing (2 to 3 companies) indicates material increases to annuity reserves (3% to 5%) and material decreases to life insurance reserves (1% to 2%, but highly dependent on business mix) – We invite CIA members to conduct further testing and to send us your results 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007