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

IP-5 LTC Insurance The Beginnings of a Market in Canada 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Long Term Care Insurance Saul Gercowsky AVP & Pricing Actuary, Living Benefits Manulife Financial June 28, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Agenda Past Sales Future Potential 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Source: Statistics Canada, LIMRA

2007 Annual Meeting Assemblée annuelle 2007 Source: LIMRA In-Force

2007 Annual Meeting Assemblée annuelle 2007 Source: LIMRA Sales

Why LTCI? In 2006, almost 2.3 million seniors had long-term health conditions. Asset and income protection Quality and choice of care Avoid being a burden on family 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Source: Statistics Canada, LIMRA

2007 Annual Meeting Assemblée annuelle 2007 Source: Statistics Canada Demographics

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Questions?

Long Term Care Insurance Anke Roman Director, Individual Health Pricing Sun Life Financial June 28, Annual Meeting Assemblée annuelle 2007

Agenda The Need for LTCI Barriers to Sales The Value of Insurance 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

2007 Annual Meeting Assemblée annuelle 2007 At age 65, the lifetime probability of developing either a need for help with two or more activities of daily living for at least 90 days or a cognitive impairment is 44% for males and 72% for females Cohen, Marc A., Maurice Weinrobe, Jessica Miller, and Anne Ingoldsby. "Becoming Disabled After Age 65: The Expected Lifetime Costs of Independent Living," AARP (American Association for Retired Persons) Public Policy Institute, Who will need care?

2007 Annual Meeting Assemblée annuelle 2007 Over the last 20 years, the proportion of individuals age 65 and over increased by 23%. Over the next 20 years, it will reach twice the 1986 level. Over the next 30 years, it is expected to increase by almost 90%. Proportion of individuals age 65+

Who receives care? 7.4% of Canadians age 65 and over live in institutions 31.6% of Canadians age 85 and over live in institutions For those who live in private dwellings (not institutions): 8.7% of men and 12.7% of women age 65 and over receive personal care 30.5% of men and 38.5% of women age 85 and over receive personal care 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 A Portrait of Seniors in Canada: Statistics Canada

Cost of care Facility care: – 24 hour supervision by an RN – $712-$5,500 a month by type of room and province – Waiting lists can be long (one or two years) – Is this where you want to live? Retirement homes: – Accommodation can cost over $5,000 a month – Personal care services may be in addition Home care: – Depends on level of care required – Example: 2 hours nursing care 3 days / week at $40 / hour 2 hours personal care 7 days / week at $20 / hour 3 hours homemaking 4 days / week at $20 / hour Total = $3,293 / month 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 A Portrait of Seniors in Canada: Statistics Canada

2007 Annual Meeting Assemblée annuelle 2007 Government home care spending reached $3.4 billion in 2003/04, an average annual increase of over 9% from 1994/95 Even so, 65% of adults who needed help with eating, bathing or dressing did not receive government-subsidized home care Public-Sector Expenditures and Utilization of Home Care Services in Canada: Exploring the Data, Canadian Institute for Health Information, March Kathryn Wilkins. "Government-subsidized home care" in Health Reports, Vol. 17, No. 4, October 2006, Statistics Canada. Based on 2003 statistics. Government home care spending

Alberta’s aging population In 2003, seniors spent an average of 60% more per person on health care than non- seniors In 2001, 44% of Alberta seniors reported their everyday activities were limited because of a health-related condition or problem According to Alberta Health and Wellness, about 10% of Alberta seniors received home care in 2002/03 and made up 41% of all home care clients 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Source: Alberta Seniors and Community Supports, Fact Sheet: A Portrait of Alberta Seniors, 2006

Home care costs (Alberta) If you have Alberta Health Care Insurance, home care services, up to an assessed amount, are covered to a monthly maximum of $2,950 Housekeeping and companion care service charges apply and are based on income (maximum charge is $300 a month) 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Long-term care facilities (Alberta) $1,205 a month for standard room (four beds) $1,277 a month for semi-private room (two beds) $1,469 a month for private room Plus supplementary service costs like private duty nursing / companion care co-payment for special equipment as covered through the Alberta Aids to Daily Living program glasses/ hearing aids professional health care services not covered by the Alberta Health Care Insurance Plan or an insurer laundry hairdresser services telephone Types of rooms available differ by home 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

Barriers to sales Misconception regarding government coverage Product new and not well known Advisor understanding/buy-in High cost of coverage Competition with other products No premium guarantees U/W seen as painful and complex Bad press 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

2007 Annual Meeting Assemblée annuelle 2007 Age Monthly premium* - low - Monthly premium* - high - Acc Value of avg premium age 65 (3% int a.t.) # of months of care to break even ($3,000/month) , , ,624 4 Value of Insurance (dependent at age 65) * Avg of male/female for typical comprehensive indemnity plan ($100/day, 30 day EP, unlimited BP, no riders)

2007 Annual Meeting Assemblée annuelle 2007 Age Monthly premium* - low - Monthly premium* - high - Acc Value of avg premium age 80 (3% int a.t.) # of months of care to break even ($3,000/month) Placement Ratio , % , % , % , % Value of Insurance (dependent at age 80) * Avg of male/female for typical comprehensive indemnity plan ($100/day, 30 day EP, unlimited BP, no riders)

The Cost of waiting to buy LTCI Monthly premium increases No benefits for early claims Chance of being insurable decreases 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

What are the chances that... We will live long lives with no need for medical intervention or long term care? Our health care system will be able to cover all costs? The price of insurance will be cheaper than it is today? Insurers will liberalize their definitions of dependency? People will become more insurable as they age? 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Questions?

Long Term Care Insurance Frédéric Jacques Director, Living Benefits Munich Re June 28, Annual Meeting Assemblée annuelle 2007

Agenda Product Design Pricing Assumptions LTC Around the World 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Types of Benefits: Indemnity (fixed) Indemnity for formal care (listed and defined) True Reimbursement Payer status must be defined (government, workers compensation) Type of plans Home Care (HC) Only plans Nursing Home (NH) Only plans Comprehensive (HC + NH) “Structured Benefits” – daily benefit varies by type of care 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Benefits triggered on failure of: 2/6 ADLs (Activities of Daily Living) - Bathing- Dressing - Toileting- Transferring - Continence- Eating Cognitive Impairment (except non- organic) 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Benefits qualifier: Daily, weekly or monthly Benefits amount $10 to $330 per day (or weekly/monthly equivalent) Maximum Benefits: Expressed in years Expressed in terms of care days Expressed in terms of cash amount Shared Care Benefits Additional Pool Two Share one Inherit on Death 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Elimination Periods: Range of choice to client 0 (facility) to 180 days Calendar days or care days? Should EP be only paid once? Recurring condition (e.g., 180 days) 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Riders and Options Emergency Response System, Durable Medical Equipment, House Alteration Substitute Services Clause, Alternate plan of care, Caregiver training benefit Bed Reservation Managed Care/Care Coordinator Respite care Restoration of benefits COLA GIO Return of Premium on death Waiver of premiums Spousal discount 2007 Annual Meeting Assemblée annuelle 2007

LTC Product Design Exclusions for Benefits: Regular exclusions, e.g., self-inflicted injury Non-organic cognitive impairment Care for non-recognized institutions or caregivers (e.g., family member) Care outside Canada/US Non-approved types of care, care-givers or facilities Care not certified by physician 2007 Annual Meeting Assemblée annuelle 2007

Features that can present pricing issues: Benefit and Elimination Periods Inflating Benefits Risky Options Limited Pay Survivorship Benefits Shared Benefits Myriad of Options More choices = greater potential for anti- selection LTC Product Design 2007 Annual Meeting Assemblée annuelle 2007

LTC Pricing Assumptions Assumptions Needed Incidence Rates Termination Rates Benefit usage Lapse Mortality (ALR, DLR) Expenses Interest Reserve and Required Capital Distribution  Not a one size fits all. These assumptions and the risk exposure may be different depending on your product design Annual Meeting Assemblée annuelle 2007

Key items impacting pricing / profitability: Lapse Rates Interest/Investment Rates Morbidity Expenses 2007 Annual Meeting Assemblée annuelle 2007 LTC Pricing Assumptions

Canadian market has had the benefit of learning from other countries’ “growing pains” and has avoided some major pitfalls. Canadian market has to learn from other countries’ “success”. Variation in product design that fits the country markets. Canada usually looks south of the border for LTC International Situation of Private LTCI 2007 Annual Meeting Assemblée annuelle 2007

1985 Japan 1989 Israel 1992 Korea, Singapore 1995 Taiwan 1999 (Malaysia) 2000(Bangladesh) 2001(China) 1992 Australia, New Zealand 1991 South - Africa 1974 USA 1992 Canada 1998 Mexico 1995 Argentina 1999 (Columbia) 2005Brasilia 2006 Chile 1985 Germany 1985 France 1988 Spain 1990 Switzerland 1991 Denmark, Great Britain, Luxembourg, Netherlands 1996 Italy 1998 Czech Republic, Malta, Portugal 2001 (Russia) 2006 Ukraine International Situation of Private LTCI 2007 Annual Meeting Assemblée annuelle 2007

US: Reimbursement Tax qualified Cola inflation/GPO Lapse rate Cognitive testing Nursing home usage and ALF France x out of 6 ADL with varying payment level based on severity of ADL Germany Compulsory LTC insurance Supplementary LTC insurance International Situation of Private LTCI 2007 Annual Meeting Assemblée annuelle 2007

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Questions?

IP-5 LTC Insurance The Beginnings of a Market in Canada 2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007