Briefing to NPP BOD 22 October 2004 SISIP Financial Services Life Insurance Program Review

PURPOSE The NPP BOD Special Committee report back on CAR sustainability

SISIP FINANCIAL SERVICES (FS) (Exclusive to military community) Insurer: Maritime Life SISIP Proper 2003 Assets: $344M TB Supported Plans 2003 Assets: $380M Survivor Income BenefitLong Term Disability Plans Optional Term Life InsuranceGeneral Officers’ Insurance Plans Spousal Disability Insurance Financial PlanningSISIP DND Supported Plans (new 2003) Financial Counselling and Education Accidental Dismemberment Program CFPAF Programs 2003 Assets: $15M

NPP BOD 7 July 2004 Summary of Presentation OGTI/RTIP Pricing Review Findings Existing CAR not financially sustainable Introduction of a new CAR Financial grid of options for existing CAR

NPP BOD 7 July 2004 Records of Decision One plan (OGTI) not to subsidize another (CAR) and terminate current premium transfer New CAR self-sustaining SISIP FS should generate income for extra-ordinary activities NPP BOD Special Committee

NPP BOD Special Committee CAR Sustainability ADM(HR-Mil) – Chair ADM(Fin CS) DND/CF LA CFPSA Pres and CEO CFCWO

Special Committee Meeting 21 September 2004 Develop options for NPP BOD discussions Assume implementation of new OGTI/RTIP premium rate schedule for simulation purposes Assume $5M extraordinary expenses per year

Special Committee Meeting 21 September 2004 Today: $2.5Mon M&W grants $1.2Mon FP $1.0Mon Youth Program $100Kon Volunteers’ Recognition Program $50Kon CF Sports Awards ceremony ______ $4.85M

OGTI/RTIP Pricing Review Summary Reference Point Value added to participants

Term Insurance Rate Comparison SISIP vs. Individual Term 10 Rates Monthly rates per $10,000 for a face amount of $200,000 Non-Smoker OGTI/RTIPProposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted) AgeCurrent Rates Proposed Rates Proposed vs Current OGTI vs Reference point <25$ %-27.6% 25 – 29$ %-31.4% 30 – 34$ %-23.8% 35 – 39$0.85$ %-10.0% 40 – 44$1.15$ %-10.4% 45 – 49$1.75$ %-8.3% 50 – 54$2.80$ %-1.9% Weighted Avg -15.3%

Term Insurance Rate Comparison SISIP vs. Individual Term 10 Rates Monthly rates per $10,000 for a face amount of $200,000 Smoker OGTI/RTIPProposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted) AgeCurrent Rates Proposed Rates Proposed vs Current OGTI vs Reference point <25$ %-21.9% 25 – 29$ %-20.6% 30 – 34$ %-15.5% 35 – 39$1.40$ %-7.6% 40 – 44$1.95$ %-0.7% 45 – 49$3.15$ %+9.6% 50 – 54$4.90$ %+8.5% Weighted Avg -8.3%

OGTI/RTIP Review Findings OGTI/RTIP programs compare very favourably with PSMIP and PSAC programs Value added features not in pricing comparison: - flexible underwriting - underwriting/adjudication final decision - no exclusions - provincial sales tax payments - no occupational limitations New accidental dismemberment benefit for injuries no-attributable to military service

OGTI/RTIP Review Findings Net Income would decrease from approx. $3.7M to approx. $2.0M annually Premium decrease and new accidental dismemberment coverage would be a very positive outcome for CF serving personnel

CAR Review Way Ahead Implement a new CAR Amend existing CAR

CAR Considerations Legal risk  Cannot terminate paid-up certificates  May increase premiums  Premium subsidy: premium increase or program design change

CAR Considerations Legal risk  Serving and former members expectations for existing CAR  SISIP FS capital or income use for extraordinary expense programs

SISIP FS has a legacy/ethical and a potential funding responsibility Financial and capital requirements (committed capital and war risk reinsurance potential requirements) CAR Considerations

Communication plan challenge, but:  4 CAR premium decreases totalling over 50% for non-smokers between  Never a CAR premium increase in over 20 years  Paid-off certificate is a free benefit  Program too heavily subsidized CAR Considerations

Present value of losses for next 40 years is $141M Would require a 77% increase to be cost neutral Option to switch to new CAR CAR Considerations

Self-sufficient financially Same premiums as OGTI/RTIP up to age 60 No premium subsidy starting at age 55 Optional 10% paid-up certificate New CAR Program

CAR Review Amend existing CAR program  Develop options to increase premiums (options can be phased-in)  Option to join the new CAR  Potential limitation of the subsidy starting at age 55 for current CAR participants under 50 yrs old

CAR Review CAR premium subsidy  Subsidy for age bands and for those with 5 yrs military service  Monthly rates per $10,000 of coverage: 55-59: $3.60 vs $4.35 ($0.75) 60-64: $4.30 vs $5.85 ($1.55)  Currently 27,500 participants in existing CAR less than 50 yrs old + 5 yrs military service  Limitation of subsidy: premium increase or program design change  Limitation of subsidy approx. 10% premium increase

Existing CAR Option #1 Larger premium increase 40% Advantages Probably no further increases required Less capital used for liabilities Disadvantages Larger increase for participants Difficult communication plan considering current capital and future income Greater risk of legal challenge

Existing CAR Option #2 Smaller premium increase: 10% Advantages Financial impact smaller for participants Less likely of legal challenge Further increases may be necessary Disadvantages Larger use of capital

Existing CAR Option #3 Medium premium increase: 20% + review in 5 yrs Advantages Perhaps no further increases required Less capital used for liabilities Disadvantages Medium increase for participants Less difficult to communicate Smaller risk of legal challenge

SISIP FS Life Insurance Review Way Ahead Formal legal risk assessment Develop action plan for tentative implementation 1 July 2005

SISIP FS Life Insurance Review NPP BOD Decision Required The NPP BOD is requested to approve from options presented, and subject to a formal legal risk assessment: 1.A new OGTI/RTIP premium rate schedule and a new accidental dismemberment coverage; 2.A new CAR program; and

SISIP FS Life Insurance Review NPP BOD Decision 3. A program adjustment to the existing CAR program which includes an increase in premiums, the potential limitation of the premium subsidy at age 55 for participants under 50 years old, and an option for participants to transfer to the new CAR program.