Update on Current Activities Grant Peters – Chair November 2006 Institute of Actuaries of Australia Life Insurance and Wealth Management Practice Committee (LIWMPC) Update on Current Activities Grant Peters – Chair November 2006

Agenda Industry Experience Investigations Product Rationalisation Legacy Portfolio Management IFRS LIASB Assistance Pandemics and Catastrophe Risk New Regulator Prudential Standards and Practice Guides Other Issues

Industry Experience Investigations Historic studies Lump Sum Investigation covering 1998 - 1999 period released in 2004 Future studies Lump Sum Investigation Disability Investigation covering 1998 - 2001 Preliminary findings presented at IAAust FS Forum in May 2006 Other? (eg trauma, longevity) - Historic lump sum study paper dated 2004 – unclear excact release date Next lump sum investigation (for 2002-2005) currently in very early stages Data request sent to companies but specification may change and updated request will need to be sent Focus at the moment is mainly on the 1998 – 2001 DII investigation Preliminary results released at IAAust Forum but full paper is still to b e released Next DII investigation also for 2002 – 2005 period but has not yet commenced Role of ARCA?

Industry Experience Investigations (cont.) Issues How to get industry to contribute more effectively Future funding of studies Timelines – turnaround and frequency

Product Rationalisation Submission provided to Treasury Role of actuary in customer “equity” issues Define IAAust public policy on product rationalisation Provide input and comment on IFSA and government proposals Produce an actuarial framework for assessing rationalisation proposals Principles outlined in IAAust Treausry paper: Consistency across different legislative environments Simplicity of legislation Consumer safeguards to be included in legisltation (full disclosure, independent arbiter etc) Practical (no lengthy court processes etc) Equity and fairness Transparent Tax neutral New legislation should facilitate meaningful levels of rationalisation Certainty ie. Limited mechanisms for retrospective challenge

Legacy Portfolio Management Regulator interest Assess current actuarial management of closed books Tontine effects Bonus and crediting rate setting Management of guarantees

IFRS Phase I Removal / upgrading of existing Guidance Notes (GN 258, GN259 and GN260) Monitoring of variations in practice Monitoring of issues requiring discussion or guidance Phase II Monitoring developments Note IFRS requirements mandatory for NZ companies from 1/1/07 Non-Australian owned life insurers may still be in process of planning for move to NZ IFRS IAS 12 issue (tax on policy liabilities)

LIASB Assistance Resilience Reserve Taskforce Review of existing basis and parameters Potential alternatives Risk business (including annuities) NZSA GN5 on prudential reserving has been rewritten as PS5 and relased as an exposure draft Changes made for IFRS but Resilience Reserve section has also been updated to include credit risk default factors, credit risk yield movements, change to use of mid swap rate etc ie. Consistent with AS1.04. PS3 on Determination of Life Insurance Policy Liabilities has been updated for IFRS and will become effective from 1/1/07.

Pandemics and Catastrophe Risk Regulator currently surveying market Regulator information paper issued October 2006 Discussion note for Appointed Actuaries? Claims cost impacts? Broader operational and systemic impacts? Public comment and/or research? Stress tests included in regulatory survey: Direct health impacts on population only ie. Assume no change to business and economic factors In addition to (1), include adverse business volume assumptions (persistency, new business) In addition to (2) include adverse economic assumptions – fall in asset prices (equities, bonds, property) In addition to (3) include reinsurance capacity is adversley impacted ie. <100% reinsured claims recoverable

New Regulator Prudential Standards and Guidance New Prudential Standards and Practice Guides for life companies released October 2006 Discussion Paper: Prudential Supervision of Life Companies

New Regulator Prudential Standards and Guidance (cont.) LPS 220: Risk Management LPG 200: Risk Management LPG 230: Operational Risk LPG 240: Life Insurance Risk and Life Reinsurance Management LPG 250: Asset and Liability Management Risk LPG 260: Conflict of Interest under Section 48 LPS 232: Business Continuity Management LPG 232: Business Continuity Management

New Regulator Prudential Standards and Guidance (cont) Other Papers, Standards and Practice Guides Released LPS 510 / LPG 510: Governance (May 2006) LPS 520 / LPG 520: Fit and Proper (March 2006) Information Paper: Pandemic Planning (October 2006) LPS 231 / PPG 231: Outsourcing (October 2006)

Other Issues PS 200 Review Superannuation Reforms External Peer Review GN552 / GN252 Review Target Surplus – discussion note Unit Pricing GN552/252 relevant:: NZSA released guidelines for development of professional standards in May 2006. - Professional standards committee established as a result of this - Note also new NZSA Code of Conduct effective from 1 October 2006. Includes requirement that all firms employing NZSA members have a “Nominated Member” similar to Senior Actuary in Australia.

Other Issues (cont.) Solvency II Education Programme – volunteers Member Communications – briefing sessions, website minutes

Other Issues (cont) Potential Wealth Management Topics Distribution economics (including structure of remuneration) Risk capital techniques Product profitability Value based management Reverse mortgages / Retirement income products

Other Issues (cont) Potential Research Topics Correlation of assumptions to external factors (eg. economic cycles) Greater use of statistical techniques Impact of genetic advances of life company claims Retirement income solutions Longevity risk Operational Risk Genetic testing – see below for relevant NZ information The Human Right Commission has taken its review of the rules around life insurance a step further and is asking the industry a number of questions including whether there should be a new set of rules around genetic testing. Wednesday 08 November 2006 In a recent discussion paper it noted that recent advances in genetic testing raise significant human rights issues for insurers. In New Zealand there is a voluntary moratorium on genetic testing. An insurer is entitled to know the result of a test if an applicant for insurance has taken one, but is not allowe3d to ask to take a test as part of their application process. The commission is asking whether this is satisfactory or if other measures should be adopted. Among these is the idea that there could be legislation prohibiting or controlling the use of genetic tests or genetic information obtained in clinical or research tests. The commission is also addressing the rules around who insurers can cover. Currently life insurers have an exemption from the act and can discriminate by offering different terms to people if there is actuarial or statistical data to back up the decision. If no such data is available the insurer can base its decision on reputable medical or actuarial advice or opinion. However there is some confusion over what is reasonable, which the commission wants to clarify. Other issues raised in the paper are whether reinsurers should remain exempt from the Human Rights Act and how mental illness is treated by insurers.