CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006  Les 29 et 30 juin 2006 Ottawa, Ontario Individual & Group Style Pricing

Presenter: Alethea Lyn, FSA Pricing Actuary, Individual Living Benefits The Great-West Life Assurance Company Living Benefits Session GRP/IND-5 CIA Annual Meeting  Assemblée annuelle de l’ICA

OUTLINE OF PRESENTATION 1.Review of individual Living Benefits product features and market. 2.Recent trends in the marketplace. 3.Challenges in pricing and marketing individual Living Benefits products. 4.Future direction for Living Benefits products. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA INDIVIDUAL LIVING BENEFIT PRODUCT FEATURES Session GRP/IND-5 Individual Critical IllnessIndividual Disability Income Satisfies definition from a list of covered conditions. Satisfies definition of disability. Single lump sum benefit payout.Periodic benefit payout. 10-year renewable or level premium payment pattern. Level premium payment pattern. Limited period or lifetime benefit period. Limited period benefit period.

CIA Annual Meeting  Assemblée annuelle de l’ICA INDIVIDUAL LIVING BENEFIT PRODUCT FEATURES contd. Session GRP/IND-5 Individual Critical IllnessIndividual Disability Income Predominantly non-cancelable.Non-cancelable, guaranteed renewable and cancelable. Return of Premium Rider triggers on surrender or maturity. Return of Premium Rider triggers on survival period without claim. Predominantly fully underwritten products. Fully underwritten, simplified issue or guaranteed standard issue products.

CANADIAN LIVING BENEFITS MARKET New Business Annualized Premium Source : LIMRA Surveys

CIA Annual Meeting  Assemblée annuelle de l’ICA INDIVIDUAL LIVING BENEFIT MARKET Session GRP/IND-5 Individual Critical IllnessIndividual Disability Income Many insurance providers.5 major insurance providers new business premiums were $82 million new business premiums were $64 million. In force business premiums as at the end of 2005 were $288 million. In force business premiums as at the end of 2005 were $735 million. Source: December 2005 LIMRA Reports.

CIA Annual Meeting  Assemblée annuelle de l’ICA INDIVIDUAL LIVING BENEFIT MARKET TRENDS Session GRP/IND-5 Individual Critical IllnessIndividual Disability Income 2005 new premium growth was 1% (vs. 11% in 2004) new premium growth was flat (vs. -8% in 2004) new policy growth was -3% (vs. 3% in 2004) new policy growth was flat (vs. -3% in 2004). Premium rates increased, average policy sizes dropped and the take-up rate on Return of Premium riders continues to be strong. Slow reversal in the market decline combined with a shift from non-cancelable products to cancelable products. Source: December 2005 LIMRA Reports.

CIA Annual Meeting  Assemblée annuelle de l’ICA CHALLENGES IN PRICING INDIVIDUAL LIVING BENEFITS PRODUCTS 1.Morbidity. 2.Lapses. 3.Interest. 4.Expenses. 5.Capital. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA PRICING CHALLENGE #1: MORBIDITY Individual Critical Illness 1.No credible company or industry incidence experience: Rely on Canadian population data adjusted for insurance. 2.Changes in medical procedures and technology: May result in adjustments to incidence rates (and definition revisions). Individual Disability Insurance 1.Credible incidence and termination experience may be lost for breakdowns by pricing component. 2.Outdated industry experience study (1985 CIDA tables). Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA PRICING CHALLENGE #2: LAPSES Individual Critical Illness 1.No credible company lapse experience: Rely on experience from individual life and disability products, adjusted for the nature of the critical illness product. 2.Lapse-supported product: Higher lapse rates will improve profitability. 3.Return of premium on surrender rider: Very sensitive to lapse assumption. Individual Disability Insurance 1.Credible lapse experience may be lost for breakdowns by pricing component. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA PRICING CHALLENGE #3: INTEREST Individual Living Benefits Products 1.Low interest rate environment: Lower interest rates will reduce profitability and increase pressure on premium rates. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA PRICING CHALLENGE #4: EXPENSES Individual Living Benefits Products 1.Difficult to determine whether the allocation of expenses for breakdowns by pricing component are appropriate. Individual Critical Illness 1.Partial recovery of overhead: The critical illness product has not yet reached critical mass and may not currently be able to recover all overhead expenses allocated to the line of business. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA PRICING CHALLENGE #5: CAPITAL Individual Critical Illness 1.Life or Accident and Sickness product. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA CHALLENGES IN MARKETING INDIVIDUAL LIVING BENEFITS PRODUCTS 1.Lack of broker education: disability and critical illness insurance complement each other. 2.Acceptance by the public: need to educate public on the need for Living Benefits products. 3.Complicated products: product features; underwriting process; claims approval process. 4.Expensive: client needs vs. limited client dollars. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA FUTURE DIRECTION FOR LIVING BENEFITS PRODUCTS Desirable Product Features 1.Simplify product features. 2.Reduce price. 3.Shorten underwriting process. Potential Future Enhancements 1.Simplified issue products. 2.Guaranteed standard issue. 3.Group insurance. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA SIMPLIFIED ISSUE PRODUCTS Product Design 1.Simplified underwriting process. 2.Eliminate product guarantees. 3.Basic insurance coverage. 4.Lower benefit amounts. 5.Limit issue age ranges. 6.Pre-existing condition exclusion. 7.Levelize compensation structure. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA SIMPLIFIED ISSUE PRODUCTS Pricing Considerations 1.Morbidity: simplified individual underwriting vs. insurance coverage limitations. 2.Lapses: impact of occupation class on lapse rates. 3.Interest. 4.Expenses: lower underwriting expenses and compensation. 5.Capital: may recognize some capital relief by removing product guarantees. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA GUARANTEED STANDARD ISSUE Product Design 1.Issue standard individual policies to select groups. 2.Eliminate product guarantees. 3.Minimum group size. 4.Participation Rates: mandatory vs. voluntary. 5.Limit benefit amounts based on group characteristics. 6.Limit issue ages. 7.Actively at work requirement. 8.Pre-existing condition exclusion. 9.Premium discounts and first year compensation cuts. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA GUARANTEED STANDARD ISSUE Pricing Considerations 1.Morbidity: group underwriting with pre-existing condition exclusion; anti-selection when employee leaves group. 2.Lapses: impact of occupation class on lapse rates; employee behaviour on leaving group. 3.Interest. 4.Premium Discounts: offset by first year compensation cuts. 5.Expenses: lower underwriting expenses. 6.Capital: may recognize some capital relief by removing product guarantees. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA GROUP INSURANCE Product Design 1.Issue annually renewable coverage to groups. 2.Minimum group size. 3.Participation Rates: mandatory vs. voluntary. 4.Basic insurance coverage. 5.Limit benefit amounts based on group characteristics. 6.Limit issue ages. 7.Actively at work requirement. 8.Pre-existing condition exclusion. 9.Level compensation structure. Session GRP/IND-5

CIA Annual Meeting  Assemblée annuelle de l’ICA GROUP INSURANCE Pricing Considerations 1.Morbidity: group underwriting with pre-existing condition exclusion. 2.Lapses. 3.Interest. 4.Expenses: lower expenses than individual insurance. 5.Capital: will recognize capital relief because there are no product guarantees. Session GRP/IND-5