1. If I were your Actuary Steve Krupicz, FSA, FCIA
AVP Advanced Sales, Actuarial & Underwriting Consulting
Manulife Financial Insurance

2. Agenda Commentary Observations
Responses to questions that I am frequently asked
With a focus on information that may be of value to you in your practices.

3. My background I joined Manulife in May, 1982 35.9 years ago
I have experience in a variety of roles
Corporate
Annuity & Pension pricing
Financial Reporting
Life Insurance Pricing
Inforce Insurance Management
Dividend Actuary
Actuarial Consultant

4. My most common question from people outside the industry
Hey Steve, you probably know something
about insurance. My son/daughter just
graduated from university
(or, I am planning to retire)
and will drop off of my benefit plan.
What are their (my) options?

5. My most FAQ from people who could be your clients!
My observations:
Every person who asked me this question was in their 50’s
Every person who asked me already deals with one or more advisors:
Group benefits
Individual insurance
Savings
Bank(s)
Who has the “trusted advisor” status?

6. My most FAQ from people who could be your clients!
My answers:
Did you check your group benefits plan?
Ask your employer for a booklet and I can help you understand….
Affinity products:
Group coverage through an association
Alumni Associations, Engineers, Accountants, Doctors, CAA, etc.
Follow Me by Manulife
Allows people who are losing group benefits to purchase continuing coverage without evidence of insurability
Regardless of current provider
Individual Health Plans
Flexcare, FollowMe Health, Association Health & Dental Plans

7. My most FAQ from people who could be your clients!

8. My most FAQ from people who could be your clients!

9. My most FAQ from people who could be your clients!
Wholesaler support is available to you
Can help you be the Trusted Advisor
To parents and to the next generation
The same coverage and rates as if the client goes the self-serve route
Commissionable:
20% first year, 5% renewal

10. My most common question from Manulife clients
How was the dividend on my par policy calculated?

11. My most FAQ from Manulife clients
It was set by Manulife (and I can’t give you details).
It was set by Manulife’s Board after evaluating experience in our par business in Canada for all of the factors that contribute to the profit or loss on Manulife’s participating business (i.e. investment return, lapses, mortality, etc.) and due consideration of the need to retain some of this experience as a buffer against future risks.
“Policy dividends” have parallels with shareholder dividends. Both are set by the management of the company after evaluating everything they know about the business. You get the same level of disclosure for both; the amount of the dividend but none of the rationale or calculations.

12. Dividend Formula for Par Policies
Dividend = (DIR – I Gcsv) x Guaranteed Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest rate used in pricing cash values q = mortality rate w = lapse rate

13. My most FAQ by advisors about Manulife par products
What is the
Dividend Interest Rate (DIR) for
my client’s Performax policy?

14. What is Manulife’s DIR for Performax par policies?
My answer to date:
We do not publish our DIR. This is just one number in a complex formula that has no meaning on its own. What is more relevant and meaningful and what I can tell you is the extent to which this number has changed since the policy was issued.
If you give me a policy number, I can provide you with that information.

15. Dividend Formula for Par Policies
Dividend = (DIR – I Gcsv) x Guaranteed Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest q = mortality rate w = lapse rate

16. What is Manulife’s DIR for Performax par policies?
Today, companies design par policies so that DIR’s approximately equal the smoothed investment return on their par fund
Performax was different:
We set a “base rate” that was intended to be 1.5% – 2% lower than smoothed investment returns
8.80% in the late 90’s and early 2000’s
We add different amounts to this base rate to get the DIR for different coverages
Closed Fund Performax policies
Open Fund policies issued before June 2003
Open Fund policies issued
after June 2003
Base Rate
4.55%
4.30%
4.80%
DIR for base insurance coverages
7.45%
7.20%
7.70%
DIR for regular PUAs
6.70%
DIR for Deposit Option coverage
5.45%
5.20%
5.70%

17. Dividend Formula for Open Par Performax Policies issued after June 2003
Dividend = (7.70% – I Gcsv) x Guaranteed Cash Value + (6.70% – I pua) x PUA Cash Value + (5.70% – I DOcsv) x DO Cash Value + (Death Benefit – Reserve) x (qpricing – qactual) + (Reserve – Cash Value) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual) Where: DIR = Dividend Interest Rate I = interest q = mortality rate w = lapse rate

18. My most FAQ by advisors about illustrations
What Performance Credit Rate
(or Dividend Scale) is it reasonable for me to illustrate to my clients?

19. What “scale” to illustrate?
The Performance Credit Rate in Performax Gold is intended to track the smoothed yield of the Performax Gold fund
Can never be set lower than this smoothed yield
Is currently higher for competitive reasons
DIR’s in competing par products are similarly intended to track smoothed investment yield on par funds
With no commitment on minimum levels
My answer:
It can take up to 20 years for a change in investment returns to fully work its way through the different smoothing used by the different companies
What do you think investment returns will average in the future?

20. What “scale” to illustrate?
What if current returns on fixed-interest assets continue into the future?
What do we need the return to be on Stocks and Real Estate to support different scales?
Asset Class
“Current” Yields
Cash (T-Bills)
1.10%
Government Bonds
2.35%
Corporate Bonds
3.50%
Private Placements
4.00%
Mortgages
3.25 – 6.25%
Stocks
let’s calculate
what is needed
Real Estate
“Current” = April 13, 2018;
yields are those on long-term assets (i.e. 10 – 20 years)

21. What “scale” to illustrate?
Distribution of Investable Assets in the Company’s Fund
Asset Class
“Current” Yield
Performax Gold Fund
Company “A”
Company “B”
Company “C”
Cash
1.1%
2.6%
4.1%
3.1% 0%
Government Bonds
2.3%
15.8%
21.2%
16.3%
20.0%
Corporate Bonds
3.5%
19.3%
15.4%
34.8%
25.9%
Private Placements
4.0%
6.1%
17.0%
4.9%
10.6%
Mortgages
4.5%
15.6%
10.9%
21.7%
12.9%
Stocks
T.B.D.
21.1%
13.4%
17.7%
Real Estate
19.5%
16.0%
5.8%

22. What “scale” to illustrate?
What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields)
Desired
PC Rate or DIR
Performax Gold
(39.6% in S & RE)
Company “A”
(31.4% in S & RE)
Company “B”
(19.2% in S & RE)
Company “C”
(30.6% in S & RE)
6.5%
11.1%
13.6%
19.3%
13.5%
6.0%
5.5%
5.0%
4.5%
4.0%

23. What “scale” to illustrate?
What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields)
Desired
PC Rate or DIR
Performax Gold
(39.6% in S & RE)
Company “A”
(31.4% in S & RE)
Company “B”
(19.2% in S & RE)
Company “C”
(30.6% in S & RE)
6.5%
11.1%
13.6%
19.3%
13.5%
6.0%
9.8%
12.0%
16.7%
11.9%
5.5%
8.6%
10.4%
14.1%
10.2%
5.0%
4.5%
4.0%

24. What “scale” to illustrate?
What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes & “current” yields)
Desired
PC Rate or DIR
Performax Gold
(39.6% in S & RE)
Company “A”
(31.4% in S & RE)
Company “B”
(19.2% in S & RE)
Company “C”
(30.6% in S & RE)
6.5%
11.1%
13.6%
19.3%
13.5%
6.0%
9.8%
12.0%
16.7%
11.9%
5.5%
8.6%
10.4%
14.1%
10.2%
5.0%
7.4%
8.8%
11.5%
4.5%
6.1%
7.2%
8.9%
7.0%
4.0%
4.9%
5.6%
6.3%
5.3%

25. What “scale” to illustrate?
What yield must the company earn on Stocks and Real Estate for investment return to support the desired PC Rate or DIR? (based on “current” asset mixes and “current” yields + 1%)
Desired
PC Rate or DIR
Performax Gold
(39.6% in S & RE)
Company “A”
(31.4% in S & RE)
Company “B”
(19.2% in S & RE)
Company “C”
(30.6% in S & RE)
6.5%
9.6%
11.4%
15.1%
11.2%
6.0%
8.4%
9.8%
12.5%
5.5%
7.1%
8.2%
9.9%
8.0%
5.0%
5.9%
6.6%
7.3%
6.3%
4.5%
4.7%
4.6%
4.0%
3.4%
2.0%
3.1%

26. Universal Life guarantees
Can I get a comfort letter for my client stating that the UL illustration, that I ran at the minimum interest rate guaranteed for the product, is guaranteed?

27. Can a Universal Life illustration be guaranteed?
Yes, but this “comfort letter” may not be very comforting
The illustration is not the contract
Client is always free to invest in variable accounts
Illustrations depend on a number of assumptions
Some are explicit (e.g. interest rate)
Some are implicit
There are at least 5 issues/assumptions to consider

28. Can a Universal Life illustration be guaranteed?
Reasons performance can differ from illustrations:
Backdating to save age
Lost investment return because premiums are not backdated
Impacts cost of insurance charges on Level Death Benefit policies
EXACT timing of deposits (to the day)
Potential for changes in Premium Taxes
Or for Sales Taxes
Bonus payments are paid into Savings Account (in InnoVision)
Use auto-transfer form (NN0947) to rectify
Potential for Market Value Adjustments

29. Can a Universal Life illustration be guaranteed?
You can comfort clients with the information we present in our UL statements:
Rate of Return reported at account level and total policy level
Using same method as the interest rate in an illustration
An easy gauge of performance
Anniversary values compare to illustration values
Death benefit
Cash Value
Account Value

30. Whole Life policy performance
Why are the values in my whole life
(par or non-par) policy lower than what I illustrated even though the scale has not changed?
(new sale or inforce)

31. How can performance be different when the scale has not changed?
Answer = Premiums
Amount or timing
The Cash Values (used in the dividend formula) are affected by the timing of premiums
Especially for optional deposits
Div. = (DIR – I Gcsv) x Gtd Cash Value + (DIR – I pua) x PUA Cash Value + (DIR – I DOcsv) x DO Cash Value + (D.B. – Reserve) x (qpricing – qactual) + (Reserve – CV) x (wactual – wpricing) + (Capitalpricing – Capitalactual) + (Taxes pricing – Taxes actual) + (Expenses pricing – Expenses actual)

32. Steve, be honest, what’s better, Par or Nonpar?
The question I’ve been asked since Performax Gold was launched in 2008?
Steve, be honest, what’s better, Par or Nonpar?

33. Par or Nonpar? My answer = neither is universally better.
Both types of products have horror stories that we could share
Both types of products have success stories too
In general:
Par is an adjustable product where experience is flowed through to clients via policy dividends
Less guaranteed and less guarantee-able
Non-par products may or may not be adjustable
Adjustability is typically constrained in some fashion
More guaranteed components and more guarantee-able

34. The most common question about my role at Manulife?
So what does an actuarial consultant do and why would I ever need you?

35. When would I contact an actuarial consultant?
Actuarial Consultants (Steve Krupicz in Waterloo & Bill MacMillan in Winnipeg):
If you are an Elite advisor
Our primary clients (we are on your Elite contact information page)
A source on information on Manulife’s products
In addition to our wholesalers and our product support teams
Especially when your question is “why?”
Especially when your question crosses multiple areas of expertise
Product and Industry expertise when you need it
Drawing on our depth of experience in a variety or roles
Case support if/when you need it

36. Thank you