1. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Update from the Committee of the Valuation/Appointed Actuary IFRS Johanne Papillon September 25, 2008

3. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Presentation Outline Background CIA AA Committee and IFRS Objectives of working group Contract classification under IFRS (high level) Key findings and issues Looking ahead Background CIA AA Committee and IFRS Objectives of working group Contract classification under IFRS (high level) Key findings and issues Looking ahead

4. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Background Conversion to IFRS: Jan 1, 2011 Insurance contracts: IFRS 4; keep current basis of accounting until Phase II (effective 2012 or 2013?) Investment contracts: IAS 39 Financial Instruments Service contracts: IAS 18 Revenue (similar to CGAAP)  Most significant impact: Investment Contracts Conversion to IFRS: Jan 1, 2011 Insurance contracts: IFRS 4; keep current basis of accounting until Phase II (effective 2012 or 2013?) Investment contracts: IAS 39 Financial Instruments Service contracts: IAS 18 Revenue (similar to CGAAP)  Most significant impact: Investment Contracts

5. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 IFRS: Double conversion for Insurers Insurance Contracts: CALM Insurance and Investment Contracts: Actuarial Liabilities Investment Contracts: IAS 39 Phase I January 1, 2011: Phase II January 1, 2012, (or later): Insurance Contracts: new IFRS standards (Discussion Paper) Current CGAAP:

6. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 AA Committee and IFRS Want to ensure consistency in contract classification – Or understand going-in key differences and implications Industry to retain control and be ahead of the game Decision to form small working group to focus on Phase I conversion implications Discussions ongoing since Spring 2008 Want to ensure consistency in contract classification – Or understand going-in key differences and implications Industry to retain control and be ahead of the game Decision to form small working group to focus on Phase I conversion implications Discussions ongoing since Spring 2008

7. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Objectives of working group Primary focus on contract classification – Including embedded derivatives, unbundling of deposit component, discretionary participation features Share knowledge and expertise Identify and discuss/debate key issues – Hopefully reach consensus on treatment Keep each other posted on progress Primary focus on contract classification – Including embedded derivatives, unbundling of deposit component, discretionary participation features Share knowledge and expertise Identify and discuss/debate key issues – Hopefully reach consensus on treatment Keep each other posted on progress

8. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Contract classification under IFRS IFRS definition of Insurance Contract: ‘contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.’ Three key criteria: 1) Insured event must adversely affect policyholder 2) Insured benefits must be significant 3) Insurance risk must be non-financial: mortality, longevity, morbidity, P&C risks IFRS definition of Insurance Contract: ‘contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.’ Three key criteria: 1) Insured event must adversely affect policyholder 2) Insured benefits must be significant 3) Insurance risk must be non-financial: mortality, longevity, morbidity, P&C risks

9. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Contract classification (cont’d) Significance of insurance risk: Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance  Probability of insured event is not considered when assessing significance of risk, as long as scenario has “commercial substance”  Insured event with very low probability is Insurance if benefits payable could be significant Significance of insurance risk: Insurance risk is significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance  Probability of insured event is not considered when assessing significance of risk, as long as scenario has “commercial substance”  Insured event with very low probability is Insurance if benefits payable could be significant

10. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Key findings and issues Insurance contracts: Term plans, T100 Par Life, Whole life Universal Life Endowment products / Pure endowments Critical Illness/Health/Disability contracts Long Term Care Group Life and Health insurance (excluding ASO contracts) Reinsurance treaties with “significant” risk transfer Payout immediate/deferred annuities (life contingent) Insurance contracts: Term plans, T100 Par Life, Whole life Universal Life Endowment products / Pure endowments Critical Illness/Health/Disability contracts Long Term Care Group Life and Health insurance (excluding ASO contracts) Reinsurance treaties with “significant” risk transfer Payout immediate/deferred annuities (life contingent)

11. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Key findings and issues (cont’d) Insurance contracts: Seg fund/VA products with GMDB / GMIB / ”For-life” GMWB  GMDB, GMIB or “for life” GMWB represent significant insurance risk Accumulation products/deferred annuities with contractual guaranteed annuitization rates  Guaranteed annuitization rates, even if rarely exercised, constitute significant insurance risk Accumulation products/deferred annuities with Book Value Death Benefit in deferral period  If MVA surrender charge is waived on death and/or disability, this constitutes significant insurance risk Insurance contracts: Seg fund/VA products with GMDB / GMIB / ”For-life” GMWB  GMDB, GMIB or “for life” GMWB represent significant insurance risk Accumulation products/deferred annuities with contractual guaranteed annuitization rates  Guaranteed annuitization rates, even if rarely exercised, constitute significant insurance risk Accumulation products/deferred annuities with Book Value Death Benefit in deferral period  If MVA surrender charge is waived on death and/or disability, this constitutes significant insurance risk

12. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Key findings and issues (cont’d) Investment contracts: Term certain contingent annuities Fixed accummulation annuities which do not contain guaranteed annuitization rates Seg funds with no guaranteed minimum returns Group contracts with strong “hold harmless” provisions (terminal/deficit accounting) Mutual funds / banking products IAS 39 applies:  Potential asset segmentation issues if commingled with assets backing Insurance segments Investment contracts: Term certain contingent annuities Fixed accummulation annuities which do not contain guaranteed annuitization rates Seg funds with no guaranteed minimum returns Group contracts with strong “hold harmless” provisions (terminal/deficit accounting) Mutual funds / banking products IAS 39 applies:  Potential asset segmentation issues if commingled with assets backing Insurance segments

13. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Key findings and issues (cont’d) Service contracts: Group ASO Financial Reinsurance with very limited risk transfers Potentially: mutual funds where company acts as “conduit” / does not have ability to choose/replace investment managers Widely expected that IFRS treatment will be similar to existing CGAAP DAC implications for investment management service contracts Service contracts: Group ASO Financial Reinsurance with very limited risk transfers Potentially: mutual funds where company acts as “conduit” / does not have ability to choose/replace investment managers Widely expected that IFRS treatment will be similar to existing CGAAP DAC implications for investment management service contracts

14. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Key findings and issues (cont’d) Issues currently being discussed: – GMAB/GMWB feature: longevity risk? – Accumulation annuities with MVA waiver on death or survival to a certain date (eg. normal retirement) – Group benefits contracts with terminal accounting: if there is a limit on the number of years of negotiations, could be left with significant losses – Embedded derivatives – Unbundling considerations – Assessment of ceded Reinsurance contracts Issues currently being discussed: – GMAB/GMWB feature: longevity risk? – Accumulation annuities with MVA waiver on death or survival to a certain date (eg. normal retirement) – Group benefits contracts with terminal accounting: if there is a limit on the number of years of negotiations, could be left with significant losses – Embedded derivatives – Unbundling considerations – Assessment of ceded Reinsurance contracts

15. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Looking ahead Working group discussions and findings to be posted on CIA website shortly, via Committee of the Appointed/Valuation Actuary Anyone interested: contact me Hope to see you at this afternoon’s session! Working group discussions and findings to be posted on CIA website shortly, via Committee of the Appointed/Valuation Actuary Anyone interested: contact me Hope to see you at this afternoon’s session!