1. 2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) 2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires Session: Impact of the Recession on Health and Dental Experience Speakers: Charlie Philbrook, Ken Fraser

2. Recession and Medical/Dental Results Data Sources – Fraser Group Quick Profitability Survey Sources of Profit Survey – Statistics Canada Gross Domestic Product Unemployment Rate 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

3. Quick Profitability Survey Survey of Group carriers Data from 1992 to 2008 A simple question? Were your results satisfactory in Health? – Yes/No 2008 data from 17 companies, 91% market share 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

4. Sources of Profit Survey Survey of Group carriers Data from 1996 to 2008 Profit as Percent of Revenue 2008 data from 12 companies, 81% market share 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

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13. Conclusion No obvious relationship of Medical/Dental results to macro economic 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

14. But we all believe there is one. Why can’t we see it? 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

15. In summary Our historical data does not show a causal relationship between macro economic measures and the broad direction of medical/dental financial results. Internal industry factors, such as consolidation or new pharma products, appear to have a much stronger influence. 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

16. In summary However, there is other evidence linking short term changes in economic activity to adverse medical/dental results. 2009 Annual Meeting Assemblée annuelle 2009 2009 Annual Meeting Assemblée annuelle 2009

17. Sources –Quick Profitability Survey Fraser Group –Sources of Profit Survey Fraser Group –Statistics Canada. Labour Force Historical Review 2007 (Table Cd1T46an). Ottawa, Statistics Canada, 2008 (Cat. No. 71F0004XCB). –Real Gross Domestic Product (GDP) per capita, Canada, 1981-2007 HRSDC calculations based on 1) Statistics Canada. Gross Domestic Product (GDP), expenditure-based, provincial economic accounts, annual (CANSIM Table 384-0002). Ottawa: Statistics Canada, 2008; and 2) Statistics Canada. Estimates of population

18. Impact of Recession on Dental Claims Impact of Recession on Health Claims Digging Deeper Plan Sponsor Reactions Fraud in a Recession 2009 General Meeting Assemblée générale 2009 One Company’s Experience

19. Question Would layoffs, or even the fear of layoffs, create an environment where plan members & spouses/dependents increased their use of group benefits? 2009 General Meeting Assemblée générale 2009

20. “Use it before you lose it” The Globe and Mail Feb 9, 2009 “Job seem precarious these days? Quick! Scramble to the dentist, cram in that last massage and stock up on prescriptions while you still can. Canadian eyeglass companies, masseuses and dentists are reporting a bump in traffic as more people get pink slips, anticipate layoffs or calculate that their employers will soon trim group benefit plans.” “Some are getting two pairs, three pairs... they're getting as much as their coverage will allow. They're using it before they lose it.” VP Operations, Hakim Optical 2009 General Meeting Assemblée générale 2009

21. Contact Centre Inquiries The leading indicator? 2009 General Meeting Assemblée générale 2009 June Impact to 12-mth rolling avg

22. Dental Claim patterns Trend 2009 General Meeting Assemblée générale 2009

23. More Frequent Claims Dental 2009 General Meeting Assemblée générale 2009 Increase

24. No Change in Claim Size Dental 2009 General Meeting Assemblée générale 2009

25. Dental Trend is High Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

26. Health Claim patterns Trend Health sub-categories 2009 General Meeting Assemblée générale 2009

27. More Frequent Claims Non-Drug Health 2009 General Meeting Assemblée générale 2009 Increase

28. Smaller Claims? Non-Drug Health 2009 General Meeting Assemblée générale 2009

29. Non-Drug Health Trend Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

30. All Health Trend Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

31. Vision Trend Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

32. Drug Trend Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

33. Hospital Trend Year-over-Year Trend Sep 2009 Jan 2008 2009 General Meeting Assemblée générale 2009 Sep 2008

34. Digging Deeper Average age Loss of Co-ordination of Benefits (COB) Acceleration of benefits Benefit maximums 2009 General Meeting Assemblée générale 2009

35. Average Age In our <25 life segment, average age has increased from 44.98 in June 2008 to 45.75 in June 2009, a 0.76% increase Statistics Canada data suggests the average age of the working population (ages 20-65) is currently increasing 0.14% per year We typically see 0.10%-0.20% on our block 5% of these groups had an increase of 5+ years Rate ImpactsLTDLifeDrug +1 avg age+6%+10%+2% +5 avg age+35%+50%+9% 2009 General Meeting Assemblée générale 2009

36. Loss of COB 2009 General Meeting Assemblée générale 2009 Sep 2007 Oct 2009 Sep 2008

37. Loss of COB 2009 General Meeting Assemblée générale 2009 Sep 2007 Oct 2009 Sep 2008

38. Other Contributing Factors Acceleration of benefits –People are going for procedures earlier in their plan years –Trend could revert back to normal, or even reverse, if this is the only factor influencing the higher volumes –“People tend to push forward timelines…those who were putting off going back for a recall at their dentist or going to their chiropractor, for example, suddenly schedule them all in.” 1 Benefit maximums –As maximums are hit, could we see negative year-over-year trend? –Drugs don’t have maximums 1 – “Use it or lose it”, The Globe and Mail, Feb 9, 2009 2009 General Meeting Assemblée générale 2009

39. Plan Sponsor Reactions More groups going to market –Both clients & brokers are initiating Plan amendments –10%-15% increase in amendment activity Higher coinsurance Higher deductibles Removal of Dental Reduction to termination ages 2009 General Meeting Assemblée générale 2009

40. Fraud in a Recession 2009 General Meeting Assemblée générale 2009

41. Fraud in a Recession OpportunityPressureRationalization millions of transactions easy to duplicate receipts no fear of consequence not aware of detection measures already tried small without getting caught sophisticated schemes reduce the risk of getting caught job loss notices fear of job loss reduction in income investment losses providers are trying to make-up for a reduction in non- insured customer volume everyone does it not my fault the economy is bad, so I’ll recover my losses thru fraud victimless crime just protecting my family entitlement 2009 General Meeting Assemblée générale 2009

42. Fraud in a Recession No noticeable increase in total case counts Higher cases referred for criminal charges 2009 General Meeting Assemblée générale 2009 YearCases referred for criminal charges 200610 20076 20086 2009 (ytd)21

43. Questions? 2009 General Meeting Assemblée générale 2009