1. Medical Underwriting Workshop Group A Isabelle Dailly Regional Underwriting Consultant

2. Goals today: Goal #1 – for you to become familiar with the underwriting tools (i.e. APS, blood tests, etc.) Goal #2 – experience “underwriting subjectivity” and see how this plays such a large role in many underwriting decisions Goal #3 – Lots of case discussion and above all, have fun!!!!

3. Purpose of underwriting: Issue (approve) profitable business in the most efficient manner Remove (decline) risks that are non-profitable and those that are potentially non-profitable Issue substandard risks with a rating that will offset any expected increase in mortality

4. Realities about the underwriting process…. Both a science and an art, but often subjective – different underwriters will look at things in different ways While the underwriting manual provides suggestions regarding requirements and medical extras, the final underwriting decision must always take “the big picture” into consideration

5. From a career perspective: Any of your decisions may be reviewed by other underwriters during an in-house or reinsurance audit, or with certainty, at the time of an early death claim Deemed errors in judgment, omissions and poor service may (will) have an affect on your livelihood

6. The case under consideration: Tom (age 69) and Sue (age 68) Black own a sawmill and lumber plant in Ontario - neither are currently active in business 2 sons manage the business Approximate FMV of company $10 million Estate freeze completed in October 2002 (frozen value $7 million) – sons hold new common shares Each son has applied for $1 million of joint- last coverage on parents – “ownership may be transferred to company at a later date”

7. Financial Underwriting Company’s net income after taxes plus 50% management bonuses = $1,200,000 Company valuation – 10X or $12 million Case is OK financially

8. Step 1 - Review evidence required to make decision: Application Medical exam Attending physician’s statement Blood profile and urinalysis ECG MVR

9. Review of underwriting requirements Today we will be dealing with a complete file on an actual case Document any information that is pertinent to the risk assessment Medications, significant medical history, etc.

10. Take 15 minutes… For Sue Black As a team, review application and medical information applicable to Sue. Document pertinent underwriting facts and determine your final decision. Would you like to approve, rate or decline this risk?

11. Tips -Good cholesterol / Bad cholesterol -Reading your manual -Remember to look at everything: application, medical, blood test, APS and your underwriting manual

12. How do you feel about Sue as a life insurance risk?

13. Underwriting concerns: Mildly elevated liver function study (AST – 49) and elevated HDL cholesterol (107) – are they related to alcohol consumption? Numerous traumatic injuries – cause? Alcohol related? Severe osteopenia and numerous injuries – potential fall and hip fracture risk?

14. Industry survey Case sent to 12 direct/reinsurance underwriters with 20+ years experience and 1 medical officer 9 declined 4 rated - 200% average

15. Take 10 minutes… For Tom Black As a team, review medical requirements, document pertinent underwriting facts and determine your final decision. Would you like to approve, rate or decline this risk?

16. How do you feel about Tom as a life insurance risk?

17. What would my decision be? This is not a subjective scenario - outright decline – probably should have been underwritten on a trial basis Combination of coronary artery disease and diabetes is a poor risk Combination of diabetes and alcohol is a poor risk Poor control of diabetes, apparent alcohol abuse, and CAD - Tom represents an uninsurable insurance risk

18. Underwriting subjectivity Now that we know a little bit more about Tom, does anyone want to revisit any approved or rated decisions on Sue?

19. What would final decision be? Very uncomfortable with the entire picture I would decline both Sue and Tom Suggest send case to all treaty reinsurers to see if any will consider – model product around any successful offer received, but manage advisor’s expectations that it is “unlikely we will obtain an offer” No “concrete” evidence that there is an issue with Sue, but bad “gut feel” Possible anti-selection ownership

20. Reinsurance decisions – reviewed both lives Reinsurer 1 – Regret, prefer to decline Reinsurer 2 – Regret, prefer to decline - not willing to reconsider Reinsurer 3 – Regret, prefer to decline Reinsurer 4 – Regret, prefer to decline

21. Options for advisor Send case to additional direct companies Since Tom is obviously uninsurable, submit an application on Sue on a single-life basis Direct company may inquire as to why Sue was declined Request letter be sent to Dr. Lay regarding our declined decisions?

22. Conclusions: Underwriting is both a science and art - underwriting decisions are always subjective in nature “Gut feel” may play a factor Your decision on any one case is never 100% correct but the average mortality on all business underwritten should reflect anticipated mortality The underwriting process must balance issuing profitable business with our obligation to provide timely service and at all times maintain excellent relationships with our producers

23. Questions?