1. 2007 General Meeting Assemblée générale 2007 Montréal, Québec 2007 General Meeting Assemblée générale 2007 Montréal, Québec Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires IP-37 Group Life Capital John Have, FSA, FCIA

2. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Group Life Volatility Volatility for Specfic SET S = 2.5 x A x B x E / F A – Std Dev next yr’s exp claims B – Max(ln(D1),1) of exp claims - for prem guar period E – Net amt at risk (Face – Reserve) F – Face Amt 2.5 is CTE(95%) ≈ Normal Dist 97.5% + margin (ie: ongoing risk)

3. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Standard Deviation Group Life b - certificate amount q - certificate mortality rate

4. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 2008 GL Approximations #1 b but no q (no detail age and gender) C – next year’s expected claims F – total insurer amount

5. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 2008 GL Approximations #2 No detail q or b n – number of insured lives N – number expected deaths And k is evaluated from comparison SET

6. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Other 2008 GL Approximations #3 C, F and n known #4 Only C known

7. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Limitation on the use of K If number lives exceed comparison set must use intercompany value of K. Intercompany K will be developed by using detailed GL bill data from 6-8 insurers plus a margin. Allowed for both regular GL and AD&D K potential values of 1.25 to 2.50

8. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 2008 AD&D Volatility Approx k - from related GL portfolio

9. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Total Insurer Volatility Combined Volatility component for all basic death and AD&D products. - Both Group and Individual SETs

10. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Catastrophic Component E – net amount at risk F – face amount Use.10 if rate guaranteed >1 year Catastrophic Component for each SET

11. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Sample GL MCCSR Values Expected claims (net of reinsurance) $1,132K A: STD of expected claims 325 MCCSR = 2.5 x A +.05 x claims 869 A: Using average b and q 256 K:1.27 MCCSR: approx #1 859 MCCSR: approx #2 887 MCCSR: approx #3 1,240 MCCSR: approx #4 1,247 MCCSR: “39” approx 949 100% MCCSR before diversification adjustment 15,294 employees with $920 million coverage Reinsurance above $200K

12. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Total Insurer MCCSR (100%) Combined Volatility and CAT component for all basic death and AD&D products. Both Group and Individual SETs The Catastrophic component is LINEAR BUT The Volatility component is GEOMETRIC

13. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 GL VolatilityAttribution back to Group If we have 9 mortality SETs each with S = $10M Total S =30M or 33.3% of Sum individual Ss If we have 10 mortality SETs each with S = $10M Total S =31.6M or 31.6% of Sum individual Ss Do you you use: attribution ratio OR marginal basis for the last SET to be added?

14. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Future MCCSR Changes 2008 The changes in this document 2009 Reinsurance, negative reserves etc 2010-11? Stochastic modelling of Living Benefits (LTD, CI).

15. 2007 General Meeting Assemblée générale 2007 2007 General Meeting Assemblée générale 2007 Group Life Capital Any questions??