1. 2008 Annual Meeting ● Assemblée annuelle 2008 Québec 2008 Annual Meeting ● Assemblée annuelle 2008 Québec Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2. IP-6 Individual Life Hot Topics GMWB Products in Canada 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008 June 19th, 2008 Dianne Littleton

3. Agenda Background The product need How does it work? Case studies 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

4. Background Segregated Fund Product Guarantees Death Benefit Maturity Benefit …now Withdrawal benefit GMWB … Guaranteed Minimum Withdrawal Benefit 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

5. The Product Need Baby Boomers 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

6. Boomers age 47 to 60 make up roughly 22% of Canadian population – Boomers & retirees in Canada Secondary research – July /06 In under 10 years Canadians 55 years of age and older will control over 70% of investment assets – Investor Economics, household balance sheet report 2005 Of leading edge boomers only 15% feel prepared for retirement, 45% feel they need same or more income – Strategic Guidance Consulting 50% of Canadians expect to live into their 90’s – BMO Retirement study findings quoted in Investment Executive article Jun 1 /06 48% of 50-something boomers are unsure of the best choices for retirement savings, 32% are worried their standard of living will drop once they reach retirement – Jonathan Chevreau, National post articles “Boomer gender battle in retirement?”, Jul 17/06 and “Stressed Boomers”, Jul 13/06 Some headlines & research findings

7. The Product Need Baby Boomers Concerns in Retirement – Longevity 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

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9. Interesting Longevity Research Beyond the obvious factors…what increases longevity… 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008 All Genders Parents lived beyond age 75 Mentally active during retirement Males Being married Females Being single or divorced Source: Max Planck Institute for Demographic Research

10. What will be your cause of death? EstimateActual Heart Disease: 34% Cancer: 23% Other Natural: 35% Accident: 5% Homicide: 1% Other Unnatural: 2% TOTAL: 100% Source: LIMRA Study, 2004 22% 18% 33% 32% 10% 11% 126%

11. The Product Need Baby Boomers Concerns in Retirement – Longevity – Inflation – Interest rates 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

12. Source: Bank of Canada–5 Year Rates - Monthly Guaranteed Investment Certificates–Interest Rates of Chartered Banks Interest Rate Risk: GIC Rates

13. The Product Need Baby Boomers Concerns in Retirement – Longevity – Inflation – Interest rates – Market volatility – Control & Access 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

14. OR Same average return; sequence of returns reversed Returns are hypothetical and not actual returns Which portfolio will be worth more after 25 years?

15. Average return is key during accumulation Strong Early Returns Reversed: Poor Early Returns First Years Same Average Return = Same Accumulation Result

16. OR Same average return; sequence of returns reversed Returns are hypothetical and not actual returns Now, factor in 5% annual withdrawals. Which will be worth more?

17. Sequence of returns is key during distribution Years Big Difference !

18. Accumulation Phase Average Annualized Returns Asset Allocation Staying Invested Retirement Phase Sequence of Returns Sustainable Withdrawal Rate Product Allocation

19. Agenda Background The product need How does it work? Case studies 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

20. GMWB Products More acronyms to learn! Income is predictable, sustainable and potentially increasing Initially a 20 year guarantee now ‘for life’ Upside potential – resets - lock in market gains – Annual bonus (on GWB - guarantee withdrawal balance) if no withdrawal taken 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

21. How does it work?- The product mechanics GMWB guarantee Account value of Investment funds GWB Income = 5% x balance Death benefit $200K deposit up & down market 5% withdrawal rate, lifetime guarantee Tri-annual resets 5% bonuses Year GWB (Thousands) Guaranteed Income Year Guarantee value $213K 227 242 261 257 131 153 163 175 $187K $10,000 $10,500 $11,000 $12,100 $12,700 $210K 220 230 240 228 5 4 3 2 1 5 4 3 2 1 5 4 3 2 1 $200K 200 242 231 $200K 200 183 100% with resets 6.5% after fees (thousands $10,000 $11,000 $11,500 $12,000 $10,500 $210K 220 242 254 241 Guaranteed for Life -6.5% after fees (thousands) Takes $12K income Takes $12.7K income

22. Agenda Background The product need How does it work? Case studies 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

23. Case Study #1 – Income Now Bob age 65 deposits $500,000 into a GMWB Product Initial Guarantees: Withdrawal Guarantee (GWB) = $500,000 Guaranteed annual lifetime income = $25,000 Death Benefit Guarantee = $500,000 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

24. GMWB example $425($25,000)$425K Year 3 $450K($25,000)$450K Year 2 $475K($25,000) $475K Year 1 $500K$25,000$500KInitial Death Benefit Guaranteed Lifetime Income GWBDate

25. Impact of resets on guarantees $425K($25,000)$425K Year 3 Death Benefit Guaranteed Lifetime Income GWBDate

26. Guaranteed Income increases $550K$27,500 $550K Reset $425K($25,000)$425K Year 3 Death Benefit Guaranteed Lifetime Income GWBDate 1 Market value at reset date = $550,000 1

27. Death Benefit increases $460K$25,000 $460K Reset $425K($25,000)$425K Year 3 Death Benefit Guaranteed Lifetime Income GWBDate 2 Market value at reset date = $460,000 2

28. $425K$25,000 $425K No Reset $425K($25,000)$425K Year 3 Death Benefit Guaranteed Lifetime Income GWBDate Market value at reset date = $395,000 3 Guarantees maintained during market downturns 3

29. Income now – Down market scenario Portfolio Market Value $500,000 $25,000 Income for LIFE $125,000 $250,000 $0 $375,000

30. Income now – Up market scenario Portfolio Market Value $25,000 Income Reset to $27,237 Reset to $38,930 Reset to $44,697 $978,122 $48,906 Income for LIFE Initial Deposit $500,000 $892,944 $778,604 $544,731

31. Case Study #2 – Income Later Chris age 50 invests $200,000 into a GMWB Product and waits to take income. Initial Guarantees: Withdrawal Guarantee (GWB) = $200,000 Guaranteed annual lifetime income = $10,000 Death Benefit Guarantee = $200,000 2008 Annual Meeting Assemblée annuelle 2008 2008 Annual Meeting Assemblée annuelle 2008

32. GMWB Bonuses DateBonusGWB Guaranteed Income* Death Benefit Initial-$200K$10,000$200K Year 1$10,000$210K$10,500$200K Year 2$10,000$220K$11,000$200K * The amount shown is what would be available to withdraw the following year. Note that bonuses are not available in any year that a withdrawal is taken.

33. Impact of Bonuses & Resets DateBonusGWB Guaranteed Income Death Benefit Year 2$10,000$220K$11,000$200K

34. Bonus & Guaranteed Income Increase DateBonusGWB Guaranteed Income Death Benefit Year 2$10,000$220K$11,000$200K Year 3 Reset $12,500$262.5K$13,125$250K Market value at reset date = $250K

35. Death Benefit Increases DateBonusGWB Guaranteed Income Death Benefit Year 2$10,000$220K$11,000$200K Year 3 Reset $10,000$230K$11,500$210K Market value at reset date = $210K

36. Guarantees maintained during market downturns DateBonusGWB Guaranteed Income Death Benefit Year 2$10,000$220K$11,000$200K Year 3 No Reset $10,000$230K$11,500$200K Market value at reset date = $150K

37. Income later – Down market scenario $350,000 Years Initial After 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 $200,000 Withdrawal Guarantee (GWB)

38. Income later – Up market scenario Portfolio Market Value $200,000 $264,129 Reset + Bonus $423,211 Reset + Bonus $555,841 Reset + Bonus $798,680 Reset + Bonus $39,934 Annual Income for LIFE Initial Deposit

39. GMWB in Summary Income is predictable, sustainable and potentially increasing Meets many of the challenges facing retirees and those approaching retirement No one product will solve all needs

40. Thank you 2008 Annual Meeting Assemblée annuelle 2008