1. 2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) 2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2. Selling Insurance in Today’s Market Jeff Shaddick Ron Atkinson Jean Roy

3. Today’s Market  Unsettled Times  Unstable Economy  Some Clients are having a tough time But  Many are not  Unsettled Times  Unstable Economy  Some Clients are having a tough time But  Many are not

4. Challenge or Opportunity?  In good times clients become blasé  In these illiquid times, insurance becomes more real and obvious as a viable financial planning solution  In good times clients become blasé  In these illiquid times, insurance becomes more real and obvious as a viable financial planning solution

5. Opportunities  The Dreams still remain – Protection of Family – Protection of Business – Protection of Legacy  The Dreams still remain – Protection of Family – Protection of Business – Protection of Legacy

6. Opportunities  Clients facing reality of reduced value but also reduced liquidity  Problems still remain – Capital Gains Tax – Funding Shareholders Agreements – Succession Planning – Charitable Commitments  Efficient and Effective Tax Planning  Clients facing reality of reduced value but also reduced liquidity  Problems still remain – Capital Gains Tax – Funding Shareholders Agreements – Succession Planning – Charitable Commitments  Efficient and Effective Tax Planning

7. Corporate Owned Insurance  Male 50 non smoker  $5,000,000  T100 or minimum funded UL/LCOI  Male 50 non smoker  $5,000,000  T100 or minimum funded UL/LCOI

8. Internal Rate of Return at Death Age at DeathAfter-tax IRRPre-tax Equiv. 7012.9%21.1% 758.8%14.1% 806.4%9.9% 854.8%7.2% 903.6%5.4%

9. Enhanced IRR with Capital Dividend Account Credit Age at DeathAfter-tax IRRPre-tax Equiv. 7015.0%25.3% 7510.6%17.3% 807.8%12.6% 856.0%9.5% 904.7%7.3%

10. Charitable Gifting  Value of T100/LCOI  2007 legislative change  Can be gifted for FMV not just CSV  Value of T100/LCOI  2007 legislative change  Can be gifted for FMV not just CSV

11. Charitable Gifting Client FMV Actuary

12. Charitable Gifting  3 Potential Structures – FMV + Commitment to pay future Premiums – FMV + Life Annuity to pay future Premiums – FMV + 3 rd Party Contributor  3 Potential Structures – FMV + Commitment to pay future Premiums – FMV + Life Annuity to pay future Premiums – FMV + 3 rd Party Contributor

13. Charitable Gifting  Process – Independent Actuarial Valuation  Cost $1,200 (tax deductible) – Purchase SPIA – Donate T100/LCOI policy and SPIA – Charitable receipt  Process – Independent Actuarial Valuation  Cost $1,200 (tax deductible) – Purchase SPIA – Donate T100/LCOI policy and SPIA – Charitable receipt

14. Charitable Gifting  Male 70 owns T100 purchased at age 50 – Death Benefit $2 million – Premium $22,061  Male 70 owns T100 purchased at age 50 – Death Benefit $2 million – Premium $22,061 Fair Market Value Life Annuity Cost Total Contribution $635,000 $257,000 $892,000 Total Tax Credit (45%) Life Annuity Cost Net Positive Cash Flow $401,400 (257,000) $144,400

15. Charitable Gifting  Replacement Donor – Commits to fund future premiums: or – Buys life annuity to fund future premiums  Policy Donor – Receipt for policy’s FMV and designates proportion of death benefit  Replacement Donor – Receipt for SPIA and designates balance of death benefit  Replacement Donor – Commits to fund future premiums: or – Buys life annuity to fund future premiums  Policy Donor – Receipt for policy’s FMV and designates proportion of death benefit  Replacement Donor – Receipt for SPIA and designates balance of death benefit

16. Alternative to buying Term  Male 50 non Smoker $2,000,000  45% Tax Rate; 2% PV rate  Male 50 non Smoker $2,000,000  45% Tax Rate; 2% PV rate Term 10 R&C $272,100 $210,212 LCOI UL Min Prem $441,225 $367,947 UL with Charitable Gift $175,645 After 20 years Total Outlay Net PV

17. Alternative to buying Term  Options left open to insure future needs at today’s rates  Flexibility to accumulate cash on a Tax Exempt basis  If true short term need; – Charitable legacy – Lower PV cost  Higher Compensation  Options left open to insure future needs at today’s rates  Flexibility to accumulate cash on a Tax Exempt basis  If true short term need; – Charitable legacy – Lower PV cost  Higher Compensation

18. Underwriting

19. The Underwriting Experience  Client’s view: – Long and complicated – Credibility is affected sometimes  E.g. some information is asked twice – Some just give up in the process  Business left on the table  Client’s view: – Long and complicated – Credibility is affected sometimes  E.g. some information is asked twice – Some just give up in the process  Business left on the table

20. The Underwriting Experience  Agent or broker’s view: – Physician medical reports take a long time  Apparently often incomplete the first time  Information contained may lead to new requests to other physicians or specialists  Hospital records, doctors no longer in health system make it even more difficult  Agent or broker’s view: – Physician medical reports take a long time  Apparently often incomplete the first time  Information contained may lead to new requests to other physicians or specialists  Hospital records, doctors no longer in health system make it even more difficult

21. The Underwriting Experience  Agent or broker’s view: – Wealthy people go to private sector – Private sector competes for the wealthy  Offer/suggest variety of tests/procedures  Wealthy is key to the family/business  They happily go for all sorts of tests/procedures  Underwriter wonders what she/he is missing  Agent or broker’s view: – Wealthy people go to private sector – Private sector competes for the wealthy  Offer/suggest variety of tests/procedures  Wealthy is key to the family/business  They happily go for all sorts of tests/procedures  Underwriter wonders what she/he is missing

22. The Underwriting Experience  Agent or broker’s view: – Travelling pattern of clients is problematic – More challenges on the financial side since the financial crisis  More information requested  Agent or broker’s view: – Travelling pattern of clients is problematic – More challenges on the financial side since the financial crisis  More information requested

23. Underwriting  Underwriters are more and more busy – Very little time left to think the situation through – More reactive  Increased workload & costs on sales force  Art (judgement) versus science  Few young underwriters  Underwriters are more and more busy – Very little time left to think the situation through – More reactive  Increased workload & costs on sales force  Art (judgement) versus science  Few young underwriters

24. Underwriting  How can process be simplified? – Slow process and reactive mode is invitation for multiple applications which is perverse  For a sale to materialize: – Qualification – Need, relationship and momentum – Delays, and or unpleasant experience can kill momentum and also relationship  How can process be simplified? – Slow process and reactive mode is invitation for multiple applications which is perverse  For a sale to materialize: – Qualification – Need, relationship and momentum – Delays, and or unpleasant experience can kill momentum and also relationship

25. Illustrations

26.  Volatility in stock markets affected investment portions of UL policies  Is it realistic to illustrate equity returns in UL using flat rates? – Making 7% net over a 10 year period is not the same as making 7% every year for 10 years – Use of variable rates should be emphasized  Volatility in stock markets affected investment portions of UL policies  Is it realistic to illustrate equity returns in UL using flat rates? – Making 7% net over a 10 year period is not the same as making 7% every year for 10 years – Use of variable rates should be emphasized

27. Illustrations  Volatility can be amplified if COI is taken from equity accounts – Reverse dollar cost averaging – The higher the COI in proportion of the fund value, the more you get hurt – Potential for high disappointment by clients – Shift towards GIC types for existing clients  Volatility can be amplified if COI is taken from equity accounts – Reverse dollar cost averaging – The higher the COI in proportion of the fund value, the more you get hurt – Potential for high disappointment by clients – Shift towards GIC types for existing clients

28. Exempt Test Update

29.  Brief Review  2008 Meetings  Next Steps  Brief Review  2008 Meetings  Next Steps

30. Review  How did we let things get so far? – 1982 rules addressed traditional insurance products – By 1990’s, various interpretations to deal with UL  CHHIA submission in August 1998 (Green Monster)  CLHIA/CALU submission on CI and LTC in March 2004  How did we let things get so far? – 1982 rules addressed traditional insurance products – By 1990’s, various interpretations to deal with UL  CHHIA submission in August 1998 (Green Monster)  CLHIA/CALU submission on CI and LTC in March 2004

31. Review  Current concerns: – Single premium UL – Green Monster is 10 years old – Need to address CI and LTC  Refund of premium options  Current concerns: – Single premium UL – Green Monster is 10 years old – Need to address CI and LTC  Refund of premium options

32. 2008 Meetings  April 22th – Are previous submissions still valid? – CI/LTC  Need to deal with ROP  CI is more popular now than LTC  Finance – wants to ensure rules are reasonable  April 22th – Are previous submissions still valid? – CI/LTC  Need to deal with ROP  CI is more popular now than LTC  Finance – wants to ensure rules are reasonable

33. 2008 Meetings  June 26th – Finance review updated proposals to Green Monster – Finance wants to understand what an AF consists of – Finance is looking at IIT income  How to measure “value” inside a policy  Is there “value” building inside T-100 or LCOI-UL?  June 26th – Finance review updated proposals to Green Monster – Finance wants to understand what an AF consists of – Finance is looking at IIT income  How to measure “value” inside a policy  Is there “value” building inside T-100 or LCOI-UL?

34. 2008 Meetings  Conclusion: – There should be pressure to do something soon due to SP UL sales opportunities  Conclusion: – There should be pressure to do something soon due to SP UL sales opportunities

35. Next Steps  There was immediacy after last meetings  Now – nothing since last year  Stay tuned!  There was immediacy after last meetings  Now – nothing since last year  Stay tuned!

36. Thank you