1. 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 Bill C-57 and the Actuary – Nicholas Bauer 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 Bill C-57 and the Actuary – Nicholas Bauer Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

2. Outline of Presentation  Bill C-57 Requirements  Status of Changes  New OSFI Par Guidelines  Potential Issues  CIA Response  Fairness?  Discussion  Conclusion 2 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

3. Bill C-57 Overview  New governance requirements re:  participating business  adjustable policies  New actuarial fairness opinions  Emphasis on Disclosure to Policyholders  Start-up work on policies and processes 3 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

4. Before C-57 – Canadian Companies  Board Approves  Participating Dividend Policy  Investment Income Allocation Method  Expense Allocation Method  Declaration of Policyholder Dividends  Actuary Opines  Allocation Methods Fair and Equitable  ICA S. 461 Payment  Policyholder Dividends comply with Dividend Policy 4 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

5. After C-57 – Canadian Companies Board Approves  Participating Dividend Policy  Investment Income Allocation Method  Expense Allocation Method  Declaration of Policyholder Dividends  Policy for Management of Par Accounts - new  Criteria for Changes to Adjustable Policies - new 5 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

6. After C-57 – Canadian Companies Actuary Opines  Allocation Methods Fair and Equitable  Payment to shareholders from participating fund (S. 461)  Policyholder Dividends comply with Dividend Policy  Fairness of Dividend Policy – new  Fairness of Proposed Policyholder Dividends - new  Fairness of Par Management Policy - new  Fairness of Adjustable Change Criteria - new  Adjustable Changes Fair, Comply with Criteria - new 6 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

7. Participating Policyholders  Par account management policy  AA annual report on fairness of dividend policy and par account management policy  AA report on fairness of proposed dividend  Board must consider AA report  These AA reports “in accordance with generally accepted actuarial practice with changes or directions from OSFI”? (presumably so)  Regulations expected 7 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

8. Adjustable Policyholders  To be defined in the regulations:  “adjustable policy”  Criteria for changing premium, charge for insurance, amount of insurance, surrender value  Criteria for changing charge for insurance, amount of insurance or surrender value  AA annual report to Board on (continuing) fairness to adjustable policyholders of criteria  Board must consider AA report  AA annual report on any changes made during year  comply with criteria  fair to adjustable policyholders  If changes made or on renewal, must provide “prescribed info” to policyholders 8 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

9. Emphasis on Disclosure  Dividend policy and par account policy available free to participating policyholder or shareholder  Adjustable change criteria available free to adjustable policyholder  All available to any other person for reasonable fee  Company’s annual report to include summary of par policies and “prescribed info”  may include par sub account surplus and summary financial statements  Regulations expected 9 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

10. Bill C-57 Status  Amended Insurance Companies Act of Canada; Royal Assent Nov 2005  Changes not in effect until proclamation  Regulations being awaited  From Finance this fall?  Timing of implementation?  Six months to comply for new “Policy” items 10 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

11. New OSFI Par Guidelines  OSFI is developing; may circulate when C-57 draft regulations published  Several items expected:  Guidance on “fair” and “fairness”  Disclosure to policy owners  More detail in allocation policies?  Make ‘demutualization closed block” rules permanent? 11 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

12. Potential Issues - General  What is “Fair to Policyholders?”  AA not protected from civil liability re C-57 opinions  External review requirements? Civil liability protection?  Apply to  out-of-Canada business of Canadian Companies  fraternal benefit societies?  Does not apply to foreign companies  Quebec – AMF may develop similar regime?  Work to implement – timing?  Averaging (smoothing)?  Will customers understand? 12 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

13. Potential Issues - Par  Fairness of par account management policy  Variations in par surplus philosophy  When charge extraordinary experience to surplus?  Transactions with third parties (reinsurers?)  Transactions with shareholder or nonpar accounts?  Par account,accounts or sub accounts?  Closed vs open blocks?  Expand allocation policies  Speculation on future, e.g. windup 13 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

14. Potential Issues - Adjustable  Definition of adjustable policy is key  Regulation is expected to define  Fairness  If heavy death claims - fair to increase charges for survivors? How much?  Opinion on profit targets?  How demonstrate fairness?  Materiality?  Averaging (smoothing)  Applies to in force adjustable policies as well as new sales 14 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

15. CIA Response  CIA Task Force  to develop guidance for AA on “generally accepted actuarial practice” as Standards of Practice & educational notes (recommend to ASB and/or PC)  comment on regulatory drafts – when published  communicate to members  Working group structure  Adjustable Policies – Nick Bauer  Dividend Policies – Arshil Jamal  Par Account Management – Simon Curtis  May need “actuarial” definitions for terms in regulations  Need input on issues, practical problems  Some issues mix actuarial and legal considerations 15 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

16. What Does “Fair” Mean?  Webster’s  marked by impartiality and honesty; free from self- interest, prejudice or favouritism  fair implies an elimination of one’s own feelings, prejudices and desires to balance conflicting interests  Black’s Legal Dictionary  just; equitable; even-handed  equal, as between conflicting interests  “Fair to policyholders” may mean –  “it appropriately balances the interests of these policyholders and other stakeholders”, or  “Not favouring the company at the expense of the policyholder”, or  ? 16 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

17. To Assess “Fairness” – Objective Considerations  Agreement between parties?  “Rules” set out in advance?  Consistency over time?  Decisions based on objective information?  Are differences material? Material to whom?  Are there overriding constraints (e.g. laws, company solvency?) 17 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

18. To Assess “Fairness” – Subjective Considerations Is result reasonable? Was discretion exercised reasonably? Are individuals in same/different circumstances treated same/differently? Are the decisions arbitrary? Do circumstances limit ability to reflect differences? 18 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

19. Discussion Questions ?? Comments 19 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009

20. Summary  C-57 “actuarial” requirements emphasize policyowner interests  Appointed Actuary fairness opinions required  Significant Start-up Work – lead time required  CIA responding and preparing guidance  Refer to ASB if Standards involved (on ASB radar screen)  Coming Soon ? 20 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009