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2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

Canadian Institute of Actuaries. L’Institut canadien des actuaires. 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver. Goal: Propose mortality improvement basis for annuity and life insurance valuation Sub-Committee Members:

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2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

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  1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2007 Annual Meeting ●Assemblée annuelle 2007 Vancouver

  2. Goal: Propose mortality improvement basis for annuity and life insurance valuation Sub-Committee Members: Marc-Andre Belzil, Jacques Boudreau, Edward Gibson, Claude Normand, Helene Pouliot, Les Rehbeli, Mario Robitaille 2007 Annual Meeting Assemblée annuelle 2007 Update on Mortality Improvement Sub-committee

  3. Current draft of proposal: Best estimate improvement scales would be the same for life insurance and for annuity business Mortality Improvement assumption would have its own MfAD (insurance and annuity MfADs would be in opposite directions, special consideration for death supported insurance policies) Mortality improvement rates based on Hardy’s paper (Data from 1921 to 2002) 2007 Annual Meeting Assemblée annuelle 2007 Update on Mortality Improvement Sub-committee

  4. 2007 Annual Meeting Assemblée annuelle 2007 Historical Mortality Improvement Rates: Hardy Study Population Data (1921-2002)

  5. Population data over maximum duration better source than insurance or annuity study data (which are less reliable and have more influences, such as underwriting improvements over time) Rates will be the same for males and females (more on this shortly) Improvement rates for first 25 years only, then set to 0% Introduce concept of “hedge” credit for companies with blends of insurance and annuity business 2007 Annual Meeting Assemblée annuelle 2007 Draft Proposal for Mortality Improvement

  6. Why unisex rates? Menard/Wade Report released in May 2007 Uses population data Shows mortality improvement rates over various time periods For longer durations (e.g. 70 years) female rates higher than male rates; for shorter durations (e.g. 10 years) the converse is true 2007 Annual Meeting Assemblée annuelle 2007 Draft Proposal for Mortality Improvement

  7. 2007 Annual Meeting Assemblée annuelle 2007 Historical Mortality Improvement- Males* * Source: Menard/Wade Report

  8. 2007 Annual Meeting Assemblée annuelle 2007 Historical Mortality Improvement- Females* * Source: Menard/Wade Report

  9. 2007 Annual Meeting Assemblée annuelle 2007 Historical Mortality Improvement Rates: Hardy Study (1921-2002) vs Proposed Best Estimate

  10. 2007 Annual Meeting Assemblée annuelle 2007 Mortality Improvement, Menard/Wade 1931-2001 vs Proposed Best Estimate

  11. 2007 Annual Meeting Assemblée annuelle 2007 Mortality Improvement, Menard/Wade 1966-2001 vs Proposed Best Estimate

  12. 2007 Annual Meeting Assemblée annuelle 2007 Mortality Improvement, Menard/Wade 1991-2001 vs Proposed Best Estimate

  13. Life Insurance mortality improvement: Maximum improvement rates are equal to 50% of best estimate rates (effectively a 50% MfAD on the improvement rate) Maximum duration of improvements is 25 years Special consideration for death supported policies Annuities mortality improvement Minimum improvement rates are 150% of best estimate rates Minimum duration is 25 years 2007 Annual Meeting Assemblée annuelle 2007 Draft Proposal for Valuation

  14. 2007 Annual Meeting Assemblée annuelle 2007 Mortality Improvement Rates

  15. 2007 Annual Meeting Assemblée annuelle 2007 Annuity Valuation Mortality Improvement Rates

  16. Proposed change for life insurance business would require a change in the Standards of Practice currently 100% of mortality improvement must be in MfADs Proposed change for annuities would be simpler but sub-committee feels it is better to implement both at the same time, as they are inter-related therefore unlikely to have any changes for 2007 valuation 2007 Annual Meeting Assemblée annuelle 2007 Final Comments

  17. Proposed change has had limited review from CLIFR, but has not yet been endorsed and is still in early draft stage Comments from the industry are very welcome Limited testing (2 to 3 companies) indicates material increases to annuity reserves (3% to 5%) and material decreases to life insurance reserves (1% to 2%, but highly dependent on business mix) We invite CIA members to conduct further testing and to send us your results 2007 Annual Meeting Assemblée annuelle 2007 Final Comments

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