2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

• Pardon the Interruption• Disclaimer:

The views you are about to hear do not necessarily reflect the views of any company, and may just be put forth for the sake of generating discussion

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Life Pricing Hot Topics

Mark Edwards, FSA, FCIA

AVP and Pricing Actuary

Individual Insurance – Life and Living Benefits

Manulife Financial

Robert Bhatia, FSA, FCIA

AVP Life Pricing

Transmerica Life Canada

Steve Bocking, FSA, FCIA

Associate Manager, Individual Life

Great West Life

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

The Panel

• Opinion about own Company’s profitability!

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

LCOI Profitability

UL Level COI Pricing Adequacy

0

5

10

15

20

25

30

35

2002 2003 2004 2005 2006

% o

f C

om

pan

ies

Single

Joint

Source: 2006 Munich Re Pricing Survey

• Coincidence?

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Interest Rates

Net Pricing Interest Rates (UL Level COI) vs. Long-Term Government Bond Yields

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

1998 1999 2000 2001 2002 2003 2004 2005 2006

Inte

rest

Rat

e %

Initial Pricing Interest Rates

Ultimate Pricing InterestRates

GoC Benchmark LongTerm Bond Yields @ Jan 1

Source: 2006 Munich Re Pricing Survey

• 2007 LCOI Composite Rates

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Lapse Rates

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Lap

se R

ate

By Number

By Amount

Source: 2007 CIA Lapse Study

• 2003 vs. 2007 LCOI Lapses

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Lapse Rates

Source: 2007 CIA Lapse Study

Composite Lapse Rates

0%

1%

2%

3%

4%

5%

6%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Laps

e R

ate

(by

Am

t)

2003 Study

2007 Study

• How big is the market?

• Will it just replace existing sales?

• Is it profitable?

• Do we have accurate experience?

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Limited Pay UL

MNS Age 40, $300,000, Term 10

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Term Prices

Issue Year

Starting premium

1st renewal premium

1st Premium

Differential1990 1.66 5.2 3.11991 1.66 5.2 3.11992 1.63 5.32 3.31993 1.77 5.48 3.11994 1.66 5.48 3.31995 1.52 5.37 3.5

2000 1.13 5.62 5.02001 1.05 5.62 5.42002 1.05 5.62 5.42003 1.05 5.62 5.42004 0.94 5.62 6.02005 0.92 5.62 6.1

Source: Transamerica Life Canada

R= ratio of renewal premium to initial premiumS= ratio of renewal premium to newly underwritten

attained age initial premium

2007

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2007

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Panel

Level COI

Ltd Pay UL

Term Prices

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Term Prices

R and S for Term 10 Male Non-smoker age 40

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1995 1997 1998 1999 2001 2004

Issue Year

Rat

io R

S

Source: Transamerica Life Canada

• What’s the real answer?

2007

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T10 Lapses

1st Renewal 2nd Renewal25th Percentile 54.3% 35.0%Median 62.5% 54.7%75th Percentile 77.6% 62.8%

1st Renewal 2nd Renewal25th Percentile 46.3% 36.9%Median 53.3% 47.7%75th Percentile 61.1% 58.1%

Total Lapse %

Selective Lapse %

Source: 2006 Munich Re Pricing Survey

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Is Term 20 Better?

Issue Year

Starting premium

1st renewal premium

1st Premium Differential

1990 2.54 16.79 6.61991 1.97 17.35 8.81992 2.3 17.51 7.61993 2.3 17.51 7.61994 2.3 17.51 7.61995 2.28 17.51 7.7

2000 1.76 22.82 13.02001 1.69 22.82 13.52002 1.69 22.82 13.52003 1.69 22.82 13.52004 1.54 22.82 14.82005 1.53 22.82 14.9

MNS Age 40, $300,000

Source: Transamerica Life Canada

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Quick Pay

First-Year Maximum Premium

MNS 50

Company First Year Max Prem

Company A1 89,058Company B2 36,981Company C1 26,809Company D 17,147Company E 16,493Company F 16,016Company G 14,314Company A2 13,930Company H 13,292Company I 11,534

Company C2 11,119Company B2 8,638

Note: As of May 15, 2007Source: Companies' respective illustration software

YRT, Face plus Fund, $250,000 Face Amount, 7% Interest

• Significant portion of 2006 new business sales:

– Over 20% of UL Level COI sales– Nearly 15% overall UL sales

• Are we encouraging through compensation?

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Conversions

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Reinsurance Ceded

Source: Various

Where are we going next?

Reinsurance Cession Rate in Canada

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005

% C

eded

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Acquirer Target DateScor Re Revios 2006 Swiss Re ERC (GE Solutions) 2005RGA Allianz Re 2003ERC AUL 2002Swiss Re Lincoln Re 2001Munich Re CNA Re 2000Swiss Re CIGNA Re 2000Clarica Re Sun Life Re 2000ERC Phoenix Home Re 1999Swiss Re Life Re 1997Swiss Re M&G 1997

Consolidation

• A lot money out there

• What capacity is available, and is it enough?

• Should prices move up or down?

• Market conduct

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Large Case Pricing

• YRT to Level COI Switches

• Single to JLTD

• JFTD to JLTD

• T10 to T20

• Anything for my top advisors

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Conserving Business

Odds Makers

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

• Odds that banks will have no restrictions in selling insurance within 5 years? Within 10 years?

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Banks in Insurance

2007

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2007

Ann

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Time to Place

0

10

20

30

40

50

<= 10 days 11-20 days 21-30 days 31-40 days 41-50 days 51+ days

Placement Time (days)

% o

f A

pp

lic

ati

on

s

58%58%

• Odds that the industry average time to place will be less than 20 days by 2010? 2015?

Source: 2006 Munich Re Pricing Survey

• Odds that in 2007:– Term grows by 6%– UL grows by 15%– Other Products grow by 3%– Overall grows by 10%

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

New Business Growth

• Odds that we may see a movement to levelized commissions in the next 5 years? 10 years?

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Advisors

• Odds that the SOA will change the exam system within the next five years (AGAIN!)

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Exam System

• Odds of a major acquisition in the Canadian market within 5 years

2007

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2007

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T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Acquisition

Toss Up!

2007

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ual M

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007

2007

Ann

ual M

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g

Ass

embl

ée a

nnue

lle 2

007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

2007

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ual M

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007

2007

Ann

ual M

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g

Ass

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nnue

lle 2

007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Preferred Products

ORNew Designs on their way

No Changes

Preferred?

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Foreign Travel

OR

Risky Proposition

Much Ado About Nothing

2007

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2007

Ann

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Combo Products

OR

Industry’s next product innovation

All talk no action

2007

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ual M

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007

2007

Ann

ual M

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Ass

embl

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nnue

lle 2

007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Audience Toss Up?

OR

Will they participate?

Won’t they?

2007

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ual M

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007

2007

Ann

ual M

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g

Ass

embl

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nnue

lle 2

007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye

Admin Systems

OR

Gateway to Information for Pricing

Barrier to Information for Pricing

Final Thoughts???

2007

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2007

Ann

ual M

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007

T10 Lapses

T20?

Quick Pay

Conversions

Reinsurance

Large Cases

Conservation

Odds Makers

Bancassurance

UW Time

NB Growth

Advisors

Exams

Acquisition

Toss Up!

Preferred

For. Travel

Combo

Audience

Systems

Goodbye