2009 Annual Meeting ● Assemblée annuelle 2009Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

2009 Annual Meeting ● Assemblée annuelle 2009Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institutcanadiendesactuaires

L’Institutcanadiendesactuaires

IP-34 Group Hot Topics :

Group Financial Management in Today’s Economy

Brian CarinGroup BenefitsSun Life Financial

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Headline News From Q4 ’08 to May ‘09

• Toyota - first loss ever• Sony - first loss in 14 years• Consumer confidence @ December lowest level at 67.7 since

81/82 recession• Retail sales in Nov steepest decline in almost a decade• First trade deficit in 30 years in December – exports dropped 9.7%

month over month.• Canadian auto sales plunged 25.3% y/y in January, the third

consecutive monthly decline, dragged down by a 47% y/y decline in GM sales.

• Change in Cdn GDP worsened from -3.4% in Q4 to -5.6% in Q1, while the change in US GDP remained relatively flat from -6.3% to -6.1% Q4 to Q1.

• American protectionism may be problematic with Buy American sentiments

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• Chrysler and then GM (U.S.) enter bankruptcy protection.• Government deficit projections materially increased.

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Impacts of ‘new’ economy … on Canadians

• Very large full time job losses from November. April showed 39k full time jobs created but were ‘self employed’. Another 59k lost in May.

• April unemployment rate: 8%, grew to 8.4% in May and forecasts suggest greater than 9% in 2010.

• Canadian Consumer confidence:

Dec 2006: 120.5, May 2009: 81.4

• Correlation between unemployment rate and consumer confidence

• Benefits experience depends heavily on member behavior

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-39

80111114

7038

MayAprilMarFebJanDecNov

Canadian Consumer Confidence

60

70

80

90

100

Sep-07

Nov-07

Jan-0

8Mar-

08May

-08Ju

l-08

Sep-08

Nov-08

Jan-0

9Mar-

09May

-09

Canadian Unemployment

5.66.16.67.17.68.18.6

Sep-07

Nov-07

Jan-0

8Mar-

08May

-08Ju

l-08

Sep-08

Nov-08

Jan-0

9Mar-

09May

-09

4

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The Need For An Economic Taskforce

Mandate:

• Monitor and measure emerging detrimental experience resulting from ‘new’ economy

• Recommend and execute mitigating actions

• Ensure top-of-mind awareness throughout Group Benefits

Taskforce leaders from:• Disability Management• Finance• Health and Dental Claims• Underwriting

• Business Development• Asset Management• Marketing

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Indicator: STD claims reaching 8-week threshold

MAMFJ09

DNOSAJJMAMFJ08

# Active Claims reaching 8wk Threshold

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Indicator: Actively managed gradual return to work (GRTW)

MAMM J J A S O N D J09

FJ08

F M A

One third of return-to-work recoveries are from those in the gradual return-to-work program

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Indicator: LTD claims by cause of disability

O N DJ 2008

F M A M J J A S MFJ 2009

Not yet seeing significant change in the profile of disability causes

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Nervous

Others

Circulatory

Accident

Cancer

Musculo-SkeletalDisorders

Psychological

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Some LTD ‘hot spots’ emerging (New claims growth faster than volume growth)

35%

18%

8%

Excess of Volume Growth

Mining Forestry Automotive

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What are we seeing re: recovery rates ?

Deteriorating trend emerging:

Apr-May09

Q108

Q208

Q308

Q408

Q109

Annualized LTD net recovery rate % by count

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Impact of economy on return to work

Most disabilities resolved through return to work: this is the optimal outcome but layoffs and closures make this harder.

22%

63%

Not Disabled

Definition Change 15%

Return to Work

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What are we seeing re: types of recoveries?

0%

20%

40%

60%

80%

100%

J08

F M A M J J A S O N D J09

F M A M

Change of Definition

Return to Work

Not Disabled

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General LTD Pricing Methodology

• Based on 5-year historical look back

• New experience only gets partial weighting

• Generally no forward pricing

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Example of 5-Year Experience Premium Adjustment

Assumptions:-• Normal loss ratio 80%• Premium/expense load 20%• New claims doubled in Year 0• Equal weighting applied to all years• Ignore interest

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+20% premium increase in Year 1 14

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Lags between Disability Incurral and Pricing

Yr 1Yr0Yr -1Yr-2Yr -3Yr -4 Yr2

Incurred New ClaimsReported New ClaimsPremiums

Yr6Yr3 Yr4 Yr 5 Yr 7Yr -5

Experience analysis in Yr 1

January not picking up the full new

claims influx yet

Takes 15 months from end of Yr 0 for full premium increase to flow

through

Premium rate back to pre new

claims wave level in Yr 7

April

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LTD Pricing – Impact Timelines

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t+1t t+2

12 Renewal Months

YearPrep Lead Time Monthly Premiums IBNR Runoff

• Long timeline to fully reflect increases in price.

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Questions ?

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