briefing to npp bod 22 october 2004 sisip financial services life insurance program review
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Briefing to NPP BOD
22 October 2004
SISIP Financial Services
Life Insurance Program Review
NON-PUBLIC PROPERTY BOARD OF DIRECTORS
Document # 22c/04
CONSEIL D’ADMINISTRATION DES BIENS NON PUBLICS
PURPOSE
The NPP BOD Special Committee report back on CAR sustainability
SISIP FINANCIAL SERVICES (FS)(Exclusive to military community)
Insurer: Maritime Life
SISIP Proper
2003 Assets: $344M
TB Supported Plans
2003 Assets: $380M
Survivor Income Benefit Long Term Disability Plans
Optional Term Life Insurance General Officers’ Insurance Plans
Spousal Disability Insurance
Financial Planning SISIP DND Supported Plans
(new 2003)
Financial Counselling and Education
Accidental Dismemberment Program
CFPAF Programs
2003 Assets: $15M
NPP BOD 7 July 2004Summary of Presentation
• OGTI/RTIP Pricing Review Findings
• Existing CAR not financially sustainable
• Introduction of a new CAR
• Financial grid of options for existing CAR
NPP BOD 7 July 2004Records of Decision
• One plan (OGTI) not to subsidize another (CAR) and terminate current premium transfer
• New CAR self-sustaining
• SISIP FS should generate income for extra-ordinary activities
• NPP BOD Special Committee
NPP BOD Special Committee CAR Sustainability
ADM(HR-Mil) – Chair
ADM(Fin CS)
DND/CF LA
CFPSA Pres and CEO
CFCWO
Special Committee Meeting21 September 2004
• Develop options for NPP BOD discussions
• Assume implementation of new OGTI/RTIP premium rate schedule for simulation purposes
• Assume $5M extraordinary expenses per year
Special Committee Meeting21 September 2004
Today:$2.5M on M&W grants$1.2M on FP$1.0M on Youth Program$100K on Volunteers’ Recognition Program$50K on CF Sports Awards ceremony______$4.85M
OGTI/RTIPPricing Review
Summary
• Reference Point
• Value added to participants
Term Insurance Rate ComparisonSISIP vs. Individual Term 10 Rates
Monthly rates per $10,000 for a face amount of $200,000
Non-Smoker
OGTI/RTIP Proposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted)
Age Current
Rates
Proposed Rates
Proposed vs
Current
OGTI vs Reference point
<25 $0.70 $0.70 0.0% -27.6%
25 – 29 $0.60 $0.60 0.0% -31.4%
30 – 34 $0.65 $0.65 0.0% -23.8%
35 – 39 $0.85 $0.80 -5.9% -10.0%
40 – 44 $1.15 $1.05 -8.7% -10.4%
45 – 49 $1.75 $1.35 -22.9% -8.3%
50 – 54 $2.80 $2.00 -28.6% -1.9%
Weighted Avg
-15.3%
Term Insurance Rate ComparisonSISIP vs. Individual Term 10 Rates
Monthly rates per $10,000 for a face amount of $200,000
Smoker
OGTI/RTIP Proposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted)
Age Current
Rates
Proposed Rates
Proposed vs Current
OGTI vs Reference point
<25 $1.05 $1.05 0.0% -21.9%
25 – 29 $0.95 $0.95 0.0% -20.6%
30 – 34 $1.10 $1.10 0.0% -15.5%
35 – 39 $1.40 $1.25 -10.7% -7.6%
40 – 44 $1.95 $1.80 -7.7% -0.7%
45 – 49 $3.15 $3.00 -4.8% +9.6%
50 – 54 $4.90 $5.15 +5.1% +8.5%
Weighted Avg
-8.3%
OGTI/RTIP Review Findings
• OGTI/RTIP programs compare very favourably with PSMIP and PSAC programs
• Value added features not in pricing comparison: - flexible underwriting - underwriting/adjudication final decision - no exclusions - provincial sales tax payments - no occupational limitations• New accidental dismemberment benefit for injuries no-
attributable to military service
OGTI/RTIP Review Findings
• Net Income would decrease from approx. $3.7M to approx. $2.0M annually
• Premium decrease and new accidental dismemberment coverage would be a very positive outcome for CF serving personnel
CAR ReviewWay Ahead
• Implement a new CAR
• Amend existing CAR
CAR Considerations
• Legal risk Cannot terminate paid-up
certificates May increase premiums Premium subsidy: premium
increase or program design change
CAR Considerations
• Legal risk Serving and former members
expectations for existing CAR SISIP FS capital or income use
for extraordinary expense programs
• SISIP FS has a legacy/ethical and a potential funding responsibility
• Financial and capital requirements (committed capital and war risk reinsurance potential requirements)
CAR Considerations
• Communication plan challenge, but: 4 CAR premium decreases totalling over 50%
for non-smokers between 1981-1990 Never a CAR premium increase in over 20
years Paid-off certificate is a free benefit Program too heavily subsidized
CAR Considerations
• Present value of losses for next 40 years is $141M
• Would require a 77% increase to be cost neutral
• Option to switch to new CAR
CAR Considerations
• Self-sufficient financially
• Same premiums as OGTI/RTIP up to age 60
• No premium subsidy starting at age 55
• Optional 10% paid-up certificate
New CAR Program
CAR Review
• Amend existing CAR program Develop options to increase premiums
(options can be phased-in) Option to join the new CAR Potential limitation of the subsidy starting
at age 55 for current CAR participants under 50 yrs old
CAR Review• CAR premium subsidy
Subsidy for age bands 55-59 and 60-64 for those with 5 yrs military service
Monthly rates per $10,000 of coverage: 55-59: $3.60 vs $4.35 ($0.75)
60-64: $4.30 vs $5.85 ($1.55) Currently 27,500 participants in existing CAR less
than 50 yrs old + 5 yrs military service Limitation of subsidy: premium increase or
program design change Limitation of subsidy approx. 10% premium
increase
Existing CAROption #1
Larger premium increase 40%Advantages• Probably no further increases required• Less capital used for liabilitiesDisadvantages• Larger increase for participants• Difficult communication plan considering
current capital and future income• Greater risk of legal challenge
Existing CAROption #2
Smaller premium increase: 10%Advantages• Financial impact smaller for participants• Less likely of legal challenge• Further increases may be necessaryDisadvantages• Larger use of capital
Existing CAROption #3
Medium premium increase: 20% + review in 5 yrs
Advantages• Perhaps no further increases required• Less capital used for liabilitiesDisadvantages• Medium increase for participants• Less difficult to communicate• Smaller risk of legal challenge
SISIP Proper - Projected Financial ResultsBased on current rates and plan provision - No new entrants
Status Quo
Net Income Year-end Surplus
YearTotal premium
(OGTI/CAR) OGTI CAR SIB/Other Interest on
surplus Extraordinary
item * Total Net Income Current dollars 2004 dollars **
2004 35,100,000$ 3,800,000$ (1,700,000)$ 300,000$ 9,300,000$ (5,000,000)$ 6,700,000$ 193,700,000$ 188,058,000$
2005 36,200,000$ 3,700,000$ (2,200,000)$ 300,000$ 9,700,000$ (15,000,000)$ (3,500,000)$ 190,200,000$ 179,282,000$
2006 37,300,000$ 3,700,000$ (3,000,000)$ 300,000$ 9,500,000$ (5,000,000)$ 5,500,000$ 195,700,000$ 179,093,000$
2007 38,500,000$ 3,700,000$ (3,900,000)$ 300,000$ 9,800,000$ (5,000,000)$ 4,900,000$ 200,600,000$ 178,231,000$
2008 39,600,000$ 3,700,000$ (5,000,000)$ 300,000$ 10,000,000$ (5,000,000)$ 4,000,000$ 204,600,000$ 176,490,000$
2009 40,800,000$ 3,700,000$ (5,800,000)$ 300,000$ 10,200,000$ (5,000,000)$ 3,400,000$ 208,000,000$ 174,197,000$
2010 41,900,000$ 3,700,000$ (6,200,000)$ 300,000$ 10,400,000$ (5,000,000)$ 3,200,000$ 211,200,000$ 171,725,000$
2011 42,800,000$ 3,700,000$ (6,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ 2,700,000$ 213,900,000$ 168,855,000$
2012 43,700,000$ 3,700,000$ (8,100,000)$ 300,000$ 10,700,000$ (5,000,000)$ 1,600,000$ 215,500,000$ 165,163,000$
2013 44,400,000$ 3,700,000$ (9,600,000)$ 300,000$ 10,800,000$ (5,000,000)$ 200,000$ 215,700,000$ 160,501,000$
2014 45,100,000$ 3,700,000$ (9,500,000)$ 300,000$ 10,800,000$ (5,000,000)$ 300,000$ 216,000,000$ 156,043,000$
2015 45,700,000$ 3,700,000$ (10,200,000)$ 300,000$ 10,800,000$ (5,000,000)$ (400,000)$ 215,600,000$ 151,218,000$
2016 46,100,000$ 3,700,000$ (9,700,000)$ 300,000$ 10,800,000$ (5,000,000)$ 100,000$ 215,700,000$ 146,881,000$
2017 46,600,000$ 3,700,000$ (10,800,000)$ 300,000$ 10,800,000$ (5,000,000)$ (1,000,000)$ 214,700,000$ 141,942,000$
2018 47,000,000$ 3,700,000$ (11,600,000)$ 300,000$ 10,700,000$ (5,000,000)$ (1,900,000)$ 212,800,000$ 136,588,000$
2019 47,200,000$ 3,700,000$ (12,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ (3,300,000)$ 209,500,000$ 130,553,000$
2019 47,200,000$ 3,700,000$ (12,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ (3,300,000)$ 209,500,000$ 130,553,000$
2020 47,300,000$ 3,700,000$ (13,800,000)$ 300,000$ 10,500,000$ (5,000,000)$ (4,300,000)$ 205,200,000$ 124,149,000$
2021 47,200,000$ 3,600,000$ (15,200,000)$ 300,000$ 10,300,000$ (5,000,000)$ (6,000,000)$ 199,200,000$ 117,009,000$
2022 46,900,000$ 3,600,000$ (16,800,000)$ 300,000$ 10,000,000$ (5,000,000)$ (7,900,000)$ 191,300,000$ 109,096,000$
2023 46,300,000$ 3,700,000$ (17,400,000)$ 300,000$ 9,600,000$ (5,000,000)$ (8,800,000)$ 182,500,000$ 101,046,000$
2043 36,900,000$ 3,300,000$ (200,000)$ 300,000$ 6,400,000$ (5,000,000)$ 4,800,000$ 133,600,000$ 40,956,000$
* Capital expenditure program, financial planning and other various initiatives** Assuming CPI increases of 3% per year
Note:- Actual results may differ significantly from projected as a result of experience fluctuation- Pre-funding of paid-up coverage is not factored in above projections.
SISIP Proper - Projected Financial ResultsBased on proposed rates for OGTI, "New" CAR and 20% rate increase for "Old" CAR - Limited subsidy
Option III
Net Income Year-end Surplus
Year
Total premium
(OGTI/CAR) OGTI "New" CAR * "Old" CAR ** SIB/Other Interest on
surplus Extraordinary item
*** Total
Net Income Current dollars 2004 dollars
2004 34,800,000$ 3,800,000$ N/A (1,970,000)$ 300,000$ 9,300,000$ (5,000,000)$ 6,430,000$ 193,430,000$ 187,796,000$
2005 36,800,000$ 2,900,000$ (78,000)$ 347,000$ 300,000$ 9,700,000$ (15,000,000)$ (1,831,000)$ 191,599,000$ 180,600,000$
2006 37,700,000$ 2,500,000$ 245,000$ (1,626,000)$ 300,000$ 9,600,000$ (5,000,000)$ 6,019,000$ 197,618,000$ 180,848,000$
2007 38,700,000$ 2,500,000$ 278,000$ (2,554,000)$ 300,000$ 9,900,000$ (5,000,000)$ 5,424,000$ 203,042,000$ 180,400,000$
2008 39,500,000$ 2,400,000$ 283,000$ (3,728,000)$ 300,000$ 10,200,000$ (5,000,000)$ 4,455,000$ 207,497,000$ 178,989,000$
2009 40,200,000$ 2,400,000$ 274,000$ (4,583,000)$ 300,000$ 10,400,000$ (5,000,000)$ 3,791,000$ 211,288,000$ 176,950,000$
2010 41,500,000$ 2,400,000$ 431,000$ (4,740,000)$ 300,000$ 10,600,000$ (5,000,000)$ 3,991,000$ 215,279,000$ 175,042,000$
2011 42,400,000$ 2,300,000$ 697,000$ (5,231,000)$ 300,000$ 10,800,000$ (5,000,000)$ 3,866,000$ 219,145,000$ 172,995,000$
2012 43,000,000$ 2,300,000$ 1,020,000$ (6,564,000)$ 300,000$ 11,000,000$ (5,000,000)$ 3,056,000$ 222,201,000$ 170,299,000$
2013 43,600,000$ 2,300,000$ 1,265,000$ (8,544,000)$ 300,000$ 11,100,000$ (5,000,000)$ 1,421,000$ 223,622,000$ 166,396,000$
2014 44,300,000$ 2,200,000$ 1,374,000$ (8,193,000)$ 300,000$ 11,200,000$ (5,000,000)$ 1,881,000$ 225,503,000$ 162,908,000$
2015 45,900,000$ 2,200,000$ 1,613,000$ (8,457,000)$ 300,000$ 11,300,000$ (5,000,000)$ 1,956,000$ 227,459,000$ 159,535,000$
2016 47,000,000$ 2,200,000$ 1,863,000$ (7,964,000)$ 300,000$ 11,400,000$ (5,000,000)$ 2,799,000$ 230,258,000$ 156,794,000$
2017 48,300,000$ 2,100,000$ 1,860,000$ (7,677,000)$ 300,000$ 11,500,000$ (5,000,000)$ 3,083,000$ 233,341,000$ 154,266,000$
2018 49,500,000$ 2,100,000$ 1,590,000$ (7,782,000)$ 300,000$ 11,700,000$ (5,000,000)$ 2,908,000$ 236,249,000$ 151,639,000$
2019 50,600,000$ 2,100,000$ 963,000$ (8,100,000)$ 300,000$ 11,800,000$ (5,000,000)$ 2,063,000$ 238,312,000$ 148,508,000$
2020 50,100,000$ 2,000,000$ 1,187,000$ (7,885,000)$ 300,000$ 11,900,000$ (5,000,000)$ 2,502,000$ 240,814,000$ 145,696,000$
2021 50,700,000$ 2,000,000$ 948,000$ (1,939,000)$ 300,000$ 12,000,000$ (5,000,000)$ 8,309,000$ 249,123,000$ 146,334,000$
2022 51,000,000$ 2,000,000$ 713,000$ (2,472,000)$ 300,000$ 12,500,000$ (5,000,000)$ 8,041,000$ 257,164,000$ 146,657,000$
2023 50,700,000$ 1,900,000$ 376,000$ (2,800,000)$ 300,000$ 12,900,000$ (5,000,000)$ 7,676,000$ 264,840,000$ 146,635,000$
2043 36,100,000$ 800,000$ 387,000$ 566,000$ 300,000$ 26,200,000$ (5,000,000)$ 23,253,000$ 547,969,000$ 167,984,000$
* Starting in 2005 with 75% of current CAR participants below age 50 in 2004 moving to the "New" CAR plan** With current rates increased by 20% starting in January 1, 2005 (and future rate subsidies eliminated for participants below age 50 as of 1/1/2005)*** Capital expenditure program, financial planning and other various initiatives**** Assuming CPI increases of 3% per year
Note:- Actual results may differ significantly from projected as a result of experience fluctuation- Pre-funding of paid-up coverage is not factored in above projections.
SISIP FSLife Insurance Review
Way Ahead
• Formal legal risk assessment
• Develop action plan for tentative implementation 1 July 2005
SISIP FS Life Insurance ReviewNPP BOD Decision Required
The NPP BOD is requested to approve from options presented, and subject to a formal legal risk assessment:
1. A new OGTI/RTIP premium rate schedule and a new accidental dismemberment coverage;
2. A new CAR program; and
SISIP FS Life Insurance ReviewNPP BOD Decision
3. A program adjustment to the existing CAR program which includes an increase in premiums, the potential limitation of the premium subsidy at age 55 for participants under 50 years old, and an option for participants to transfer to the new CAR program.
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