2008 General MeetingAssemblée générale 2008

Toronto, Ontario

2008 General MeetingAssemblée générale 2008

Toronto, Ontario

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

CALM for Group Insurance

PD 4 13 November 2008Whitman Wu

&Gary Walters

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History of CALMHistory of CALM

• How long is the history of CALM?• Year-end 2001.• How was group valuation done before 2001?

• How was your year-end 2001 valuation different from the past?

• How is it different now?• Why would some valuation process

changes take place long after a standard was in place?

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• Standards of Practice provide high level guidance

• Group is lumped in with Life• New Education note being finalised on

valuation of Group Insurance

CALM for Group in 2008CALM for Group in 2008

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• Project liability cash flows with MfADs• Find appropriate assets to broadly match

those cash flows• The market value of those assets is best

estimate reserve (base scenario)• Stress-test the reserve with different

reinvestment scenarios to see what extra assets are required

• Padded reserve is market value of this larger group of assets

CALM 101CALM 101

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Get Ready to ThinkGet Ready to Think

• Questions to stimulate you to think, in the context of Group valuation

• How you do your work?• Why take a complex way instead of a

simple way? Or vice versa?• Ever justified “I did it my way”?• Ever came across “Regrets, I have a few”?

• Still like “It has always been that way”?

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• Cash flows• Which policies to include? And for how

long?• Policies where pv future benefits may exceed pv

future premiums under any interest rate scenario• For the term of the liability

• How do cash flows interact with each other and the interest rate scenario?

• Matching to assets• In particular market value adjustments

2 Key Areas to Question2 Key Areas to Question

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Selected TopicsSelected Topics

• COLA Increases• Premium Rate Guarantees• LTD IBNR• Market Value Adjustment• LTD Expense (if time available)• ERR covered by another presentation at

the CLIFR session (PD-27) on Friday

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• Question: Do you model scenario dependent cash flows for benefits with COLA?

• If yes, how do you model the seriatim cash flows by scenario taking into consideration COLA caps that vary by policy?

• If no, why? Did you justify that not varying COLA cash flows by scenario is a reasonable approximation?

COLA IncreasesCOLA Increases

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• Question: Do you include cash flows arising from the premiums until the end of the premium guaranteed period?

• If no, why? Should you?

• If yes, do you reflect the guaranteed period policy by policy or use approximation?

• If approximation, what approximation?• If policy by policy, go to the next slide.

Premium Rate GuaranteesPremium Rate Guarantees

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Premium Rate DiscountsPremium Rate Discounts

• Question: Do you reflect premium rate discounts?

• If no, why? Should you?• If yes, how?

• How about expense discounts for refund accounting business and ASO?

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Premium Rate CommitmentsPremium Rate Commitments

• Question: You have committed a new business or renewal rate in Nov 2008 with an effective date of Feb 1, 2009. At year-end 2008 valuation, do you reflect the liabilities related to the period from Feb 2009 to Jan 2010 for this policy?

• If no, why? What are the challenges?• If yes, how?

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LTD IBNRLTD IBNR

• Question: How do you project cash flows for LTD IBNR?

• Over a short period? A long period?• If you apply a cash flow pattern, what is the

basis of the implied interest rate? And how does this interest rate relate to that in the premium?

• If IBNR is based on factor x premium, how do you account for premium deficiency or handle significant rate increases?

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Market Value AdjustmentMarket Value Adjustment

• Question: Do you run CALM using asset values on 3855 basis? Or do you maintain the pre-3855 basis when running CALM?

• If on 3855 basis, how you deal with refund policies where policyholder reserves are not based on asset value?

• If on pre-3855 basis, and if you invest long term to back stable short term liabilities (EHC IBNR, AoD), how do you handle the market value changes on these assets?

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LTD Claims ExpenseLTD Claims Expense

• Question: For LTD DLR, do you use level or varying expense assumption by duration for claims administration?

• If level assumption, does it reflect how disabilities at different duration are managed, or it is just a simplified assumption?

• If varying expense, how is it determined?• What is the impact on reserves between level

and varying expense?

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LTD IBNR ExpenseLTD IBNR Expense

• Question: For LTD IBNR, do you use the same expense assumption as for DLR?

• If the same, is it appropriate?• If different, why different?• How do you model the expense cash flows

for LTD IBNR?

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Questions?Questions?

• Enough questions from us?• Any questions from you?