2009 annual meeting ● assemblée annuelle 2009 halifax, nova scotia ● halifax...
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2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse). Canadian Institute of Actuaries. L’Institut canadien des actuaires. Selling Insurance in Today’s Market Jeff Shaddick Ron Atkinson Jean Roy. Today’s Market. Unsettled Times - PowerPoint PPT PresentationTRANSCRIPT
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’Institut canadien desactuaires
L’Institut canadien desactuaires
Selling Insurance in Today’s Market
Jeff ShaddickRon Atkinson
Jean Roy
Today’s Market
Unsettled Times Unstable Economy Some Clients are having a tough time
But Many are not
Unsettled Times Unstable Economy Some Clients are having a tough time
But Many are not
Challenge or Opportunity?
In good times clients become blasé In these illiquid times, insurance becomes
more real and obvious as a viable financial planning solution
In good times clients become blasé In these illiquid times, insurance becomes
more real and obvious as a viable financial planning solution
Opportunities
The Dreams still remain– Protection of Family– Protection of Business– Protection of Legacy
The Dreams still remain– Protection of Family– Protection of Business– Protection of Legacy
Opportunities
Clients facing reality of reduced value but also reduced liquidity
Problems still remain– Capital Gains Tax– Funding Shareholders Agreements– Succession Planning– Charitable Commitments
Efficient and Effective Tax Planning
Clients facing reality of reduced value but also reduced liquidity
Problems still remain– Capital Gains Tax– Funding Shareholders Agreements– Succession Planning– Charitable Commitments
Efficient and Effective Tax Planning
Corporate Owned Insurance
Male 50 non smoker $5,000,000 T100 or minimum funded UL/LCOI
Male 50 non smoker $5,000,000 T100 or minimum funded UL/LCOI
Internal Rate of Return at Death
Age at Death After-tax IRR Pre-tax Equiv.
70 12.9% 21.1%
75 8.8% 14.1%
80 6.4% 9.9%
85 4.8% 7.2%
90 3.6% 5.4%
Enhanced IRR with Capital Dividend Account Credit
Age at Death After-tax IRR Pre-tax Equiv.
70 15.0% 25.3%
75 10.6% 17.3%
80 7.8% 12.6%
85 6.0% 9.5%
90 4.7% 7.3%
Charitable Gifting
Value of T100/LCOI 2007 legislative change Can be gifted for FMV not just CSV
Value of T100/LCOI 2007 legislative change Can be gifted for FMV not just CSV
Charitable Gifting
Client
FMVActuary
Charitable Gifting
3 Potential Structures– FMV + Commitment to pay future Premiums– FMV + Life Annuity to pay future Premiums– FMV + 3rd Party Contributor
3 Potential Structures– FMV + Commitment to pay future Premiums– FMV + Life Annuity to pay future Premiums– FMV + 3rd Party Contributor
Charitable Gifting
Process– Independent Actuarial Valuation
Cost $1,200 (tax deductible)
– Purchase SPIA– Donate T100/LCOI policy and SPIA– Charitable receipt
Process– Independent Actuarial Valuation
Cost $1,200 (tax deductible)
– Purchase SPIA– Donate T100/LCOI policy and SPIA– Charitable receipt
Charitable Gifting
Male 70 owns T100 purchased at age 50– Death Benefit $2 million– Premium $22,061
Male 70 owns T100 purchased at age 50– Death Benefit $2 million– Premium $22,061
Fair Market Value
Life Annuity Cost
Total Contribution
$635,000
$257,000
$892,000
Total Tax Credit (45%)
Life Annuity Cost
Net Positive Cash Flow
$401,400
(257,000)
$144,400
Charitable Gifting
Replacement Donor– Commits to fund future premiums: or– Buys life annuity to fund future premiums
Policy Donor– Receipt for policy’s FMV and designates
proportion of death benefit
Replacement Donor– Receipt for SPIA and designates balance
of death benefit
Replacement Donor– Commits to fund future premiums: or– Buys life annuity to fund future premiums
Policy Donor– Receipt for policy’s FMV and designates
proportion of death benefit
Replacement Donor– Receipt for SPIA and designates balance
of death benefit
Alternative to buying Term
Male 50 non Smoker $2,000,000 45% Tax Rate; 2% PV rate
Male 50 non Smoker $2,000,000 45% Tax Rate; 2% PV rate
Term 10 R&C
$272,100
$210,212
LCOI UL Min Prem
$441,225
$367,947
UL with Charitable Gift
$175,645
After 20 years
Total Outlay
Net PV
Alternative to buying Term
Options left open to insure future needs at today’s rates Flexibility to accumulate cash on a Tax Exempt basis If true short term need;
– Charitable legacy– Lower PV cost
Higher Compensation
Options left open to insure future needs at today’s rates Flexibility to accumulate cash on a Tax Exempt basis If true short term need;
– Charitable legacy– Lower PV cost
Higher Compensation
Underwriting
The Underwriting Experience
Client’s view:– Long and complicated– Credibility is affected sometimes
E.g. some information is asked twice
– Some just give up in the process Business left on the table
Client’s view:– Long and complicated– Credibility is affected sometimes
E.g. some information is asked twice
– Some just give up in the process Business left on the table
The Underwriting Experience
Agent or broker’s view:– Physician medical reports take a long time
Apparently often incomplete the first time Information contained may lead to new requests
to other physicians or specialists Hospital records, doctors no longer in health
system make it even more difficult
Agent or broker’s view:– Physician medical reports take a long time
Apparently often incomplete the first time Information contained may lead to new requests
to other physicians or specialists Hospital records, doctors no longer in health
system make it even more difficult
The Underwriting Experience
Agent or broker’s view:– Wealthy people go to private sector– Private sector competes for the wealthy
Offer/suggest variety of tests/procedures Wealthy is key to the family/business They happily go for all sorts of tests/procedures Underwriter wonders what she/he is missing
Agent or broker’s view:– Wealthy people go to private sector– Private sector competes for the wealthy
Offer/suggest variety of tests/procedures Wealthy is key to the family/business They happily go for all sorts of tests/procedures Underwriter wonders what she/he is missing
The Underwriting Experience
Agent or broker’s view:– Travelling pattern of clients is problematic– More challenges on the financial side since
the financial crisis More information requested
Agent or broker’s view:– Travelling pattern of clients is problematic– More challenges on the financial side since
the financial crisis More information requested
Underwriting
Underwriters are more and more busy– Very little time left to think the situation through– More reactive
Increased workload & costs on sales force Art (judgement) versus science
Few young underwriters
Underwriters are more and more busy– Very little time left to think the situation through– More reactive
Increased workload & costs on sales force Art (judgement) versus science
Few young underwriters
Underwriting
How can process be simplified?– Slow process and reactive mode is invitation
for multiple applications which is perverse For a sale to materialize:
– Qualification– Need, relationship and momentum– Delays, and or unpleasant experience can
kill momentum and also relationship
How can process be simplified?– Slow process and reactive mode is invitation
for multiple applications which is perverse For a sale to materialize:
– Qualification– Need, relationship and momentum– Delays, and or unpleasant experience can
kill momentum and also relationship
Illustrations
Illustrations
Volatility in stock markets affected investment portions of UL policies
Is it realistic to illustrate equity returns in UL using flat rates?– Making 7% net over a 10 year period is not the
same as making 7% every year for 10 years– Use of variable rates should be emphasized
Volatility in stock markets affected investment portions of UL policies
Is it realistic to illustrate equity returns in UL using flat rates?– Making 7% net over a 10 year period is not the
same as making 7% every year for 10 years– Use of variable rates should be emphasized
Illustrations
Volatility can be amplified if COI is taken from equity accounts– Reverse dollar cost averaging– The higher the COI in proportion of the fund
value, the more you get hurt– Potential for high disappointment by clients– Shift towards GIC types for existing clients
Volatility can be amplified if COI is taken from equity accounts– Reverse dollar cost averaging– The higher the COI in proportion of the fund
value, the more you get hurt– Potential for high disappointment by clients– Shift towards GIC types for existing clients
Exempt Test Update
Exempt Test Update
Brief Review 2008 Meetings Next Steps
Brief Review 2008 Meetings Next Steps
Review
How did we let things get so far?– 1982 rules addressed traditional insurance products– By 1990’s, various interpretations to deal with UL
CHHIA submission in August 1998 (Green Monster) CLHIA/CALU submission on CI and LTC in March 2004
How did we let things get so far?– 1982 rules addressed traditional insurance products– By 1990’s, various interpretations to deal with UL
CHHIA submission in August 1998 (Green Monster) CLHIA/CALU submission on CI and LTC in March 2004
Review
Current concerns:– Single premium UL– Green Monster is 10 years old– Need to address CI and LTC
Refund of premium options
Current concerns:– Single premium UL– Green Monster is 10 years old– Need to address CI and LTC
Refund of premium options
2008 Meetings
April 22th– Are previous submissions still valid?– CI/LTC
Need to deal with ROP CI is more popular now than LTC Finance – wants to ensure rules are reasonable
April 22th– Are previous submissions still valid?– CI/LTC
Need to deal with ROP CI is more popular now than LTC Finance – wants to ensure rules are reasonable
2008 Meetings
June 26th– Finance review updated proposals to Green Monster– Finance wants to understand what an AF consists of– Finance is looking at IIT income
How to measure “value” inside a policy Is there “value” building inside T-100 or LCOI-UL?
June 26th– Finance review updated proposals to Green Monster– Finance wants to understand what an AF consists of– Finance is looking at IIT income
How to measure “value” inside a policy Is there “value” building inside T-100 or LCOI-UL?
2008 Meetings
Conclusion:– There should be pressure to do something
soon due to SP UL sales opportunities
Conclusion:– There should be pressure to do something
soon due to SP UL sales opportunities
Next Steps
There was immediacy after last meetings Now – nothing since last year Stay tuned!
There was immediacy after last meetings Now – nothing since last year Stay tuned!
Thank you