2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario
This presentation is the property of its rightful owner.
Sponsored Links
1 / 91

2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario) PowerPoint PPT Presentation


  • 96 Views
  • Uploaded on
  • Presentation posted in: General

L’Institut canadien des actuaires. Canadian Institute of Actuaries. 2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario). Session/séance : PD-19 Impact of Recessions on LTD Experience Speaker(s)/conférencier(s) : Jeff Schuh, Peter Douglas, Ken Fraser.

Download Presentation

2009 General Meeting ● Assemblée générale 2009 Ottawa, Ontario ● Ottawa (Ontario)

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

L’Institut canadien

des

actuaires

Canadian

Institute

of

Actuaries

2009 General Meeting ●Assemblée générale 2009

Ottawa, Ontario ● Ottawa (Ontario)

Session/séance : PD-19 Impact of Recessions on LTD Experience

Speaker(s)/conférencier(s) :Jeff Schuh, Peter Douglas, Ken Fraser


Agenda

2009 General Meeting

Assemblée générale 2009

Agenda

  • Evolution of the U.S. recession

  • Historical connections between recessions and Group LTD experience in the U.S.

  • Canadian LTD metrics vs. Economic indexes

  • Canadian LTD Profitability vs. Economic indexes


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

PD-19 Impact of Recessions on LTD Experience

Jeff Schuh, VP & Senior Actuary

ING Reinsurance

2009 General Meeting

Assemblée générale 2009


U s economic timeline

2009 General Meeting

Assemblée générale 2009

U.S. Economic Timeline

  • Summer 2007 - “Beginning of the end”

    • Trouble brewing in the U.S. housing market (prices dropping, inventories climbing, foreclosures up)

    • MBS quality drops

    • 2 large Bear Stearns hedge funds go bankrupt ($1.6B) due to MBS exposure – despite AAA rating

    • First crack in the edifice

    • Cost of borrowing up, spreads increase


U s economic timeline1

2009 General Meeting

Assemblée générale 2009

U.S. Economic Timeline

  • March 10-16, 2008: “A very bad week”

    • Monday

      • Rumors circulate that Bear Stearns is running out of cash

      • Stock begins to nosedive (slowed only by Spitzer scandal!)

    • Thursday

      • Bear Stearns suffers run on bank as clients pull money

      • Needed emergency cash or file bankruptcy overnight, call to JP Morgan

      • JP Morgan and NY Feds send over analysts to look at the books

    • Friday

      • JP and Feds discover enormity of problem: sub-prime exposure, credit default swaps, interconnectedness with other banks

      • Feds propose a loan $30B to JP Morgan to fund Bear Stearns purchase

    • Saturday

      • JP offers Bear Stearns $8-12/share ($170 in 2007, $30 previous Friday)

    • Sunday

      • JP revises bid and offers $4/share

      • Treasury Secretary Henry Paulson worries about “moral hazard”, insists that JP lower offer to $2/share to penalize Bear Stearns

  • Economy limps along until the fall…


U s economic timeline2

2009 General Meeting

Assemblée générale 2009

U.S. Economic Timeline

  • Sept 9-16th, 2008: “The Week America’s Economy Almost Died”

    • Tuesday– Lehman Brothers stock drops 45% in one day

    • Wednesday – LB announces earnings early, to no avail

    • Thursday–LB computerized trading system freezes when JPMorgan demands $5B collateral on short notice

    • Friday

      • Paulson insists there will be no bailout, citing “moral hazard” issues

      • Geithner declares “somebody needs to buy them”

      • BOA and Barclays interested – but BOA purchases ML instead, Barclays drops out

    • Sunday– LB files bankruptcy

    • Tuesday

      • LB goes under

      • Stock market nose dives

      • Banks unwilling to lend money, credit markets freeze up

      • AIG nationalized after stock drops 61%

    • Wednesday– Goldman Sachs and Morgan Stanley now teetering


U s economic timeline3

2009 General Meeting

Assemblée générale 2009

U.S. Economic Timeline

September 20$700B bailout proposed

September 21GS and MS turn themselves into bank holding companies (all five major investment banks are gone)

September 25Washington Mutual becomes largest bank failure ever

October 3Congress passes bailout bill allowing government authority to purchase toxic assets or capital injections


September november 2008

2009 General Meeting

Assemblée générale 2009

September & November, 2008

  • Lehman Bankruptcy

  • Bank of America acquires Merrill Lynch

  • Federal Reserve rescues AIG

  • Bailout Plan passed

  • Goldman and Morgan Stanley become banks

  • Washington Mutual seized

  • Wells Fargo acquires Wachovia

  • Fannie Mae/Freddie Mac bailed out

  • Car Makers (Detroit) seek bailout

  • President Obama elected

  • Speed of economic collapse was startling…


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Recessions Are Not Equal Opportunity Events

(snapshot from early 2009)


What does this have to do with group ltd

2009 General Meeting

Assemblée générale 2009

What does this have to do with Group LTD?

  • Potential for higher incidence rates

  • Potential for lower termination rates (longer durations)

  • Effect will vary by diagnosis, industry, occupation, demographics

  • Statements above are logical and plausible, but largely anecdotal. What proof do we have that this linkage exists?


U s evidence of ltd economy linkage

2009 General Meeting

Assemblée générale 2009

U.S. Evidence of LTD/Economy Linkage

  • Metrics

  • M&A Impact on Group LTD Incidence (2000)

  • Unum 2004 Incidence Study

  • 2008 SOA Termination Rate Study

  • ING Survey on Economic Impact (2009)

  • New Academic Papers

  • Profits

  • 1990 LTD Industry Profits

  • 2008 Industry LTD Claims Review

  • Recent Results from Select Insurers (Unum, Standard, Met)


Impact of m a on group ltd

2009 General Meeting

Assemblée générale 2009

Impact of M&A on Group LTD

  • Study by one U.S. insurer found LTD incidence rates and loss ratios increased immediately after M&A activity*

    • Incidence rates 10-15% higher after M&A date

    • Annual incurred claims per employee were 21% higher

  • Were these from employees who were very likely to be laid off? Does this differ from current environment where employment is uncertain and workers may be afraid to go on disability?

  • Will there be a disability “echo” during economic recovery as postponed claims are filed and new claims arise from overworked staff?

  • *Source: ING Reinsurance Disability Forum, 2000, Vol. 7, No. 2


Unum incidence study

2009 General Meeting

Assemblée générale 2009

Unum Incidence Study

  • Presented at SOA 2004 Anaheim Health Spring Meeting

  • Unum LTD incidence rates from 1989-2003 mapped against U.S. recessions of 1990 and 2001

  • Discovered correlations between incidence rates and macro-economic indexes

  • Startling conclusion: incidence rates continued to rise after the 1990 recession, and officially peaked 16 quartersafter the recession officially ended


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Conclusions of Unum Study

Implications are troubling given current economic indicators…


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

U.S. Consumer Confidence Index


Qualifications with unum study

2009 General Meeting

Assemblée générale 2009

Qualifications with Unum Study

  • Actual values and claim rates not available

  • Correlations vs. causation

  • No linear relationships

  • Mix of business: results not corroborated by other insurers, current Unum results not adversely affected by recession (significant move down-market and concentration in “recession resistant” industries)

  • 2001 recession incomplete, inconclusive during study period

  • Not all recessions have similar effects

  • More to Group LTD profitability than incidence rates

  • However, the study served important role by generating discussion and increasing awareness of LTD/Economy linkage


Ing reinsurance industry survey

2009 General Meeting

Assemblée générale 2009

ING Reinsurance Industry Survey

  • “Impact of the U.S. Economy on the Disability Market” – 9/2009

  • Incidence Rates:

    • Majority of participants felt economy had minimal impact on incidence or that incidence had declined

    • “Some industries with increasing incidence rates are offset by tendency of employees in other sectors to hang on to their employment or RTW more quickly in order to avoid losing job”

    • “We have experienced more instances in which claims submitted were not eligible because their hours were reduced below plan”

  • Recovery Rates:

    • 78% felt recession had not affected recovery rates, however…

    • 56% felt recession has dampened employers’ willingness to support RTW

    • “There is less willingness to hold jobs open or make accommodation to allow some to return to work”


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

New SOA LTD Study:Short Duration (<5 yrs) Termination Rates

Speaker noted only modest drop in termination rates during 2001, offset by increase in mortality

Source: “SOA Experience Table Update” – Edd Bailey, Eric Poirier (2009 JHA Dynamics of Disability)


New academic studies from the university of southern maine center for business economic research

2009 General Meeting

Assemblée générale 2009

New Academic Studies from the University of Southern Maine(Center for Business & Economic Research)

  • “Long-Term Disability Claims Rates and the Consumption-to-Wealth Ratio” published in the Journal of Risk and Insurance [March 1, 2009]

    • Purpose: investigate relationship between Group LTD claim rates and the economic indicators.Explore the ability of the consumption-to-wealth ratio to predict LTD submitted claims rates.”

    • Option Theory utilized as LTD insurance treated as put option

    • Conclusion: “When the consumption-to-wealth ratio is low, claims rates are high.We find that the connection is fairly strong and robust”

  • Predicting SSDI submitted incidence using time series (ARIMA) models

    • Preview given at SOA Annual Meeting (Oct. 28-28, 2009)

    • Relatively high predictive power


New academic studies from the university of southern maine center for business economic research1

2009 General Meeting

Assemblée générale 2009

New Academic Studies from the University of Southern Maine(Center for Business & Economic Research)

  • The catch…

  • Consumption-to-Wealth Study:

    • Examined only two industry sectors: manufacturing and wholesale/retail.

    • Based on Unum-only data

    • This is an academic paper - Dynamic Ordinary Least Squares Cointegrating Regressions:

  • ARIMA Model:

    • Time series models are a black box, do not provide insight into reasons for predictive ability.


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

U.S. LTD Industry Profits vs. 1990 Recession

  • - LTD experience does not track directly with recession. Lagged effect?

  • Poor experience generally attributed to white collar lay-offs, liberal plan designs (physicians/attorneys), rise of managed care, etc.

  • Source: Jan. 2009 GUAA presentation (Rich Clement – Smith Group)


Council for disability awareness 2008 ltd claims review

2009 General Meeting

Assemblée générale 2009

Council for Disability Awareness: 2008 LTD Claims Review

  • 15 participating companies, representing 75% of U.S. disability market.

  • Government Plan

    • Applications for SSDI benefits “surged” during 2008

    • SSDI approval rates continue to decline

  • Private Plans

    • LTD insurers report that over past several years, incidence and durations have been declining

    • Almost without exception, participants report that the 2008-2009 downturn has not affected disability claims as of the reporting date

    • “The participating member companies generally expect to see some influence on claims from the current economic downturn, although none predict a severe impact.”


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

StanCorp shows no adverse link between economy and overall Group Benefit Ratio

Source: 9/10/2009 KBW Insurance Conference


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Drill-down into LTD-only benefit ratio yields similar results

Source: 9/10/2009 KBW Insurance Conference


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

StanCorp’s Quarterly Group Benefit Ratios - through 3Q09

Source: StanCorp’s quarterly earnings calls


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

  • Bad News: Unum shows uptick in LTD incidence rate during 3Q09. STD deteriorated as well.

  • Good News: Average size of claim decreased, claim volatility coming from “non-economically sensitive sectors”.

  • Source: 9/9/2009 Annual Investor Meeting


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Source: 9/9/2009 Annual Investor Meeting


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Source: 9/9/2009 Annual Investor Meeting


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Source: 9/9/2009 Annual Investor Meeting


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

MetLife Underwriting Results

  • The group disability morbidity ratio (96.4%) was above the target range for the first time this year.

  • “Disability claim incidence picked up in the third quarter after several quarters of stable experience, although there was a similar up-tick in the year-ago period.”

  • “Recoveries, which have been lower than anticipated all year, remained below expectations.”

Source: MetLife Q3 2009 Earnings Call - October 30, 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Links

2004 Unum SOA Presentation

http://www.soa.org/files/pdf/033_bk-anaheim04.pdf

2008 SOA Table:

http://www.soa.org/research/group-disability/2008-ltd-study.aspx

CDA 2008 LTD Claims Review:

http://www.disabilitycanhappen.org/surveys/CDA_LTD_Claims_Survey_2008.asp

University of Southern Maine – Center for Business & Econ Research

http://www.usm.maine.edu/~cber/

LTD & Consumption to Wealth Ratio

http://www3.interscience.wiley.com/cgi-bin/fulltext/122192705/HTMLSTARTW?CRETRY=1&SRETRY=0


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

PD-19 Impact of Recessions on LTD Experience

Peter Douglas, Instructor

Math & Stats

University of Regina

2009 General Meeting

Assemblée générale 2009


Pd 19 ltd during a recession

PD-19 LTD During A Recession

Statistical Analysis

Historical Background

Data Sources

Impact on Incidence

Impact on Termination

US, Canadian and UK data

2009 General Meeting

Assemblée générale 2009


Data studies

Data Studies

2009 General Meeting

Assemblée générale 2009

All of this data free on the web!

But ideally we need longer Canadian LTD history.


Historical unemployment

Historical Unemployment

2009 General Meeting

Assemblée générale 2009


Canadian economic indicators

Canadian Economic Indicators

2009 General Meeting

Assemblée générale 2009


Cia ltd studies

CIA LTD Studies

Short history with key gaps

Termination Rates

1988-97 Study released 2009

New study 2004-8 underway

Incidence Rates

No study to date

Planned 2009 study on hold

2009 General Meeting

Assemblée générale 2009


Cia terminations

CIA Terminations

2009 General Meeting

Assemblée générale 2009

A:E ratios generally improved over time

Regardless of changes in unemployment!


Cia terminations detailed results

CIA TerminationsDetailed Results

Correlation of A:E Ratio

Improvement over time more important than job market

More terminations in poor job market?

More soft claims (year 1 results)

Biggest impact in years 4-10?

2009 General Meeting

Assemblée générale 2009


Cpp disability approvals

CPP Disability Approvals

2009 General Meeting

Assemblée générale 2009


Cpp disability approvals1

CPP Disability Approvals

2009 General Meeting

Assemblée générale 2009


Cpp approval rates

CPP Approval Rates

2009 General Meeting

Assemblée générale 2009

  • Subjective

    • Politics

    • Policy changes

    • Current political pressure?

  • Clear spikes when unemployment is high

  • Expect an increase in CPP approval rates for 2009-10


Wcb statistics

WCB Statistics

2009 General Meeting

Assemblée générale 2009

  • Results by province 1996-2007

    • Some gaps

    • Key stats added in 2000

    • Not always consistent between WCBs

  • Key Statistical Measures

    • Number of Loss Time Claims

    • Payroll

    • % LTCs receiving benefits after 2 years


Past wcb studies

Past WCB Studies

2009 General Meeting

Assemblée générale 2009

  • Incidence Improves During a Recession

    • Fewer inexperienced workers

    • Less safe equipment mothballed

    • Hazardous industries worst hit by economy

  • Fear of job loss

    • may increase or decrease incidence claims

  • No clear impact re cost per claim


Wcb incidence rates m adjusted payroll

WCB Incidence Rates($M adjusted payroll)

2009 General Meeting

Assemblée générale 2009

Incidence of time loss claims decreases over period

Unemployment generally decreases, but no clear link


Wcb incidence rates per 100 lives

WCB Incidence Rates(per 100 Lives)

2009 General Meeting

Assemblée générale 2009

More useful measure but shorter history

Again no clear link to unemployment


Wcb continuance after 2 years

WCB Continuance (after 2 Years)

2009 General Meeting

Assemblée générale 2009

History is short and incomplete.

Most provinces see increase in longer term claims over time.

No clear link to unemployment.


Soa 1995 ltd study

SOA 1995 LTD Study

2009 General Meeting

Assemblée générale 2009

Slightly longer history over full cycle.

More data and results shown by quarter.

Terminations inversely correlated to unemployment.


Soa 1995 ltd study1

SOA 1995 LTD Study

2009 General Meeting

Assemblée générale 2009

Same data shown as XY Scatter plot.

Downward trend indicates A:E ratios↓ as Unemployment ↑


Soa 1995 ltd study2

SOA 1995 LTD Study

2009 General Meeting

Assemblée générale 2009

Regression models can be fit to data, but why?

Clearly results are driven by more than unemployment.


Soa 2008 ltd report

SOA 2008 LTD Report

2009 General Meeting

Assemblée générale 2009

Recovery rates improved with both job market and time.

Not clear which is most important, implication for recession


Soa 1990 99 di study incidence rates

SOA 1990-99 DI StudyIncidence Rates

2009 General Meeting

Assemblée générale 2009

Incidence rates improved with job market

Not clear they will get worse with job market.


Soa 1990 99 di study incidence rates1

SOA 1990-99 DI StudyIncidence Rates

2009 General Meeting

Assemblée générale 2009

Same data as XY scatter plot.

Study does not look at termination A:Es by year


Uk experience

UK Experience

2009 General Meeting

Assemblée générale 2009

  • UK Group Income ProtectionLTD

  • Typically 13 or 26 week EP

  • CMR20

    • Termination Experience 1995-8

    • Includes results from 1974-98

    • Experience grouped into 4 year periods

    • UK economic trends differed from US and Canada over much of this period


Uk group experience

UK Group Experience

2009 General Meeting

Assemblée générale 2009

  • No pattern based on employment or over time!

  • A:E high in periods of high UE (91-4) and low UE (75-8)

  • A:E low in periods of high UE (83-6) and low UE (95-8)

  • Economic forecasts were grim in the early period covered


What does the data tell us

What Does the Data Tell Us?

2009 General Meeting

Assemblée générale 2009

.


What does the data tell us1

What Does the Data Tell Us?

2009 General Meeting

Assemblée générale 2009

.

  • Incidence rates

    • Improved with job market in past

      • Other factors at work?

    • May deteriorate with job market

      • Plausible causation (stress, anti-selection)

      • Supporting data hard to find

  • CPP disability approval rates

    • Strongly correlated with unemployment in past


What does the data tell us2

What Does the Data Tell Us?

2009 General Meeting

Assemblée générale 2009

.

  • Termination rates ?!?!

    • CIA LTD shows no clear link to unemployment

      • Increase in early months (soft claims)?

    • SOA study indicates experience worsens with job market

    • UK study inconclusive

    • WCB may not be applicable

    • Crash when things are really bleak

      • (UK 80s)


Links

Links

2009 General Meeting

Assemblée générale 2009

.

  • CIA LTD

    • http://www.actuaries.ca/members/publications/pub_index_2009_e.cfm

  • SOA 95 LTD

    • http://www.soa.org/research/group-disability/96-group-ltd-study-tables.aspx

  • SOA DI

    • http://www.soa.org/research/limited-disability/hlth-1990-99-individual-disability-experience-committee-report.aspx

  • AWCBC

    • http://www.awcbc.org/en/financialdataandkeystatisticalmeasuresksm.asp

  • UK CMR

    • http://www.actuaries.org.uk/knowledge/cmi/cmi_reports

  • OECD

    • http://stats.oecd.org/index.aspx


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

PD-19 Impact of Recessions on LTD Experience

Ken Fraser, President

Fraser Group

2009 General Meeting

Assemblée générale 2009


Recession and ltd results

Recession and LTD Results

Data Sources

Fraser Group

Canadian Incidence and Continuance Study

Quick Profitability Survey

Sources of Profit Survey

Statistics Canada

Gross Domestic Product

Unemployment Rate

2009 General Meeting

Assemblée générale 2009


Quick profitability survey

Quick Profitability Survey

Survey of Group carriers

Data from 1992 to 2008

A simple question?

Were your results satisfactory in LTD?

Yes/No

2008 data from 17 companies, 91% market share

2009 General Meeting

Assemblée générale 2009


Sources of profit survey

Sources of Profit Survey

Survey of Group carriers

Data from 1996 to 2008

Profit as Percent of Revenue

2008 data from 12 companies, 81% market share

2009 General Meeting

Assemblée générale 2009


Canadian incidence and continuance study

Canadian Incidence and Continuance Study

Experience Study

Data from 2000 to 2003

Exposure and Claim data from employers < 1000 lives

2003 data from 13 companies, 34% market share

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009


Conclusion

Conclusion

No obvious relationship of LTD results to macro economic

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

But we all believe there is one.

Why can’t we see it?

2009 General Meeting

Assemblée générale 2009


Problem with financials

Problem with Financials

Reported LTD Financial results are not tightly linked to economy.

Valuation models may distort the direction, magnitude and timing of economic impacts.

Management actions (underwriting and claim management) may deflect economic effects.

Structural changes in the Insurance Industry may hide the economic impact (e.g. consolidation, regulatory action)

2009 General Meeting

Assemblée générale 2009


Problem with financials1

Problem with Financials

Don’t forget the revenue side

Under pricing as layoffs increase average ages

Collectability of premiums

Anticipatory rate increases

2009 General Meeting

Assemblée générale 2009


Problem with financials2

Problem with Financials

Theoretically better to look at claim fundamentals rather than final financial results

Incidence

Recovery

Even so, management will employ best efforts to modify impact.

More selective underwriting

Tighter adherence to contracts

More investment in claim management

2009 General Meeting

Assemblée générale 2009


Problem with macro stats

Problem with Macro Stats

Both economic and industry statistics are averages of industry and regional sectors.

For instance,

Downturn in high tech (1999)may have different LTD impact than downturn in manufacturing (2009)

2009 General Meeting

Assemblée générale 2009


Problem with our models

Problem with our Models

Relationships are probably not linear.

There is probably more than one independent variable

E.g. industry specific economic activity, financial strength of plan sponsor, age and occupation of employee, diversification of local economy

These variables may interact to amplify or nullify effect on LTD

There may be threshold relationships

Little or no impact until a certain level is exceeded (e.g. unemployment)

2009 General Meeting

Assemblée générale 2009


In summary

In summary

There is a great deal of anecdotal evidence linking economic downturns to adverse LTD results.

However, historical data does not show a causal relationship between macro economic measures and LTD financial results.

2009 General Meeting

Assemblée générale 2009


In summary1

In summary

Further research is needed and should focus on

Claim fundamentals vs financial results

Narrow industry or regional segments

The effect of intervening variables

2009 General Meeting

Assemblée générale 2009


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Sources

  • Canadian Incidence and Continuance Study

    • Fraser Group and Denis Garand & Associates

  • Quick Profitability Survey

    • Fraser Group

  • Sources of Profit Survey

    • Fraser Group

  • Statistics Canada. Labour Force Historical Review 2007 (Table Cd1T46an). Ottawa,

    • Statistics Canada, 2008 (Cat. No. 71F0004XCB).

  • Real Gross Domestic Product (GDP) per capita, Canada, 1981-2007

    • HRSDC calculations based on 1) Statistics Canada. Gross Domestic Product (GDP), expenditure-based, provincial economic accounts, annual (CANSIM Table 384-0002). Ottawa: Statistics Canada, 2008; and 2) Statistics Canada. Estimates of population


2009 general meeting assembl e g n rale 2009 ottawa ontario ottawa ontario

2009 General Meeting

Assemblée générale 2009

Questions?


  • Login