2008 Annual Meeting ● Assemblée annuelle 2008 Québec

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2008 Annual Meeting ●Assemblée annuelle 2008 Québec

2. Does IASB matter for Group Insurance? Annual General Meeting IP 36 June 19, 2008 David Congram

3. IFRS – Moving Towards a Global Standard Fixed deadlines for IFRS implementation US-GAAP - Convergence intended No intent to converge with IFRS Convergence plans

4. Primary attributes of IFRS Timetables Phase I Phase II Implications Meeting the deadline Agenda

5. Insurance to be subject to the same general principles as other financial services firms Principles-based approach with additional guidance Consistency of treatment between insurance, investment management and banking products Proposal outlined in Phase II Single measurement model for Life and non-life Prospective valuation – Present Value of all future cash flows Paradigm of Current exit value - transfer value Primary Attributes of IFRS

6. Life P&C Reinsurers Credit Union/Cooperatives Non Profit Member owned Government Owned Insurers Publicly Accountable Enterprises Foreign Owned Canadian Owned IFRS – IASB IFRS – EU US – GAAP IFRS - AUST IFRS - AcSB IFRS – AcSB IFRS – SME DRAC PSAB - GAAP OSFI has designated that Federally Regulated Financial Institutions as PAE’s

7. AcSB’s, CSA and OSFI External Requirements Prepare comparative figures under IFRS Quantify effects of changeover to IFRS (‘09 annual report) Qualitative disclosures of differences (‘08 annual report) 2008 2009 2010 2011 OSFI progress report OSFI progress report OSFI progress report OSFI progress report OSFI progress report Data capture for Comparatives in 2011 March 2011 first interim reporting quarter end with disclosures AcSB’s progress review

8. IASB Insurance Project Steering Committee Advisory Committee Insurance Working Group Phase I Phase II IssuesPaper DSOP ED 5 IFRS 4 Start Discussion With FASB Discussion Paper ED X Split of Project 2001 2005 2007 2009 2003 1999 1997 2011 2012 2002 2010 2008 2000 1998 2006 2004 International InsuranceProject Time table IASC Phase II 2013 Application

9. Mandatory guidance for first time preparers First financial statement of unreserved compliance with IFRS Apply IFRS at the reporting date retrospectively Date of transition is first balance sheet Recognize and de-recognize Mandatory and optional exceptions from retrospective application. Understanding IFRS 1

10. IFRS Phase I --> Phase II Assets Liabilities All Insurance Contracts and Investment Contracts with Discretionary Participation Features Other Investment Contracts and All Service Contracts IAS 39 and some aspects in IAS 32 and IAS 18 IAS 39 for Invested Assets IFRS 4 Phase II 2013?

11. Where does Group Insurance Fit? Insured Business Pooling ASO

12. Review IAA Classification Paper - Highlights Create financial assets or liabilities? IAS 18 Service Contract Measurement Yes No Significant insurance risk No Yes Service Element Contains Discretionary Participation Feature? Insurance Contains service elements? No Yes Split Host from Embedded Derivative and Deposit Financial Instrument Split Embedded Derivative Host Separate Deposit Component IAS 39 Financial Instrument Measurement IFRS 4 Measurement

13. Applies to Insurance Contracts—must have “significant insurance risk” Insurance contracts accounted under local GAAP, with certain restrictions (generally deferral and matching) Embedded derivatives at fair value (similar to FAS 133 treatment) Liability adequacy test Insurance contract liabilities may be adjusted for changes in interest rates PRIMARY PROVISIONS OF IFRS 4

14. Most other contracts held by insurance companies are investment contracts (do not meet definition of insurance) Held as amortized cost if considered “held to maturity” otherwise at fair value (with demand deposit floor) IAS 32 & 39 APPLY TO MOST ASSETS AND INVESTMENT CONTRACTS

15. Generally, contracts that are neither insurance contracts or investment contracts are service contracts Claim service contracts (ASOs) Self insurance of first layer of group coverage Service component of an investment contract is to be separated Covered by IAS 18 SERVICE CONTRACTS

16. In Phase 1 ASO will likely be measured under Service Contracts Insurance Contract measurement through IFRS 4 will remain on the existing accounting model

17. IASP 2 Actuarial Practice IASP 3 Classification of Contracts IASP 4 Measurement IASP 5 Current Estimates IASP 6 Liability Adequacy Testing IASP 7 Discretionary Participation Features IASP 8 Changes in Accounting Policies IAA Insurance Actuarial Practice Guidelines Introduced July 25, 2005 • IASP 9 Accounting for Reinsurance Contracts • IASP 10 Embedded Derivatives and Derivatives Introduced June 11, 2007

18. Assets S 3855 re – designation allowed under IFRS 1 Investment Contracts Amortized Cost Fair Value Service Contracts Percentage of completion Insurance Contracts Adjusted segments for CALM Tax implications IFRS – Implementation 2010/11 Conclusion Impact will depend on company’s position and mix of business

19. Earnings Phase II • The “3 building blocks” • Current unbiased probability-weighted estimates of future cash flows (ie an expected value approach) • Current market discount rates that adjust the estimated future cash flows for the time value of money • An explicit unbiased estimate of the margin that market participants require for • Bearing risk (a risk margin); and • Providing other services (a service margin)

20. Instead of recognizing premiums over the term of the policy: All premiums and acquisition costs recognized immediately - no unearned premium liability Actuarial liabilities will include estimated future claims and other cash flows for the remaining policy period As most policies operate on a 30 day billing period limited implications Unearned premiums

21. Future premiums Cash flows used in measuring insurance liabilities should include future premiums subject to one of the following conditions being met • The policyholder must pay the premiums to retain a right to guaranteed insurability • The insurer can compel the policyholder to pay the premiums • Including the premiums and the resulting policyholder benefits will increase the measurement of the liability Group contracts typically based on one year renewable terms With competitive rates initial deficits and acquisition costs will not be recoverable from future premiums in the accounting model

22. Mismatch risk Use of risk free interest rate Credit risk Total Balance Sheet Impact on Capital?

23. Product Classification Closer focus on options Embedded derivatives Deposit Components Longer for profits to be recognized Market indicators Lack of deep and liquid market Impact on Products

24. Meeting the Deadline Implementation phase Planning phase Pilot phase 2008 2009 2010 Recognition Programming and Testing Classification Parallel Runs Assumption Development Education Disclosure design Management Reporting Chart of Account changes Accounting policy development User Education Exceptions Exemptions Controls

25. Thank you