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. Distribution Hot TopicsPD - 39 Steve Krupicz, FSA, FCIA AVP Special Case Markets Manulife Financial

3. Hot topics related to distribution: Rebating Special Quotes Compliance Anti-Money Laundering Business Practices Succession Planning Leveraging and G.A.A.R. 2008 Annual Meeting Assemblée annuelle 2008 Agenda

4. My working definition: Offering clients incentives to purchase coverage from an advisor or carrier Where that incentive is not part of the policy Rebating

5. Can be direct: e.g. “buy through me and I’ll give you back 50% of your first year premium” Or indirect: e.g. “buy through me and I’ll pay your accounting or legal bill” Rebating

6. Rebating is legal is Alberta & B.C. Manulife experience has been relatively quiet in Alberta Lots on concern initially More along the “I’ll pay your bill” approach Some challenges but seems to have settled at a very low level Rebating

7. Rebating is legal is Alberta & B.C. Manulife has seen very active rebating in some market sectors in B.C. Has led Manulife to place limits on the flexibility we offer clients post-issue Rebating

8. Rebating leads to some interesting questions: Can an advisor deduct a rebate as a business expense? Is a rebate taxable income to the recipient? A major concern for advisors who are rebating extensively Rebating

9. Is it spreading? Rumors of B.C. advisors advertising for clients to come to B.C. to purchase insurance Advisor request to take applications & do para-med’s at a distance and fly client to Vancouver for delivery Rebating

10. Will this affect experience? Will initial lapse rates be higher? Due to advisors rewriting low-rebate sales made by competitors? Due to advisors rewriting their own clients after chargebacks have expired? Rebating

11. My working definition: Premium or cost reductions or rate enhancements in return for reduced commissions e.g. rate age setbacks paid for via a commission reduction Fully reflected in contract terms and provisions Special Quotes

12. A concern for advisors: Is this a level playing field for all advisors? Is this forcing advisors to lower their compensation? Is this a liability issue for advisors? Special Quotes

13. A concern for advisors: Whenever we poll advisors we get a near-universal rejection of these programs Until they are: (a) in competition with another advisor (b) dealing with clients who want to barter Special Quotes

14. A recent twist: We’ve encountered some cases where special pricing is allegedly being offered without commission reductions Special Quotes

15. Is this “micro-pricing” appropriate? Are assumptions reasonable when we have only one policy per cell? Is this business riskier than normal business? Should margins be larger? Special Quotes

16. Anti-money laundering provisions: Causing increased scrutiny of sources of funding for policies Especially an issue in large case market More disclosure required corporate-owned policies More scrutiny on policy transactions E.g. transfers of ownership “Politically exposed foreign persons” Compliance

17. Anti-money laundering provisions: Makes us harder to do business with for advisors & clients Necessary for regulatory compliance Compliance

18. Business practices are a potential compliance and pricing issue: Example: applications by mail Advisor never meets face to face with client Take application by phone or mail it out to clients to complete Have para-med nurse confirm identity Deliver the policy by mail Compliance

19. Example: applications by mail Field underwriting? Anti-money laundering? Greater risk of fraud? Policy delivery requirements? Compliance

20. Example: applications by mail Know your client? Recent case law in Quebec held that advisors should avoid recommending plans and strategies that they know to be inappropriate for a client Leveraging to invest Compliance

21. Average age of advisors is high and increasing: Who will replace them? Few “career companies” left One of the service extras that have been replaced by higher expense allowances Succession Planning

22. Manulife is supporting a “associate advisor program” in one distribution channel Screening, mentoring, training Many second- or third-generation advisors Limited success A help, but not the answer Succession Planning

23. A popular concept at the heart of many concept sales: Clients restructure their financial affairs, introducing borrowing, in order to create tax deductions Singleton case seemed to confirm that careful planning can drive tax deductions Leveraging & G.A.A.R.

24. Recent Lipson case raises questions: CRA used g.a.a.r. to question the validity of the overall result rather than the precise steps i.e. client made his mortgage interest deductible G.a.a.r. ruling upheld at federal tax court Now before Supreme Court Leveraging & G.A.A.R.

25. Ruling could affect sales: Triple back-to-backs rely to some extent on deductibility Tax treatment of 8% & 10% policy and collateral loan structures in UL policies may be affected? Will sales volumes be materially affected? Leveraging & G.A.A.R.

26. Ruling could affect policy experience: g.a.a.r. issues are considerably less likely to be grandfathered Could this impact: Lapse rates Funding levels Leveraging & G.A.A.R.

27. Distribution Hot TopicsPD - 39 Steve Krupicz, FSA, FCIA AVP Special Case Markets Manulife Financial