2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

1. 2009 Annual Meeting ●Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse) Canadian Institute of Actuaries L’Institut canadien des actuaires

2. Selling Insurance in Today’s MarketJeff ShaddickRon AtkinsonJean Roy

3. Today’s Market • Unsettled Times • Unstable Economy • Some Clients are having a tough time But • Many are not

4. 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

5. Opportunities • The Dreams still remain • Protection of Family • Protection of Business • Protection of Legacy

6. 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

7. Corporate Owned Insurance • Male 50 non smoker • $5,000,000 • T100 or minimum funded UL/LCOI

8. Internal Rate of Return at Death

9. Enhanced IRR with Capital Dividend Account Credit

10. Charitable Gifting • Value of T100/LCOI • 2007 legislative change • Can be gifted for FMV not just CSV

11. Client Actuary FMV Charitable Gifting

12. Charitable Gifting • 3 Potential Structures • FMV + Commitment to pay future Premiums • FMV + Life Annuity to pay future Premiums • FMV + 3rd Party Contributor

13. Charitable Gifting • Process • Independent Actuarial Valuation • Cost $1,200 (tax deductible) • Purchase SPIA • Donate T100/LCOI policy and SPIA • Charitable receipt

14. Total Tax Credit (45%) Life Annuity Cost Net Positive Cash Flow Fair Market Value Life Annuity Cost Total Contribution $401,400 (257,000) $144,400 $635,000 $257,000 $892,000 Charitable Gifting • Male 70 owns T100 purchased at age 50 • Death Benefit $2 million • Premium $22,061

15. 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

16. After 20 years Total Outlay Net PV Term 10 R&C $272,100 $210,212 LCOI UL Min Prem $441,225 $367,947 UL with Charitable Gift $175,645 Alternative to buying Term • Male 50 non Smoker $2,000,000 • 45% Tax Rate; 2% PV rate

17. 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

18. Underwriting

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. Illustrations

26. 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

27. 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

28. Exempt Test Update

29. Exempt Test Update • Brief Review • 2008 Meetings • Next Steps

30. 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

31. Review • Current concerns: • Single premium UL • Green Monster is 10 years old • Need to address CI and LTC • Refund of premium options

32. 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

33. 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?

34. 2008 Meetings • Conclusion: • There should be pressure to do something soon due to SP UL sales opportunities

35. Next Steps • There was immediacy after last meetings • Now – nothing since last year • Stay tuned!

36. Thank you