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2006 General Meeting Assemblée générale 2006 Chicago, Illinois
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2006 General Meeting Assemblée générale 2006 Chicago, Illinois

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  1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 General Meeting Assemblée générale 2006 Chicago, Illinois

  2. Long Term Care: Learning from the Past… Looking to the Future Canadian Institute of Actuaries General Meeting Chicago, October 19, 2006 Martin Fortier, FSA, FCIA AVP, Individual Pricing Sun Life Financial

  3. Canada - sales overview Source: LIMRA International

  4. Manufacturers • Number of carriers: about 7 • 89% market-share from 2 carriers Source: LIMRA International

  5. Distribution channels • Career / exclusive • advisors • specialists • Independent / brokers • Affinity & association Source: LIMRA International

  6. Plan designs • Three benefit types • reimbursement • indemnity • income / disability • comprehensive • facility care • Adjustable premiums • some with maximums

  7. Plan designs • Inflation protection • Guaranteed insurability option • ROP on death • Non-forfeiture options • ETI, RPU

  8. Policy characteristics Source: LIMRA International

  9. Policy characteristics • Average premium: $1,360 • 84% unlimited (lifetime) benefit period • 96% < 90-day waiting period • Average age • 2004: 59 • 2005: 52 • Only 4% with more than $150 daily benefit. Average below $100. Source: LIMRA International

  10. Cost of care • Government-sponsored facilities • Ontario • private room: $24,000 • semi-private: $21,000 • ward: $18,000 • Alberta • private room: $12,000 • Newfoundland • up to $34,000 Source: Ontario Health and Long Term Care

  11. Cost of care • Home care • nursing care: $50/hour • personal care: $22/hour • In Ontario, reaches the cost of semi-private facility room by needing 2 hours per day for 3 days per week of each type of care not covered. (52 hrs/month) • Average recipient of home care needs 156 hours per month • Ontario pays first 60-80 hours Source: Ontario Health and Long Term Care

  12. Canadian challenges • Underwriting & claims • in-house or outsourced • evolving • Key pricing & risk drivers • no Canadian insured population data • lapse-supported • interest • expenses • Market still developing. Need misunderstood • One reinsurer

  13. Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 General Meeting Assemblée générale 2006 Chicago, Illinois

  14. Long Term Care: Learning from the Past… Looking to the Future Canadian Institute of Actuaries General Meeting Chicago, October 19, 2006 Gary L. Corliss, FSA, MAAA, RHU, CSA Avon Long Term Care Leaders, LLC President & CEO

  15. TOPICS Evolution of LTC in U.S. Product Design US Experience Distribution Issues Summary

  16. Evolution of Long Term Care United States

  17. THE OPPORTUNITY:Compelling Demographics • Baby Boomers are aging • 78 Million strong between ages 42-60 • 8,000 turning 60 every day 75 72 67 52 41 35 Age 85+ Age 65 - 84 Source: Bureau of the Census, Elderly Population Will More Than Double by 2040, January 2000. Source: Long-Term Care. AHRQ Focus on Research. AHRQ Pub. No. 02-M028, March 2002. Agency for Healthcare. Research and Quality, Rockville, MD. Graph

  18. THE OPPORTUNITY: Low Market Penetration for LTCI Source: Statistical Abstract of the U.S., U.S. Census Bureau, ACLI, HIAA, Life Plans, Inc., JH Analysis.

  19. What Happened in the U.S.? Industry sales peak at $1 Billion in 2002 and drop to $661 in 2005. LTC Industry Sales $1B $492M Millions $193M Source: LIMRA

  20. What Happened in the U.S.? • Lapse rates very low - <1% • Interest rates dropped - <6% • Mortality extremely low • Morbidity claims quite close

  21. What Happened in the U.S.? Some Carriers Exit IDS Life Penn Treaty

  22. PRODUCT DESIGN • Benefit Eligibility • Benefit Payment Models • Care Coordination

  23. BENEFIT ELIGIBILITY Brief History 1965 Skilled Nursing, 3 Day Prehospital, Physician Certified 1985 Medically Necessary, Remove Step- Down 1990 ADL & Cognitive Impairments 1996 Federally Tax Qualified & Care Management

  24. BENEFIT ELIGIBILITY • Loss of ability to perform Activities of Daily Living: • Bathing – Dressing - Transferring • Toileting – Continence - Eating • Cognitive Impairment • Requires substantial supervision • Deficiency in memory, reasoning, time, place

  25. CARE COORDINATION • Determination of incapacity • Preparation of a Plan of Care • Assistance in locating service provider(s) • Anecdote # 1 • Anecdote # 2

  26. OTHER PRODUCT FEATURES • Bed Reservation (38) • Care Management (34) • Waiver of Premium for Home Care (34) • Caregiver Training (31) • Alternate Plan of Care (30) • Equipment (30) • Restoration of Benefits (30) • Endorsement Group Discounts (25) • Return of Premium on Death (20) • Return of Premium with NFO or Cash (7)

  27. Actual Experience United States

  28. U.S. Experience- Lapse Policy Duration 1984-2000 Source: SOA/LIMA Persistency Study

  29. U.S. Experience-Incidence Rates Attained Age Per Hundred Combined <40 .01% 40-49 .03 50-59 .05 60-64 .14 65-69 .28 70-74 .53 75-79 .98 80-84 1.62 85-89 1.97 90+ 1.61 .69% Source: SOA LTC Intercompany Study

  30. U.S. Experience-Cause of Claim Nursing Home Home Care Alzheimer’s 25% 15% Stroke 13 11 Circulatory 11 8 Injury 10 12 Arthritis 9 16 Cancer 8 17 Nervous System 5 6 Respiratory 5 4 Other 14 12 Source: SOA LTC Intercompany Experience Study

  31. U.S. Experience-Length of Claim Nursing Home & Home Care Alzheimer’s 683 days Stroke 440 Circulatory 421 Injury 331 Arthritis 440 Cancer 179 Nervous System 550 Respiratory 336 Total 493 Source: SOA LTC Intercompany Study - Closed Claims

  32. $ BENEFIT PAYMENT MODEL $ Incidence Rates – One Company Actual Charges 1.49% Indemnity 3.82 Disability 3.22 Total 2.09% Source: AUL Long Term Care Solutions –1984 -1998

  33. CARE COORDINATION Average Length Of Claim* Nursing HomeHome Care Yes 336 days 149 days No 385 157 Difference -13% - 5% Source: AUL Long Term Care Solutions 1984 - 1998

  34. Distribution Issues

  35. WHAT THE POPULATION THINKS • 85% The need for LTC could adversely affect my retirement • 42% LTC insurance is the best way to solve the problem of LTC • 17% Have purchased LTC insurance * Source: 2006 Survey by Greenwald & Associates Conducted for John Hancock Life Insurance Co

  36. CRACK THE CONSUMER CODE More education needed to overcome barriers to purchase COST “I’ve heard it’s prohibitively expensive.” DON’T KNOW WHERE TO GO “I wouldn’t even know who to call to learn about it.” WILLINGNESS TO GAMBLE “My parents lived to a ripe old age and never needed care.” MISTRUST “I don’t trust insurance companies”“Fine print” “Senior scams.” MISCONCEPTIONS “I associate LTC with one foot in the grave in some kind of home.” DENIAL “I’m not ready to process the thought of getting older.” (61 year old) Source: Hill,Holliday Consumer Research Study, January 2005

  37. TURN CLIENTS INTO SALES • 89% Do not want to be a BURDEN • 83% Way to cover high COST of care • 80% Way to CONTROL type of care • 79% Way to CONTROL place of care • 76% PRESERVE ASSETS for spouse * Source: 2006 Survey by Greenwald & Associates for John Hancock Life Ins Co

  38. SUCCESSFUL PRODUCERS • Use “needs analysis” • Are comfortable discussing LTC issues • Discuss often the topic of LTCi • More policies sold - larger the premium • Bring “sense” to chaos of products • Use clients/referrals/centers of influence • Consider LTCi a “core product” for themselves *Source: LIMRA – A 2005 Report – The Producers Perspective on Long Term Care Insurance

  39. SUMMARY • LEARN FROM THE PAST • LTC insurance continues to grow in US • Pricing knowledge has strengthened • Products have become more sophisticated • The largest of companies are in – and winning • LOOK TO THE FUTURE • The need for LTC services is growing fast • Prospects are recognizing the need • Somebody is going to seize this market

  40. Long Term Care Insurance THEProduct of the Future. Get onboard now. Don’t miss the boat !

  41. Canadian Institute of Actuaries L’Institut canadien des actuaires 2006 General Meeting Assemblée générale 2006 Chicago, Illinois

  42. Long Term Care: Learning from the Past… Looking to the Future Canadian Institute of Actuaries General Meeting Chicago, October 19, 2006 LTC Pricing Considerations Dawn E. Helwig, F.S.A., M.A.A.A. Milliman, Inc. Dawn E. Helwig, F.S.A., M.A.A.A Milliman, Inc. 71 S. Wacker Drive, 31st Floor Chicago, IL 60606 (312) 726-0677 dawn.helwig@milliman.com

  43. Economics of LTCI • Lifetime loss ratio target of 55% - 60% • Level issue-age premium • Steep morbidity curve – similar to mortality • Very deferred benefit – much like whole life • Heaped commissions • First year cash flow drain • Low lapse rates • Conservative statutory reserve standards (revised in 2004) • Required margins for conservatism in persistency (80% years 1-4 (max 6% year 1): 2004 standard – max ultimate lapse of 2%) • 1 Year preliminary term • 1994 GAM mortality • No provision for morbidity improvement allowed (2004) • Life valuation discount rate

  44. Sources of Capital Strain • Commission Pattern • Active life reserve and tax reserve patterns • Punitive capital requirements Past RBC: C2 risk = 5% of claim reserves plus 25% of 1st $50 million of premium and 15% thereafter. New RBC (effective 2005) C2 risk = 5% of claim reserves, plus 10% of 1st $50 million of premium and 3% thereafter, plus 25% of 1st $35 million of claims and 8% thereafter.

  45. Product “Riskiness”Data Challenges • 1985, 1995 National Nursing Home Surveys • 1982, 1984, 1989 National LTC Surveys • Population Data • Fully mature insured experience limited & based on older benefit triggers • “Current generation of products” - insured experience heavily dependent on underwriting • But – experience database growing in credibility

  46. Clue Life Insurance CompanyEffect of Various Profit Criteria * 90-day, 4 year option, $100/day NH, $100/day HHC; composite of risk classes & marital status ** Uses 2.0 * RBC of: 2% of claims liability +15% of premium Reserve Standard: 4.5% discount, ‘83 GAM

  47. Clue Life Insurance CompanyEffect of Various Profit Criteria * 90-day, 4 year option, $100/day NH, $100/day HHC; composite of risk classes & marital status ** Uses 2.0 * RBC of: 2% of claims liability +15% of premium Reserve Standard: 4.5% discount, ‘83 GAM

  48. Clue Life Insurance CompanyExpected Policy Year Financials * Discounted at 6%

  49. Clue Life Insurance CompanyExpected Policy Year Financials

  50. 2005 Broker World Survey 18 Comprehensive Products$100 Daily Benefit – Lifetime Benefit Period90-100 Day Elimination Period – Inflation Protection