Deciphering the ongoing income challenge

1. Deciphering the ongoing income challenge September 2014

2. Disclaimer Macquarie Life Limited (MLL) ABN  56 003 963 773 AFSL 237 497 is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Cth) and MLL’s obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of MLL. The Macquarie Life Active and FutureWise product disclosure statements (PDS) is to be issued by MLL. The PDS should be considered before deciding to acquire or to continue to hold the product. This information is provided for the use of licensed financial advisers only. Financial advisers are prohibited from passing on this information to any retail client. In no circumstances is it to be used by a potential client for the purposes of making a decision about a financial product or class of products.

3. To cover active income. Our objective active v passive

4. To cover active income. Our objective

5. To cover active income. Our objective DOC 75% income replacement

6. To cover active income. Our objective DOC • Active income covered 75% income replacement

7. Scenarios differ according to circumstances. Various scenarios DOC • All sorts of possibilities depending upon the individual business scenario

8. What is happening in the market? DOC

9. Equivalent EAV benefit 75 per cent of income is replaced What is happening in the market? Traditionally nothing has happened. DOC • Likely over insurance and potentially poor claims experience

10. Push the waiting period out. Equivalent EAV benefit 75 per cent of income is replaced What is happening in the market? DOC • Possible under insurance in month three, however thereafter it’s likely over-insurance and potentially poor claims experience WP and BP

11. Push the waiting period out further. Equivalent EAV benefit 75 per cent of income is replaced What is happening in the market? • Possible under insurance in months three, four, five and six, however immediately thereafter it’s likely over-insurance and potentially poor claims experience DOC WP and BP

12. Apply a traditional offset. Offset to a maximum of 75 per cent of pre-disability income Offset benefit DOC • Maximum benefit payable combined with ongoing income is 75 per cent of pre-disability income Off-set

13. The partial disability formula is applied from the seventh month on claim after the WP Ongoing-income clause Apply a six-month ongoing income clause (OIC). A – B x mb A DOC • Potential over-insurance in the first six months - that can lead to poor claims experience Six-month OIC

14. Apply a six-month OIC with a 90-day wait. The partial disability formula is applied from the seventh month on claim after the WP Ongoing-income clause A – B x mb A DOC • Possible under-insurance in month three then potential over-insurance in the next three-six months - that can lead to poor claims experience Six month OIC

15. Claims durations Ongoing-income clause

16. Apply a full OIC. The partial disability formula is applied from first month on claim after the WP Ongoing-income clause A – B x mb A DOC • Possible over insurance in the first few months, however it’s only minimal Full OIC

17. OIC – Fact Sheet The partial disability formula is applied from first month on claim after the WP Ongoing-income clause

18. We recognise there are lots of potential different possibilities. These depend upon a number of key factors: What are Macquarie doing that is different? ? OIC DOC • So we need to ask the right questions at underwriting so the underwriters can determine the best solution Six-month OIC WP and BP

19. It starts with understanding the business better and how the business generates its income. In the event the client is unable to work due to injury or sickness: So what are the right questions? ? • Would the business be likely to continue? • Would the business be likely to continue AND generate revenue? • Considering the nature of the business and the likely fixed infra structure type costs in the business would the level of revenue that continues to be generated likely to be such that the business will continue to generate a profit (after add backs)? OIC If the answers to all 3 questions are YES there is an ongoing income challenge that needs to be managed by underwriting. So it’s important to provide underwriting with as much information as possible so underwriting can determine: • What the most likely ongoing income scenario is; and • The best solution for this scenario. Six-month OIC WP and BP

20. So what’s the best underwriting solution for this scenario? Solution ? OIC DOC Six-month OIC WP and BP

21. Apply the full OIC. Solution The best underwriting solution in this scenario. A – B x mb A DOC • Remember, in the worst case scenario where the business is sold or goes under and post disability income is nil, the full benefit is payable Full OIC

22. Alternative Short Term Solution In some cases…

23. The future is so bright…because together we can provide very real solutions to make a difference.

24. Thank you

25. Definitions There are a number of different acronyms and abbreviations used in this presentation which are explained here • A – Pre-disability Income • AV - agreed value • B – Post-disability Income • DI - disability income • DOC - date of claim • EAV - endorsed agreed value • mb - monthly benefit • pa - per annum • pm - per month • RCD - risk commencement date

26. Thank you