Transcript Canadian Institute of Actuaries L’Institut canadien des

Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver
Post-Retirement Assumptions
2007 Annual Meeting
Assemblée annuelle 2007
1.
Market practices
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Medical inflation assumption tends to follow a "high-low"
pattern
Premise is that current levels (4-5 times CPI) are not
sustainable
Common pattern for medical– begin at 10%-12% per annum,
grade down to 5%-6%
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Number of years of grade down varies (5-10 years)
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May vary by component (0 inflation for vision, for instance)
For dental, more commonly flat, at 3%-4%
May be combined with an aging assumption
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Ranges from 2% to 5%-6% per year of age
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Reflects impact of provincial drug programs e.g. ODB
Post-Retirement Assumptions
2007 Annual Meeting
Assemblée annuelle 2007
2.
Market practices-Gaps
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Combination of inflation and aging may fall short of factors
used by carriers at renewal
Little detailed guidance for selection of assumption(s) (CIA
sub-committee is investigating the need for guidance)
Historical record does not support immediate grading down
(nor the ultimate level)
Market practices – concerns
3.
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Little explicit guidance from CIA
CICA 3461 states that assumptions are to be "management's
best estimate"
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In practice, sponsors rely on consultants to define
acceptable assumptions
Post-Retirement Assumptions
Market practices – concerns (continued)
2007 Annual Meeting
Assemblée annuelle 2007
3.
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CICA 3461 states that assumptions are to be "management's
best estimate"
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Assumptions vary by consultant, so changing consultant
can change assumptions
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So do they really constitute "management's best
estimate"?
Experience Trends
2007 Annual Meeting
Assemblée annuelle 2007
1.
Non-emergency health
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Services by hospitals, physicians and other medical
professionals, (so services covered by provincial plan)
Reflects experience within a single province
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Trends vary by age, type of service and gender, (but variance is
not large)
For working ages, annual trend varies from about 5.25% to nearly
8% for hospital and from 7.5% to about 9.5% for other expenses
Experience trends show variance by province, as well as by
age, gender and type of service
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Variation is large – highest provincial trends net of CPI may be as
much as 5 or 6 times lowest
Highest tend to be experienced in remote areas e.g. the
Territories, (but from since 1997, many of the western provinces
have experienced higher than average trends in these costs)