2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

Post-Retirement Assumptions

1. Market practices• 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%

• Number of years of grade down varies (5-10 years)

• 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

• Ranges from 2% to 5%-6% per year of age

• Reflects impact of provincial drug programs e.g. ODB

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Post-Retirement Assumptions

2. Market practices-Gaps• 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)

3. Market practices – concerns• Little explicit guidance from CIA

• CICA 3461 states that assumptions are to be "management's best estimate"

• In practice, sponsors rely on consultants to define acceptable assumptions

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Post-Retirement Assumptions

3. Market practices – concerns (continued)• CICA 3461 states that assumptions are to be "management's

best estimate"

• Assumptions vary by consultant, so changing consultant can change assumptions

• So do they really constitute "management's best estimate"?

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Experience Trends

1. Non-emergency health• Services by hospitals, physicians and other medical

professionals, (so services covered by provincial plan)

• Reflects experience within a single province• 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

• 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)

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