2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2007 Annual Meeting ●Assemblée annuelle 2007 Vancouver

2. Standards of Practice for Public Personal Injury Compensation Plans (PPICP) Willard A Ramsey 2007 Annual Meeting Assemblée annuelle 2007 PD - 43 2

3. The relationship of assets and liabilities for PPICP financial statements Best estimates for assumptions Dynamic capital adequacy 2007 Annual Meeting Assemblée annuelle 2007 Topics 3

4. Current practice, is not Canadian Asset Liability method (CALM) is CALM an alternative? International Accounting Standards Board (IASB). Committee on Workers’ Compensation (CWC) plans. 2007 Annual Meeting Assemblée annuelle 2007 Assets and Liabilities 4

5. Current method used for valuation of liabilities is the present value of future expected cash flows. The discount or valuation interest rate is typically a level rate and does not change from year to year. Hence, this method is not directly dependent on investment performance or funded status. 2007 Annual Meeting Assemblée annuelle 2007 Current Practice 5

6. Should we consider adopting a method such as CALM (Canadian Asset Liability Method)? CALM would address the issue that assets and liabilities are not on a consistent basis. 2007 Annual Meeting Assemblée annuelle 2007 CALM 6

7. However, CALM presents several hurdles. 2007 Annual Meeting Assemblée annuelle 2007 CALM 7

8. Shortage of, or at least not an abundance of, CALM expertise in those practicing in the PPICP field. Implementation would be costly and time consuming – would likely require extensive help from consulting firms. 2007 Annual Meeting Assemblée annuelle 2007 CALM 8

9. Significant portion of invested assets are in equities. A few WC Boards are not fully funded – still building assets to support liabilities. 2007 Annual Meeting Assemblée annuelle 2007 CALM 9

10. It appears at this point in time that the evolving International Standards are moving towards a liability value that does not depend on the value of the assets. If we did adopt CALM were adopted it could be for a relatively short period of time. 2007 Annual Meeting Assemblée annuelle 2007 IASB 10

11. Conclusion of the CWC (Committee on Workers’ Compensation) is that CALM is not a viable option at this time. Perhaps an approach similar to CALM? 2007 Annual Meeting Assemblée annuelle 2007 CALM 11

12. The CWC would like to clarify in the standards: A definition of the market value of liabilities. If the current approach is still appropriate. 2007 Annual Meeting Assemblée annuelle 2007 CWC Plans 12

13. Outline ways to manage the current approach, e.g. allowing flexibility in the choice of discount rate derived from the fair value of assets. Issuance of a guidance note regarding the adjustment of the valuation discount rate. 2007 Annual Meeting Assemblée annuelle 2007 CWC Plans 13

14. A plan to implement moving from current practice to tomorrow’s IASB (International Accounting Standards Board) methodology. Whether other methodologies need to be considered. 2007 Annual Meeting Assemblée annuelle 2007 CWC Plans 14

15. Current standards consider: Plan’s policy: pricing stability smoothing of short term deviations and equity among generations In addition: ad hoc indexing intermittence pattern of benefits due to remission or relapse Changes in claim practices or economic conditions 2007 Annual Meeting Assemblée annuelle 2007 Best Estimates For Assumptions 15

16. The CWC is considering providing guidance on: Areas where assumptions are required. Where it may be appropriate to combine assumptions. How to select best estimates. Margins for adverse deviation – if or when they may be appropriate. 2007 Annual Meeting Assemblée annuelle 2007 Best Estimates For Assumptions 16

17. Current environment PPICP’s are not subject to solvency standards. Not regulated by OSFI. No solvency requirements from provincial governments. Entities can operate with unfunded liabilities. All have plans to address excess surpluses or deficits. 2007 Annual Meeting Assemblée annuelle 2007 Dynamic Capital Adequacy 17

18. Actuaries are sometimes asked to provide advice on what is an appropriate level of capital for a PPICP. Or, to provide sensitivity tests for various risks and the impact on funding ratios (assets / liabilities) and premium rates. 2007 Annual Meeting Assemblée annuelle 2007 Dynamic Capital Adequacy 18

19. CWC interest is in examining or defining what is adequate / appropriate capital for a PPICP. Could be quite challenging as different views are developing. 2007 Annual Meeting Assemblée annuelle 2007 Dynamic Capital Adequacy 19

20. What type of guidance should be provided? Change to standards or educational note? 2007 Annual Meeting Assemblée annuelle 2007 Dynamic Capital Adequacy 20

21. Dependent on the funding policy of the PPICP. The actuary must work within the funding policy. 2007 Annual Meeting Assemblée annuelle 2007 Dynamic Capital Adequacy 21

22. We have several interesting and challenging topics. Probably a lot of work ahead. Look forward to your feedback and input. 2007 Annual Meeting Assemblée annuelle 2007 Next Steps 22