2009 Annual Meeting ● Assemblée annuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle- Écosse )

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2009 Annual Meeting ●Assembléeannuelle 2009 Halifax, Nova Scotia ● Halifax (Nouvelle-Écosse)

2. Liability Driven Investing A Practical Approach

3. A Definition: A customized strategy in which a pension plan’s asset risk and return are directly linked with its liabilities 2009 Annual Meeting Assembléeannuelle 2009 Liability Driven Investing

4. LDI shifts the focus from return on the plan’s assets to controlling the volatility of the funded status 2009 Annual Meeting Assembléeannuelle 2009 LDI Strategies

5. Insured Group Annuity – an earlier approcach to LDI? 2009 Annual Meeting Assembléeannuelle 2009 LDI Strategies

6. Risk analysis Risk Budgeting “Value at Risk” 2009 Annual Meeting Assembléeannuelle 2009 LDI Strategies

7. Changes to international accounting standards Plan sponsors need to focus on volatility of surplus/deficit rather than optimizing return 2009 Annual Meeting Assembléeannuelle 2009 Why LDI Today?

8. Some shift in asset mix away from equities to fixed income Structure of fixed income – use of long bonds Alternative asset classes Use of derivative instruments 2009 Annual Meeting Assembléeannuelle 2009 Implications of LDI

9. Liability Risks: Interest, inflation, longevity Asset Risks: Market and currency Risks are interrelated – not mutually exclusive 2009 Annual Meeting Assembléeannuelle 2009 What Risks to Manage

10. Evaluate risk factors Consider actuarial assumptions Current economic situation Risk tolerance level of plan sponsor 2009 Annual Meeting Assembléeannuelle 2009 Implementing LDI

11. Not a solution to the current pension crisis Will not reduce funding costs Not the same for all plan sponsors 2009 Annual Meeting Assembléeannuelle 2009 What LDI is Not