2008 General Meeting Assemblée générale 2008 Toronto, Ontario

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2008 General Meeting Assemblée générale 2008 Toronto, Ontario

2. Agenda • Process • Details of Revised Exposure Draft • Next Steps

3. ProcessPolicy on Due Process • Policy on Due Process for Adoption of Standards of Practice: • Advance the public interest • Provide for the appropriate application of professional judgment within a reasonable range • Ensure that compliance with the Standards is practical for actuaries with relevant training • Be clear, concise and written in a consistent style

4. ProcessStages to Date • Notice of Intent (NOI) was issued in March • Announcing proposal to make changes to both the CV Standard and the MB Standard • Exposure Drafts were issued in June • A large number of submissions were received • Members of the ASB also met with various stakeholders in various forums • Designated Group met in early October • Full ASB meeting was held in mid October

5. ProcessFuture Expected Progress • Due process requires the Designated Group to decide whether the changes are substantial enough to necessitate re-exposure • Revised Exposure Draft was issued in October • One month comment period • Hope to issue a final Standard in December • Effective date of April 1, 2009 • Assuming that the final Standard is approved in December

6. Details of Revised Exposure DraftConsiderations • Mortality • Interest rates for non-indexed pensions • Inflation rate / interest rates for indexed pensions • Time lag • Rounding • Effective date

7. Details of Revised Exposure DraftMortality • Current Assumption: • UP94 Table projected to 2015 using Scale AA • Exposure Draft: • UP94 Table projected to 2025 using Scale AA • Revised Exposure Draft: • UP94 Table projected to 2020 using Scale AA • Effective January 1, 2011, UP94 Table projected generationally using Scale AA • Hope is that a new Canadian Table / projection scale will be available by 2011

8. Details of Revised Exposure DraftMortality • ASB strongly believes that a full generational approach is preferable • We have sympathy with plan administrators and the time required to make changes to administration systems • With the short period remaining for use of the static projection table it was decided that a shorter projection period was appropriate

9. Details of Revised Exposure DraftInterest Rate for Non-Indexed Pensions • Current Assumption: • Two tier rate structure • One rate for 10 years (based on 7 year GoC bond yields) • Second rate therafter (based on 7 year and very long-term GoC bond yields) • 50 bps adjustment made to GoC bond yields • Exposure Draft: • Current structure but with an adjustment of 75 – 100 bps • Revised Exposure Draft: • Current structure but with an adjustment of 90 bps

10. Details of Revised Exposure DraftInterest Rate for Non-Indexed Pensions • Many submissions were received – most focusing on the liquidity argument • Some rejected the liquidity argument • Some agreed with the liquidity argument but said that it was impossible to determine the appropriate adjustment • Liquidity and credit risk are intertwined • The ASB recommends that further research be done on the size of the liquidity adjustment • However, given the information available to us, we are comfortable that 90 bps is appropriate

11. Details of Revised Exposure DraftInterest Rate for Non-Indexed Pensions • Comments were also received with respect to the concept of “reversion to the mean” • The number of submissions advocating this approach was small • But their opinions were quite strong • The ASB considered these arguments: • We felt there was nothing new • We continue to support the market approach • We believe that projecting the yield curve is preferable to mean reversion

12. Details of Revised Exposure DraftInflation Rate / Rates for Indexed Pensions • Current Assumption: • Similar to rates for non-indexed pensions, but based on yields of real return bonds • Adjustment of 50 bps over GoC bond yields • Exposure Draft: • Current rate structure plus 100 – 125 bps • (also communicated as 25 bps higher than non-indexed rates) • Revised Exposure Draft • Current rate structure plus 90 bps

13. Details of Revised Exposure DraftInflation Rate / Rates for Indexed Pensions • ASB spent considerable time on this issue • We feel that the Break Even Inflation Rate (BEIR) is the best indicator of the price that the market is willing to pay for inflation protection • This is in contrast to a predictor of long-term inflation • Examples sited which indicate that it has not adequately predicted inflation are suspect as the time periods are not comparable • No concrete evidence to deviate from the BEIR

14. Details of Revised Exposure DraftTime Lag • Current Assumption: • 1 – 2 month delay • Exposure Draft: • Maintain current time lag • Revised Exposure Draft: • Maintain current time lag until January 1, 2011 • Decrease time lag to 0 – 1 month effective Jan 1, 2011 • ASB prefers the shorter time lag • Delay in implementation will allow plan sponsors / administrators time to modify practices / systems

15. Details of Revised Exposure DraftRounding • Current Assumption: • Round to nearest 25 bps • Exposure Draft: • Round to nearest 10 bps • Revised Exposure Draft: • Round to nearest 10 bps • There was very little comment on this issue

16. Details of Revised Exposure DraftEffective Date • By re-exposing the changes to the Standard, it is not practical to have an effective date of February 1, 2009 • Revised effective date of April 1, 2009 • Assuming the final Standard is approved in December • Early implementation will be permitted for solvency valuations • In appropriate circumstances; and • If permitted under applicable regulation / legislation • Measures will be taken to extend the sunset clause for the current Standard • From January 31, 2009 to March 31, 2009

17. Next StepsComments • Deadline for submissions is November 28 • ASB will be meeting in early December to (hopefully) adopt a revised Standard

18. Questions ?