Experience Trends for Income Protection

2. Experience Trends for Income Protection International Congress of Actuaries Paris, France June 1, 2006

3. Experience Trends for Income Protection Panelists Daniel Skwire Milliman, Inc. (U.S.A.) dan.skwire@milliman.com Edward Fabrizio General Reinsurance Life Australia Ltd efabrizio@genre.com Denis Garand Denis Garand and Associates (Canada) denis@garandnet.net

4. Experience Trends in the United States (Individual Disability Insurance) Daniel D. Skwire, FSA Principal and Consulting Actuary Milliman, Inc.

5. Most recent published table for individual disability Experience from 1970’s and early 1980’s Required table for some reserve calculations Expected basis for recent intercompany study 1985 Commissioner’s Individual Disability A Table(1985 CIDA)

6. Sex-distinct Not smoker-distinct Four occupation classes Class 1: Executive and Professional Class 2: Clerical and Office Class 3: Light manual duties Class 4: Heavy manual duties Accident, sickness, and combined causes Characteristics of 1985 CIDA

7. Twelve contributing companies About 64% of total inforce premium Incidence Study: Claims incurred 1990-1999 Claim Termination Study: Claims paid 1990-1999 Results show Actual-to-Expected (A/E) Ratios relative to 1985 CIDA Society of ActuariesIndividual Disability Experience Committee (IDEC)1990-1999 Intercompany Study

8. 1990 – 1999 IDEC Study

9. 1990 – 1999 IDEC Study

10. 1990 – 1999 IDEC Study

11. 1990 – 1999 IDEC Study

12. 1990 – 1999 IDEC Study

13. 1990 – 1999 IDEC StudyClaim Incidence RatesNon-Medical Occupations (ranked by exposure)

14. 1990 – 1999 IDEC StudyClaim Incidence RatesMedical Occupations (ranked by exposure)

15. 1985 CIDA known to have outdated claim termination rates Regulators adopted 1985 CIDC table as temporary measure 1985 CIDC consists of adjustments to 1985 CIDA Age of ClaimAdjustment Months 1-6 36-44% Months 7-12 50-75% Months 13-18 80-102% Months 19-24 105-120% Year 3 137% Year 4 120% Year 5 120% Year 6+ 100% IDEC Study measures experience relative to 1985 CIDA 1990 – 1999 IDEC StudyClaim Termination Rates

16. 1990 – 1999 IDEC Study

17. 1990 – 1999 IDEC Study

18. 1990 – 1999 IDEC Study

19. Medical occupations have distinct experience from Class 1 Lifetime benefit periods have poor experience Incidence trends are favorable in aggregate, with lots of variation Claim termination rates are generally lower (less favorable) than those in 1985 CIDA 1990-1999 IDEC StudyKey Conclusions

20. Australia & NZ Disability Income Experience Edward Fabrizio Deputy General Manager and Chief Actuary General Reinsurance Life Australia Ltd

21. Benefit is a monthly annuity style benefit whilst person remains disabled Benefit based on income at time of underwriting (generally to max of 75% replacement) and is taxable Majority (90%) is annual renewal business (age rated based on age at renewal) Non-guaranteed rates Full offset if person earns income whilst disabled Agreed Value and Indemnity benefits are available Australian & NZ Market

22. Most common deferment periods are 30 and 90 day Benefit period is generally to Age 65, but 2 and 5 year periods also common for blue collar workers Many extras added : Hospital benefit (pays benefit whilst in hospital during deferment period) Rehabilitation benefits Payment of minimum benefit period on certain accidents / illnesses Australian & NZ Market

23. Experience Reports for Australia and New Zealand are done on basis of comparing actual results to a standard table – IAD89-93 IAD89-93 developed by the IAAust based on the Australian disability income experience for this period Incidence rates graduated by age/sex and 4 occupation classes Termination rates based on % of the US CIDA85 termination rate tables IAD 89-93 Standard Table

24. 4 Occupation classes A : Professional and white collar B : Other sedentary (light manual technical) C : Light Manual (qualified trades persons) D : Moderate to Heavy Manual IAD 89-93 Standard Table

25. WARNING Experience results presented for Australia are preliminary only at this stage and are still going through a checking process which may alter the final results Australian Experience

26. Australia – Latest Experience Experience – Trends Claim cost in first 3 years of claim : 1 mth deferment

27. Australia – Latest Experience Incidence Experience - Males

28. Australia – Latest Experience Incidence Experience - Females

29. Australia – Latest Experience Occupation Relativities

30. Australia – Latest Experience Amount vs Number of Claims Preliminary results for continuing companies only Ratio of A/E amounts versus A/E number for Incidence of Claim

31. Australia – Latest Experience Termination Rates Preliminary results for continuing companies only Ratio of A/E Number of Terminations

32. Australia – Latest Experience Termination Rates – Male: Occ A: 1 mth deferment

33. Australia – Latest Experience Termination Rates – Female: Occ A: 1 mth deferment

34. Australia – Latest Experience Termination Rates Preliminary results for continuing companies only Actual Termination Rates of Claim by duration of claim

35. Australia – Latest Experience Amount vs Number of Terminations Preliminary results for continuing companies only Ratio of A/E amounts versus A/E number for Termination Rates of Claim

36. Australia – Latest Experience Variation in Experience by Company Preliminary results

37. Experience has improved significantly Driven by lower incidence experience (although there are concerns over quality of data used in the investigation) Termination rates during first year of claim continue to deteriorate, however, this is being compensated by better termination rates at later durations Incidence and termination rates by amounts are worse than by number (total claims cost by amounts about 15% higher than by number), need to be careful in setting pricing and reserving assumptions – especially for reinsurers on a surplus basis Summary for Australia

38. Incidence Rate Experience New Zealand – Latest experience

39. Termination Rate Experience New Zealand – Latest experience

40. Claim Duration Experience New Zealand – Latest experience Ratio (%) of actual to expected claim length by deferment period and investigation period Ratio (%) of actual to expected claim length by occupation class and investigation period

41. Important feature of NZ Experience is the interaction with the government accident compensation scheme (ACC) ACC provides benefit up to 80% of taxable salary (with maximum dollar cap) in event a person is injured and unable to work Covers most forms of accidental injury (work and outside work) and can sometimes overlap with what would normally be considered a sickness New Zealand – Latest experience

42. Paid ratio (%) by cause of claim and investigation period New Zealand – Latest experience Paid ratio by claim cause and occupation class in 2000-02

43. Contribution of each component to total change in claim cost from 1997-99 to 2000-02 New Zealand – Latest experience

44. Comparison of ratios (%) of actual to expected results in 2000-02 weightedby numbers and amounts New Zealand – Latest experience

45. Ratio (%) of actual to expected incidence for smokers over non-smokers in 2000-02 New Zealand – Latest experience Warning: smoking hazardous to your health Ratio (%) of actual to expected claim cost for smokers over non-smokers in 2000-02

46. New Zealand – Latest experience Agreed Value benefits versus Indemnity

47. New Zealand – Latest experience Self-employed versus Employed

48. Variation in experience by company New Zealand – Latest experience Bubbles show claim cost

49. Experience has improved Driven by increased termination rates Difference between self-employed and employee can be an important rating variable – is just as important as smoker status Incidence and termination rates by amounts are worse than by number, need to be careful in setting pricing and reserving assumptions – especially for reinsurers on a surplus basis Experience varies greatly by company Summary for New Zealand

50. Experience Trends in Canada Denis Garand Denis Garand & Associates