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2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

Canadian Institute of Actuaries. L’Institut canadien des actuaires. 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver. Market practices Medical inflation assumption tends to follow a "high-low" pattern Premise is that current levels (4-5 times CPI) are not sustainable

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2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

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

  2. 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 2007 Annual Meeting Assemblée annuelle 2007 Post-Retirement Assumptions

  3. 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) 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 2007 Annual Meeting Assemblée annuelle 2007 Post-Retirement Assumptions

  4. 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"? 2007 Annual Meeting Assemblée annuelle 2007 Post-Retirement Assumptions

  5. 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) 2007 Annual Meeting Assemblée annuelle 2007 Experience Trends

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