briefing to npp bod 22 october 2004 sisip financial services life insurance program review

Briefing to NPP BOD

22 October 2004

SISIP Financial Services

Life Insurance Program Review

NON-PUBLIC PROPERTY BOARD OF DIRECTORS

Document # 22c/04

CONSEIL D’ADMINISTRATION DES BIENS NON PUBLICS

PURPOSE

The NPP BOD Special Committee report back on CAR sustainability

SISIP FINANCIAL SERVICES (FS)(Exclusive to military community)

Insurer: Maritime Life

SISIP Proper

2003 Assets: $344M

TB Supported Plans

2003 Assets: $380M

Survivor Income Benefit Long Term Disability Plans

Optional Term Life Insurance General Officers’ Insurance Plans

Spousal Disability Insurance

Financial Planning SISIP DND Supported Plans

(new 2003)

Financial Counselling and Education

Accidental Dismemberment Program

CFPAF Programs

2003 Assets: $15M

NPP BOD 7 July 2004Summary of Presentation

• OGTI/RTIP Pricing Review Findings

• Existing CAR not financially sustainable

• Introduction of a new CAR

• Financial grid of options for existing CAR

NPP BOD 7 July 2004Records of Decision

• One plan (OGTI) not to subsidize another (CAR) and terminate current premium transfer

• New CAR self-sustaining

• SISIP FS should generate income for extra-ordinary activities

• NPP BOD Special Committee

NPP BOD Special Committee CAR Sustainability

ADM(HR-Mil) – Chair

ADM(Fin CS)

DND/CF LA

CFPSA Pres and CEO

CFCWO

Special Committee Meeting21 September 2004

• Develop options for NPP BOD discussions

• Assume implementation of new OGTI/RTIP premium rate schedule for simulation purposes

• Assume $5M extraordinary expenses per year

Special Committee Meeting21 September 2004

Today:$2.5M on M&W grants$1.2M on FP$1.0M on Youth Program$100K on Volunteers’ Recognition Program$50K on CF Sports Awards ceremony______$4.85M

OGTI/RTIPPricing Review

Summary

• Reference Point

• Value added to participants

Term Insurance Rate ComparisonSISIP vs. Individual Term 10 Rates

Monthly rates per $10,000 for a face amount of $200,000

Non-Smoker

OGTI/RTIP Proposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted)

Age Current

Rates

Proposed Rates

Proposed vs

Current

OGTI vs Reference point

<25 $0.70 $0.70 0.0% -27.6%

25 – 29 $0.60 $0.60 0.0% -31.4%

30 – 34 $0.65 $0.65 0.0% -23.8%

35 – 39 $0.85 $0.80 -5.9% -10.0%

40 – 44 $1.15 $1.05 -8.7% -10.4%

45 – 49 $1.75 $1.35 -22.9% -8.3%

50 – 54 $2.80 $2.00 -28.6% -1.9%

Weighted Avg

-15.3%

Term Insurance Rate ComparisonSISIP vs. Individual Term 10 Rates

Monthly rates per $10,000 for a face amount of $200,000

Smoker

OGTI/RTIP Proposed OGTI/RTIP (10 yr avg) vs Reference Point (adjusted)

Age Current

Rates

Proposed Rates

Proposed vs Current

OGTI vs Reference point

<25 $1.05 $1.05 0.0% -21.9%

25 – 29 $0.95 $0.95 0.0% -20.6%

30 – 34 $1.10 $1.10 0.0% -15.5%

35 – 39 $1.40 $1.25 -10.7% -7.6%

40 – 44 $1.95 $1.80 -7.7% -0.7%

45 – 49 $3.15 $3.00 -4.8% +9.6%

50 – 54 $4.90 $5.15 +5.1% +8.5%

Weighted Avg

-8.3%

OGTI/RTIP Review Findings

• OGTI/RTIP programs compare very favourably with PSMIP and PSAC programs

• Value added features not in pricing comparison: - flexible underwriting - underwriting/adjudication final decision - no exclusions - provincial sales tax payments - no occupational limitations• New accidental dismemberment benefit for injuries no-

attributable to military service

OGTI/RTIP Review Findings

• Net Income would decrease from approx. $3.7M to approx. $2.0M annually

• Premium decrease and new accidental dismemberment coverage would be a very positive outcome for CF serving personnel

CAR ReviewWay Ahead

• Implement a new CAR

• Amend existing CAR

CAR Considerations

• Legal risk Cannot terminate paid-up

certificates May increase premiums Premium subsidy: premium

increase or program design change

CAR Considerations

• Legal risk Serving and former members

expectations for existing CAR SISIP FS capital or income use

for extraordinary expense programs

• SISIP FS has a legacy/ethical and a potential funding responsibility

• Financial and capital requirements (committed capital and war risk reinsurance potential requirements)

CAR Considerations

• Communication plan challenge, but: 4 CAR premium decreases totalling over 50%

for non-smokers between 1981-1990 Never a CAR premium increase in over 20

years Paid-off certificate is a free benefit Program too heavily subsidized

CAR Considerations

• Present value of losses for next 40 years is $141M

• Would require a 77% increase to be cost neutral

• Option to switch to new CAR

CAR Considerations

• Self-sufficient financially

• Same premiums as OGTI/RTIP up to age 60

• No premium subsidy starting at age 55

• Optional 10% paid-up certificate

New CAR Program

CAR Review

• Amend existing CAR program Develop options to increase premiums

(options can be phased-in) Option to join the new CAR Potential limitation of the subsidy starting

at age 55 for current CAR participants under 50 yrs old

CAR Review• CAR premium subsidy

Subsidy for age bands 55-59 and 60-64 for those with 5 yrs military service

Monthly rates per $10,000 of coverage: 55-59: $3.60 vs $4.35 ($0.75)

60-64: $4.30 vs $5.85 ($1.55) Currently 27,500 participants in existing CAR less

than 50 yrs old + 5 yrs military service Limitation of subsidy: premium increase or

program design change Limitation of subsidy approx. 10% premium

increase

Existing CAROption #1

Larger premium increase 40%Advantages• Probably no further increases required• Less capital used for liabilitiesDisadvantages• Larger increase for participants• Difficult communication plan considering

current capital and future income• Greater risk of legal challenge


Smaller premium increase: 10%Advantages• Financial impact smaller for participants• Less likely of legal challenge• Further increases may be necessaryDisadvantages• Larger use of capital


Medium premium increase: 20% + review in 5 yrs

Advantages• Perhaps no further increases required• Less capital used for liabilitiesDisadvantages• Medium increase for participants• Less difficult to communicate• Smaller risk of legal challenge

SISIP Proper - Projected Financial ResultsBased on current rates and plan provision - No new entrants

Status Quo

Net Income Year-end Surplus

YearTotal premium

(OGTI/CAR) OGTI CAR SIB/Other Interest on

surplus Extraordinary

item * Total Net Income Current dollars 2004 dollars **

2004 35,100,000$ 3,800,000$ (1,700,000)$ 300,000$ 9,300,000$ (5,000,000)$ 6,700,000$ 193,700,000$ 188,058,000$

2005 36,200,000$ 3,700,000$ (2,200,000)$ 300,000$ 9,700,000$ (15,000,000)$ (3,500,000)$ 190,200,000$ 179,282,000$

2006 37,300,000$ 3,700,000$ (3,000,000)$ 300,000$ 9,500,000$ (5,000,000)$ 5,500,000$ 195,700,000$ 179,093,000$

2007 38,500,000$ 3,700,000$ (3,900,000)$ 300,000$ 9,800,000$ (5,000,000)$ 4,900,000$ 200,600,000$ 178,231,000$

2008 39,600,000$ 3,700,000$ (5,000,000)$ 300,000$ 10,000,000$ (5,000,000)$ 4,000,000$ 204,600,000$ 176,490,000$

2009 40,800,000$ 3,700,000$ (5,800,000)$ 300,000$ 10,200,000$ (5,000,000)$ 3,400,000$ 208,000,000$ 174,197,000$

2010 41,900,000$ 3,700,000$ (6,200,000)$ 300,000$ 10,400,000$ (5,000,000)$ 3,200,000$ 211,200,000$ 171,725,000$

2011 42,800,000$ 3,700,000$ (6,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ 2,700,000$ 213,900,000$ 168,855,000$

2012 43,700,000$ 3,700,000$ (8,100,000)$ 300,000$ 10,700,000$ (5,000,000)$ 1,600,000$ 215,500,000$ 165,163,000$

2013 44,400,000$ 3,700,000$ (9,600,000)$ 300,000$ 10,800,000$ (5,000,000)$ 200,000$ 215,700,000$ 160,501,000$

2014 45,100,000$ 3,700,000$ (9,500,000)$ 300,000$ 10,800,000$ (5,000,000)$ 300,000$ 216,000,000$ 156,043,000$

2015 45,700,000$ 3,700,000$ (10,200,000)$ 300,000$ 10,800,000$ (5,000,000)$ (400,000)$ 215,600,000$ 151,218,000$

2016 46,100,000$ 3,700,000$ (9,700,000)$ 300,000$ 10,800,000$ (5,000,000)$ 100,000$ 215,700,000$ 146,881,000$

2017 46,600,000$ 3,700,000$ (10,800,000)$ 300,000$ 10,800,000$ (5,000,000)$ (1,000,000)$ 214,700,000$ 141,942,000$

2018 47,000,000$ 3,700,000$ (11,600,000)$ 300,000$ 10,700,000$ (5,000,000)$ (1,900,000)$ 212,800,000$ 136,588,000$

2019 47,200,000$ 3,700,000$ (12,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ (3,300,000)$ 209,500,000$ 130,553,000$

2019 47,200,000$ 3,700,000$ (12,900,000)$ 300,000$ 10,600,000$ (5,000,000)$ (3,300,000)$ 209,500,000$ 130,553,000$

2020 47,300,000$ 3,700,000$ (13,800,000)$ 300,000$ 10,500,000$ (5,000,000)$ (4,300,000)$ 205,200,000$ 124,149,000$

2021 47,200,000$ 3,600,000$ (15,200,000)$ 300,000$ 10,300,000$ (5,000,000)$ (6,000,000)$ 199,200,000$ 117,009,000$

2022 46,900,000$ 3,600,000$ (16,800,000)$ 300,000$ 10,000,000$ (5,000,000)$ (7,900,000)$ 191,300,000$ 109,096,000$

2023 46,300,000$ 3,700,000$ (17,400,000)$ 300,000$ 9,600,000$ (5,000,000)$ (8,800,000)$ 182,500,000$ 101,046,000$

2043 36,900,000$ 3,300,000$ (200,000)$ 300,000$ 6,400,000$ (5,000,000)$ 4,800,000$ 133,600,000$ 40,956,000$

* Capital expenditure program, financial planning and other various initiatives** Assuming CPI increases of 3% per year

Note:- Actual results may differ significantly from projected as a result of experience fluctuation- Pre-funding of paid-up coverage is not factored in above projections.

SISIP Proper - Projected Financial ResultsBased on proposed rates for OGTI, "New" CAR and 20% rate increase for "Old" CAR - Limited subsidy

Option III

Net Income Year-end Surplus

Year

Total premium

(OGTI/CAR) OGTI "New" CAR * "Old" CAR ** SIB/Other Interest on

surplus Extraordinary item

*** Total

Net Income Current dollars 2004 dollars

2004 34,800,000$ 3,800,000$ N/A (1,970,000)$ 300,000$ 9,300,000$ (5,000,000)$ 6,430,000$ 193,430,000$ 187,796,000$

2005 36,800,000$ 2,900,000$ (78,000)$ 347,000$ 300,000$ 9,700,000$ (15,000,000)$ (1,831,000)$ 191,599,000$ 180,600,000$

2006 37,700,000$ 2,500,000$ 245,000$ (1,626,000)$ 300,000$ 9,600,000$ (5,000,000)$ 6,019,000$ 197,618,000$ 180,848,000$

2007 38,700,000$ 2,500,000$ 278,000$ (2,554,000)$ 300,000$ 9,900,000$ (5,000,000)$ 5,424,000$ 203,042,000$ 180,400,000$

2008 39,500,000$ 2,400,000$ 283,000$ (3,728,000)$ 300,000$ 10,200,000$ (5,000,000)$ 4,455,000$ 207,497,000$ 178,989,000$

2009 40,200,000$ 2,400,000$ 274,000$ (4,583,000)$ 300,000$ 10,400,000$ (5,000,000)$ 3,791,000$ 211,288,000$ 176,950,000$

2010 41,500,000$ 2,400,000$ 431,000$ (4,740,000)$ 300,000$ 10,600,000$ (5,000,000)$ 3,991,000$ 215,279,000$ 175,042,000$

2011 42,400,000$ 2,300,000$ 697,000$ (5,231,000)$ 300,000$ 10,800,000$ (5,000,000)$ 3,866,000$ 219,145,000$ 172,995,000$

2012 43,000,000$ 2,300,000$ 1,020,000$ (6,564,000)$ 300,000$ 11,000,000$ (5,000,000)$ 3,056,000$ 222,201,000$ 170,299,000$

2013 43,600,000$ 2,300,000$ 1,265,000$ (8,544,000)$ 300,000$ 11,100,000$ (5,000,000)$ 1,421,000$ 223,622,000$ 166,396,000$

2014 44,300,000$ 2,200,000$ 1,374,000$ (8,193,000)$ 300,000$ 11,200,000$ (5,000,000)$ 1,881,000$ 225,503,000$ 162,908,000$

2015 45,900,000$ 2,200,000$ 1,613,000$ (8,457,000)$ 300,000$ 11,300,000$ (5,000,000)$ 1,956,000$ 227,459,000$ 159,535,000$

2016 47,000,000$ 2,200,000$ 1,863,000$ (7,964,000)$ 300,000$ 11,400,000$ (5,000,000)$ 2,799,000$ 230,258,000$ 156,794,000$

2017 48,300,000$ 2,100,000$ 1,860,000$ (7,677,000)$ 300,000$ 11,500,000$ (5,000,000)$ 3,083,000$ 233,341,000$ 154,266,000$

2018 49,500,000$ 2,100,000$ 1,590,000$ (7,782,000)$ 300,000$ 11,700,000$ (5,000,000)$ 2,908,000$ 236,249,000$ 151,639,000$

2019 50,600,000$ 2,100,000$ 963,000$ (8,100,000)$ 300,000$ 11,800,000$ (5,000,000)$ 2,063,000$ 238,312,000$ 148,508,000$

2020 50,100,000$ 2,000,000$ 1,187,000$ (7,885,000)$ 300,000$ 11,900,000$ (5,000,000)$ 2,502,000$ 240,814,000$ 145,696,000$

2021 50,700,000$ 2,000,000$ 948,000$ (1,939,000)$ 300,000$ 12,000,000$ (5,000,000)$ 8,309,000$ 249,123,000$ 146,334,000$

2022 51,000,000$ 2,000,000$ 713,000$ (2,472,000)$ 300,000$ 12,500,000$ (5,000,000)$ 8,041,000$ 257,164,000$ 146,657,000$

2023 50,700,000$ 1,900,000$ 376,000$ (2,800,000)$ 300,000$ 12,900,000$ (5,000,000)$ 7,676,000$ 264,840,000$ 146,635,000$

2043 36,100,000$ 800,000$ 387,000$ 566,000$ 300,000$ 26,200,000$ (5,000,000)$ 23,253,000$ 547,969,000$ 167,984,000$

* Starting in 2005 with 75% of current CAR participants below age 50 in 2004 moving to the "New" CAR plan** With current rates increased by 20% starting in January 1, 2005 (and future rate subsidies eliminated for participants below age 50 as of 1/1/2005)*** Capital expenditure program, financial planning and other various initiatives**** Assuming CPI increases of 3% per year

Note:- Actual results may differ significantly from projected as a result of experience fluctuation- Pre-funding of paid-up coverage is not factored in above projections.

SISIP FSLife Insurance Review

Way Ahead

• Formal legal risk assessment

• Develop action plan for tentative implementation 1 July 2005

SISIP FS Life Insurance ReviewNPP BOD Decision Required

The NPP BOD is requested to approve from options presented, and subject to a formal legal risk assessment:

1. A new OGTI/RTIP premium rate schedule and a new accidental dismemberment coverage;

2. A new CAR program; and

SISIP FS Life Insurance ReviewNPP BOD Decision

3. A program adjustment to the existing CAR program which includes an increase in premiums, the potential limitation of the premium subsidy at age 55 for participants under 50 years old, and an option for participants to transfer to the new CAR program.

briefing to npp bod 22 october 2004 sisip financial services life insurance program review

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