[PPT] - The impact of a new economy The impact of a new economy Bri Brian PowerPoint Presentation

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The impact of a new economy The impact of a new economy

Bri Brian Carin an Carin VP VP Financial Management, Group Benefits Financial Management, Group Benefits

Staying ahead of the curve Staying ahead of the curve

in today’s economy in today’s economy

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“This economic crisis doesn’t represent a cycle. “This economic crisis doesn’t represent a cycle. It represents a reset … It represents a reset …an emotional, social, an emotional, social, economic reset.” economic reset.”

J eff Immelt, chief executive officer of General Electric

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Impact of a “new” Impact of a “new” economy … conomy …

on businesses around the world

n businesses around the world Reducing operating costs Reducing operating costs 74% 74% Restructuring Restructuring 37% 37% Leaving certain markets Leaving certain markets 18% 18%

Source: Feb 2009 McKinsey Global Survey: 1820 executives from around the world; full range of industries/ functional specialties

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Toyota - first loss ever Sony - first loss in 14 years Consumer confidence @

December lowest level at 67.7 since 81/ 82 recession

Retail sales in Nov steepest decline in almost a decade First trade deficit in 30 years in December – exports

dropped 9.7% month over month.

Canadian auto sales plunged 25.3%

y/ y in J anuary, the third consecutive monthly decline, dragged down by a 47% y/ y decline in GM sales.

Headlines news from Q4 ’08 to May ‘09 Headlines news from Q4 ’08 to May ‘09

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Change in Cdn GDP worsened from -3.4%

in Q4 to -5.6% in Q1, while the change in US GDP remained relatively flat from -6.3% to -6.1% Q4 to Q1.

American protectionism may be problematic with Buy

American sentiments

Chrysler and then GM (U.S.) enter bankruptcy protection. Government deficit projections materially increased.

Headlines news from Q4 ’08 to May ‘09 Headlines news from Q4 ’08 to May ‘09

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Canadian Unemployment

5.6 6.1 6.6 7.1 7.6 8.1 8.6 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09

59

39

80 111 114 70 38

Impacts of a “new” Impacts of a “new” economy on Canadians economy on Canadians

Very large full time job losses from
November. April showed 39k full

time jobs created but were ‘self employed’. Another 59k lost in May.

April unemployment rate: 8%

, grew to 8.4% in May and forecasts suggest greater than 9% in 2010.

Canadian Consumer confidence:
Dec 2006: 120.5

120.5, May 2009: 81.4 81.4

Correlation between unemployment

rate and consumer confidence

Benefits experience depends heavily
n member behaviour

Canadian Consumer Confidence

60 70 80 90 100 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09

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Impacts of a “new” Impacts of a “new” economy … conomy …

– Other indicators Other indicators

Housing Starts (12-month moving average)

140.0 160.0 180.0 200.0 220.0 240.0 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09

Manufacturing Shipments (12-month moving average)

2.0
1.5
1.0
0.5

0.0 S e p

7

N

v
7

J a n

8

M a r

8

M a y

8

J u l

8

S e p

8

N

v
8

J a n

9

M a r

9

New Motor Vehicle Sales (12-month moving average)

2.5
2.0
1.5
1.0
0.5

0.0 0.5 1.0 S e p

7

N

v
7

J a n

8

M a r

8

M a y

8

J u l

8

S e p

8

N

v
8

J a n

9

M a r

9

Retail Sales less Autos (12-month moving average)

0.4
0.2

0.0 0.2 0.4 0.6 0.8 S e p

7

N

v
7

J a n

8

M a r

8

M a y

8

J u l

8

S e p

8

N

v
8

J a n

9

M a r

9

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Key plan sponsor concerns:

Increasing benefit costs
Minimizing impact of restructuring, layoffs, etc. on

productivity, engagement

Potential of disability experience to deteriorate

Key plan member concerns:

J
b loss (theirs and/ or their spouses’); loss of coverage
Boomers approaching retirement: not financially ready!
Greater need to self-manage finances/ protection
Uncertainty – not informed enough to take action

Impacts of a “new” Impacts of a “new” economy … conomy …

– On customers n customers

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Source: CIHI Spending Database; Statistics Canada; McKinsey analysis

7% CAGR $900 individual spend per capita $2,500 individual spend per capita

Individual Sponsor Government

Total Canadian healthcare Total Canadian healthcare spending spending 2005-2015 2005-2015 $ Billions

20%

9%

71% 34% 9% 57%

2005 2015

Governments will likely be paying for less Governments will likely be paying for less

– Economy will likely accelerate this trend Economy will likely accelerate this trend

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As members retire, they face a new set of financial risks:

Managing impact of market fluctuations on savings
Rising healthcare costs
Outliving their assets

Unsure Agree Disagree

Unsure Agree Disagree Will have to work longer than expected (48% expect to be working at age 66) Expect retirement to be as nice as they had hoped

45% 45% 47% 47% 7% 7% 44% 44% 46% 46% 10% 10% Source: 2009 Sun Life Financial Unretirement Index

Baby boomers retiring … Baby boomers retiring …

– But not financially ready But not financially ready

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Sun Life’s Economic Taskforce Sun Life’s Economic Taskforce

– M – Mandate:

Monitor and measure emerging detrimental experience

resulting from ‘new’ economy

Recommend and execute mitigating actions Ensure top-of-mind awareness throughout Group Benefits

Taskforce: leaders from: Taskforce: leaders from:

Disability Management
Finance
Health and Dental Claims
Underwriting

Business Development Asset Management Marketing

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Correlation between rate of US disability claims (“applications”) per 1,000 disability-insured workers and unemployment rate, 1970–2003

SOURCES: Annual Statistical Supplement to the Social Security Bulletin, 2004, Tables 2.A30, 4.C1, and 6.C7;

Bureau of Labor Statistics, unemployment rate, available at http:/ / www.bls.gov/ cps/ prev

Disability experience tied to unemployment Disability experience tied to unemployment

– If history is a guide If history is a guide

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2 4 6 8 10 12 14 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2 4 6 8 10 12 14

- - - -

Male unemployment rate Male unemployment rate Female unemployment rate Female unemployment rate Male incidence rate Male incidence rate Female incidence rate Female incidence rate

CPP disability rate vs. CPP disability rate vs. Canadian Unemployment Rate Canadian Unemployment Rate

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Indicator: STD claims reaching Indicator: STD claims reaching 8 week threshold 8 week threshold

M A M F J 09 # Active Claims reaching 8wk Threshold J 08 F M A M J J A S O N D

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Not yet seeing spike in new claims incidence across our block of business

What are we seeing regarding … What are we seeing regarding …

– New LTD New LTD Incidenc Incidence Rates? e Rates?

J 09 S 07 O N D J 08 F M A M J J A S O N D 08

by Count

Incurred Month (Assuming Avg 4-Mth Elimination Period) Annualized New Claim Incidence rate per 1000 members

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Some LTD “hot spots” Some LTD “hot spots” (2008 over 2007) (2008 over 2007)

– New claims growth faster than volume growth New claims growth faster than volume growth

13% 23% 35% 18% 8% Excess of Volume Growth Mining Forestry Automotive Non-Profit / Health Manufacturing (SWO)

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Indicator: LTD claims by cause of disability Indicator: LTD claims by cause of disability

0% 0% 10% 10% 20% 20% 30% 30% 40% 40% 50% 50% 60% 60% 70% 70% 80% 80% 90% 90% 100% 100% O N O N D Others Nervous Circulatory Accident Cancer Musculo-Skeletal Disorders Psychological J J 2008 2008 F M F M A M J J A S M F J J 2009 2009

Not yet seeing significant change in the profile of disability causes

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Deteriorating trend emerging

What are we seeing regarding … What are we seeing regarding …

– R – Recovery d dates?

Apr-May 09 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

Annualized LTD net recovery rate % by co Annualized LTD net recovery rate % by count unt

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22% 63%

15% 15% Return to Work Not Disabled Definition Change

Most disabilities resolve through return to work: this is the

ptimal outcome but layoffs and closures make this harder.

Impact of economy on … Impact of economy on …

– Return to work Return to work

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One third of return-to-work recoveries are from those in the gradual return-to-work program

Indicator: Actively Managed Gradual Indicator: Actively Managed Gradual Return to Work (GRTW) Return to Work (GRTW)

M A M M J J A S O N D J 09 F J 08 F M A

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21 0% 0% 20% 20% 40% 40% 60% 60% 80% 80% 100% 100%

What are we seeing regarding … What are we seeing regarding …

– Types of recoveries? ypes of recoveries?

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Source: Munich Re 2009 Group LTD pricing survey – All Companies

What’s the market seeing? What’s the market seeing?

Little or no change in LTD incidence in recent months

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Source: Munich Re 2009 Group LTD pricing survey – Top 7 companies