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

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

“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 2

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

Headlines news from Q4 ’08 to May ‘09 Headlines news from Q4 ’08 to May ‘09 � 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. 4

Headlines news from Q4 ’08 to May ‘09 Headlines news from Q4 ’08 to May ‘09 � 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. 5

Impacts of a “new” economy on Canadians Impacts of a “new” economy on Canadians 114 111 Canadian Unemployment 80 70 59 38 8.6 8.1 7.6 7.1 6.6 -39 6.1 � 5.6 Very large full time job losses from Nov-07 Jan-08 Mar-08 May-08 Jul-08 Nov-08 Jan-09 Mar-09 May-09 Sep-07 Sep-08 November. April showed 39k full time jobs created but were ‘self employed’. Another 59k lost in May. Canadian Consumer Confidence � April unemployment rate: 8% , grew to 8.4% in May and forecasts suggest 100 greater than 9% in 2010. 90 80 � Canadian Consumer confidence: 70 60 � Dec 2006: 120.5 120.5, May 2009: 81.4 81.4 Mar-08 May-08 Mar-09 May-09 Sep-07 Nov-07 Jan-08 Jul-08 Sep-08 Nov-08 Jan-09 � Correlation between unemployment rate and consumer confidence � Benefits experience depends heavily 6 on member behaviour

Impacts of a “new” economy … Impacts of a “new” conomy … – Other indicators Other indicators Manufacturing Shipments Housing Starts (12-month moving average) (12-month moving average) 240.0 0.0 220.0 -0.5 200.0 -1.0 180.0 -1.5 160.0 -2.0 140.0 8 8 9 7 7 8 8 8 8 9 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - r y - r p v n l p v n u a a a o o e a e a M J M M N J N J S S Retail Sales less Autos New Motor Vehicle Sales (12-month moving average) (12-month moving average) 0.8 1.0 0.5 0.6 0.0 0.4 -0.5 0.2 -1.0 0.0 -1.5 -0.2 -2.0 -0.4 -2.5 7 8 8 8 8 8 9 9 7 8 8 8 8 8 9 9 7 8 7 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 - - - - - - - - - - - - y - - - - - y - - - v n r l v n r v n r l v n r p p p p a u a a u a o a o o a o a a a a e J e e J e M M M M M M N N N N S J S J S J S J 7

Impacts of a “new” economy … Impacts of a “new” conomy … – On customers n customers � Key plan sponsor concerns: 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: Key plan member concerns: • J ob 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 8

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 Total Canadian healthcare Total Canadian healthcare spending spending $2,500 individual 2005-2015 2005-2015 spend per capita $ Billions 34% 7% $900 individual spend CAGR 9% per capita Individual 20% Sponsor 9% 57% Government 71% 9 2005 2015 Source: CIHI Spending Database; Statistics Canada; McKinsey analysis

Baby boomers retiring … Baby boomers retiring … – But not financially ready But not financially ready � As members retire, they face a new set of financial risks: • Managing impact of market fluctuations on savings • Rising healthcare costs • Outliving their assets Will have to work longer than expected Expect retirement to be as nice (48% expect to be working at age 66) as they had hoped 10% 10% 7% 7% 44% 44% Unsure Unsure 47% 47% 45% 45% 46% 46% Agree Agree Disagree Disagree 10 Source: 2009 Sun Life Financial Unretirement Index

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 � Business Development � Finance � Asset Management � Health and Dental Claims � Marketing � Underwriting 11

Disability experience tied to unemployment Disability experience tied to unemployment – If history is a guide If history is a guide Correlation between rate of US disability claims (“applications”) per 1,000 disability-insured workers and unemployment rate, 1970–2003 12 • 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

CPP disability rate vs. CPP disability rate vs. Canadian Unemployment Rate Canadian Unemployment Rate Male unemployment rate Male unemployment rate Male incidence rate Male incidence rate Female unemployment rate Female unemployment rate Female incidence rate Female incidence rate - - - - - 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 13

Indicator: STD claims reaching Indicator: STD claims reaching 8 week threshold 8 week threshold # Active Claims reaching 8wk Threshold J F M A M J J A S O N D J F M A M 08 09 14

What are we seeing regarding … What are we seeing regarding … – New LTD New LTD Incidenc Incidence Rates? e Rates? Not yet seeing spike in new claims incidence across our block of business Annualized New Claim Incidence rate per 1000 members by Count S O N D J F M A M J J A S O N D J 07 08 08 09 15 Incurred Month (Assuming Avg 4-Mth Elimination Period)

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 35% Excess of Volume Growth 23% 18% 13% 8% Mining Forestry Automotive Non-Profit / Manufacturing Health (SWO) 16

Indicator: LTD claims by cause of disability Indicator: LTD claims by cause of disability Not yet seeing significant change in the profile of disability causes 100% 100% Others 90% 90% Nervous 80% 80% Circulatory 70% 70% Accident 60% 60% Cancer 50% 50% Musculo-Skeletal 40% 40% Disorders 30% 30% 20% 20% Psychological 10% 10% 0% 0% J J F F M M A M J J A S O O N N D J J F M 17 2008 2008 2009 2009

What are we seeing regarding … What are we seeing regarding … – R – Recovery d dates? Deteriorating trend emerging Annualized LTD net recovery rate % Annualized LTD net recovery rate % by co by count unt Q1 Q2 Q3 Q4 Q1 Apr-May 08 08 08 08 09 09 18

Impact of economy on … Impact of economy on … – Return to work Return to work Most disabilities resolve through return to work: this is the optimal outcome but layoffs and closures make this harder. Not Disabled 22% 15% 15% 63% Return to Work Definition Change 19

Indicator: Actively Managed Gradual Indicator: Actively Managed Gradual Return to Work (GRTW) Return to Work (GRTW) One third of return-to-work recoveries are from those in the gradual return-to-work program J F M A M J J A S O N D J F M A M 08 09 20

What are we seeing regarding … What are we seeing regarding … – Types of recoveries? ypes of recoveries? 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 0% 21

What’s the market seeing? What’s the market seeing? Little or no change in LTD incidence in recent months 22 Source: Munich Re 2009 Group LTD pricing survey – All Companies