What do Resident Stakeholders Need to Know About Actuarial ......Mar 05, 2019 · PRIMER ON CCRC...

What do Resident Stakeholders Need to Know About Actuarial Reports?

Are they a tool for confirming financial strength?

March 5, 2019 webinar for

AV Powell, MAAA, ASAFounder & CSOAV Powell & Associates, LLCphone 404.845.0360 ext. [email protected]

PRIMER ON CCRC ACTUARIAL STUDIES – 1

1. Range in scope of actuarial reports2. Content of ASOP#3 actuarial reports3. Interpretation of information in actuarial reports4. Critical factors for stakeholder concerns

a. Assumptions

b. Assumptions

c. Assumptions

Agenda Topics


1. ACR = Actuarial Compilation Report2. ASC = Accounting Standards Codification3. ASOP#3 = Actuarial Standards of Practice No. 34. CAS = Comprehensive Actuarial Study5. PV = Present Value with interest discount6. FSO = GAAP Obligation to provide Future Services7. GAAP = Generally Accepted Accounting Principles8. SAB = Satisfactory Actuarial Balance

Abbreviation Glossary


1. Comprehensive actuarial study; every 3 to 5 years

2. Actuarial compilation; annually

3. Statutory in specific states

a. AZ, CA, MD, NH, NY, TX; every 3 to 5 years

b. NC, PA; one-time

c. Not all entry fee contracts covered

ASOP#3 Actuarial Studies


1. Estimating GAAP future service obligation (FSO)

2. Actuarially-based population flows

3. Testing contracts for actuarial equivalence

4. Mortality and morbidity experience study to

generate customized life expectancies

Limited Scope Actuarial Studies


1. Excludes period costs ≈ 10-to-15% of operating budget2. Excludes all future depreciation3. Combines present values (PV) and non-PV amounts4. Ignores time value of money for refunds5. ASC 606 amortization income does not match expenses6. Negative FSO value does not necessarily mean in

ASOP#3 satisfactory actuarial balance

FSO Caveats—Results can be Misleading

PRIMER ON CCRC ACTUARIAL STUDIES– 6

ASOP#3 Solvency Criteria

1. Are reserves adequate to meet obligations to current residents?

2. Are fees charged to new entrants sufficient to cover their lifetime costs?

3. Will projected cash flows be positive and meet any bond or statutory covenants?


Actuarial Dashboard


Actuarial Opinion Statement


1. Doesn’t meet regulation in some states2. Not likely to deplete liquid assets3. Solvency dependent upon intergenerational subsidies4. Legacy passed on to future Boards5. Not meeting fiduciary responsibility?6. Limited ability to avoid unforeseen financial crises7. If not in SAB today, can plan to achieve in future

If Not in SAB, What Does it Mean?


1. Comprehensive actuarial studya. Bond covenants; every 2 to 3 yearsb. Statutory; every 3 to 5 years or onec. Initial financial feasibility

2. Actuarial compilation reporta. Board has adopted actuarial financial management

b. Estimate ≈10% of industry obtain annuallyc. AVP clients with highest results receive the

Frequency of ASOP#3 Studies


ASOP#41 paragraph 3.7; Responsibility to Other Users

“An actuarial document may be used in a way that may influence persons who are not the intended users…To help prevent misuse, the actuary may include language in the actuarial document that limits its distribution to other users (for example, by stating that it may only be provided to such parties in its entirety or only with the actuary’s consent).”

Distribution may be Limited


1. Do the Board and management believe that contractual liabilities should be fully funded?

2. Is the CCRC in SAB, and if not, what are the plans to achieve that status?

3. What are the key assumptions to achieve SAB?• Future occupancy• Fee increases in relation to expenses• Real rate-of-return• Expansion plans

What Should a Resident Ask?


Takeaways

1. Transparency in sharing actuarial status is positive2. If available, ask for complete actuarial report

a. Look for actuarial opinion regarding SABb. Compare with benchmarks (refer to Appendix)c. Review trends in successive studies

3. GAAP FSO value is not correlated with solvency4. Board adoption of a liability management policy is

more important than current actuarial status5. Actuarial studies are not a panacea

APPENDIXFinal 2017

Actuarial StatisticsAnnual updates posted at:

http://www.avpowell.com/knowledge-base/

ACTUARIAL STATISTICS – 15

1. Database

2. Actuarial statistics

3. Demographic statistics

4. Operating statistics

5. AVP standards

6. Actuarial report card

Overview


167 CCRCs in Database

0

25

50

75

100

125

150

175

2013 2014 2015 2016 2017


25th 50th Average 75th2013(144) 18 27 28 352014(150) 20 27 29 372015(153) 22 29 31 392016(153) 22 30 31 402017(167) 22 31 33 41

05

1015202530354045

Typical CCRC Operating for 31 Years


1. Unified and traditional funded status

2. New entrant pricing

3. 10-year reserve increase factor

4. Liquid reserve ratio

5. Actuarial ratio

6. Actuarial return on fixed assets

Actuarial Statistics


1. Combines current and future resident evaluation

2. Reflects “actuarial appraisal value” of fixed assets

3. Single value to determine whether in satisfactory

actuarial balance (“SAB”)

4. If ≥ 100%, then CCRC is deemed to be in SAB

Unified Funded Status (UFS)


Distribution for ASOP#3 Status

42% 35% 33% 38% 37%

25% 33% 37% 30% 34%

12% 13%16% 16% 12%

22% 19%14% 16% 17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013 2014 2015 2016 2017

AVP Seal SAB Qualified SAB Not in SAB


83% of our Clients are SAB(Same-site '17-'16 up 0.1%)

25th 50th Average 75th2013(124) 104.4% 112.8% 112.9% 123.9%2014(129) 103.9% 113.4% 113.9% 125.0%2015(134) 104.5% 113.4% 117.0% 124.8%2016(133) 105.5% 112.8% 112.9% 123.6%2017(146) 104.9% 113.4% 114.9% 125.5%

0%

20%

40%

60%

80%

100%

120%

140%


UFS by Years of Operation

102%

117% 115%

97%

116% 113%

0%

20%

40%

60%

80%

100%

120%

140%

Developing 0-10 year Maturing 11-25 years Mature 26+ years

Average Median


25th 50th Average 75th2013(128) 90.8% 105.6% 104.4% 115.0%2014(133) 93.9% 104.3% 106.4% 116.6%2015(135) 92.6% 104.4% 106.9% 118.2%2016(134) 93.2% 104.1% 105.4% 116.1%2017(148) 94.9% 104.7% 106.3% 117.0%

0%

20%

40%

60%

80%

100%

120%

140%

Actuarial Funding is Marketable(Same-site '17-'16 down 0.7%)


25th 50th Average 75th2013(144) 4.0% 10.8% 11.3% 17.5%2014(150) 4.8% 10.9% 11.1% 18.1%2015(153) 5.2% 12.2% 12.4% 19.5%2016(153) 5.9% 13.2% 12.4% 19.0%2017(167) 5.8% 12.4% 11.8% 18.2%

0%

5%

10%

15%

20%

12% Surplus for Single Entrants (Same-site '17-'16 up 0.4%)


25th 50th Average 75th2013(144) 4.1% 10.0% 10.2% 16.2%2014(150) 5.3% 9.9% 10.2% 16.0%2015(153) 4.9% 10.5% 10.8% 16.3%2016(153) 5.9% 10.9% 10.3% 15.9%2017(167) 5.0% 11.4% 10.9% 16.5%

0%

5%

10%

15%

20%

11% Surplus for Coupled Entrants(Same-site '17-'16 up 0.7%)


25th 50th Average 75th2013(144) 4.3% 10.3% 10.5% 16.5%2014(150) 5.1% 10.5% 10.3% 16.5%2015(153) 5.3% 10.3% 11.3% 17.4%2016(153) 6.3% 11.2% 10.8% 16.9%2017(167) 5.1% 11.8% 11.1% 17.2%

0%

5%

10%

15%

20%

Typical Fees Show 12% Surplus(Same-site '17-'16 up 0.9%)


25th 50th Average 75th2013(121) 1.9 2.4 3.1 3.42014(129) 1.7 2.3 3.8 3.42015(127) 1.6 2.4 3.2 3.22016(129) 1.8 2.5 3.6 3.62017(141) 1.8 2.4 3.3 3.2

0

1

2

3

4

Liquid Reserves More Than Double in 10 Years


25th 50th Average 75th2013(126) 27.5% 44.5% 56.5% 77.3%2014(133) 25.2% 47.1% 57.0% 78.1%2015(133) 25.7% 47.3% 54.2% 69.1%2016(134) 24.8% 48.0% 59.0% 71.2%2017(148) 26.4% 49.8% 62.0% 78.6%

0%

20%

40%

60%

80%

100%

Liquid Assets Fund Nearly 50% of Liabilities


25th 50th Average 75th2013(127) 67.1% 71.8% 73.3% 79.5%2014(132) 68.2% 72.8% 73.4% 79.8%2015(135) 69.0% 74.0% 74.3% 79.3%2016(134) 67.8% 72.7% 73.8% 78.4%2017(148) 68.0% 73.8% 74.6% 79.6%

0%

20%

40%

60%

80%

100%

Monthly Fees Cover >70% of Future Liabilities


25th 50th Average 75th2013(124) 7.1% 8.8% 9.1% 11.0%2014(129) 7.7% 8.9% 9.2% 10.7%2015(135) 7.3% 8.9% 9.4% 11.0%2016(133) 7.5% 9.0% 9.3% 11.4%2017(146) 7.1% 8.7% 9.5% 11.7%

0%

4%

8%

12%

Actuarial Return on Fixed Assets is 9%


1. Average age at entry

2. Average attained age

3. Life expectancy

4. Health care ratio

5. IL attrition

Demographic Statistics


Female Entry Age Stays Constant at 80 Years

25th 50th Average 75th2013(144) 78.5 80.3 80.1 81.92014(150) 78.7 80.5 80.3 81.72015(153) 78.9 80.2 80.2 81.72016(153) 78.7 80.3 80.3 81.72017(167) 78.8 80.0 80.1 81.6

70

75

80

85

90


Male Entry Age is 1 Year > than Females

25th 50th Average 75th2013(144) 79.7 81.6 81.4 83.02014(150) 80.0 81.8 81.7 83.12015(153) 80.3 81.6 81.5 82.82016(153) 80.1 81.5 81.4 82.82017(167) 80.0 81.0 81.3 82.9

70

75

80

85

90


25th 50th Average 75th2013(144) 84.7 85.6 85.5 86.52014(150) 84.9 85.7 85.8 86.72015(153) 84.7 85.6 85.6 86.62016(153) 84.7 85.7 85.6 86.62017(167) 84.7 85.7 85.6 86.7

70

75

80

85

90

Female Attained Age is 86


25th 50th Average 75th2013(144) 84.6 85.6 85.5 86.52014(150) 84.8 85.7 85.7 86.72015(153) 84.6 85.7 85.5 86.32016(153) 84.7 85.6 85.6 86.42017(167) 84.6 85.6 85.5 86.5

70

75

80

85

90

Male Attained Age is the same as Females


25th 50th Average 75th2013(144) 10.5 11.4 11.3 12.02014(150) 10.5 11.4 11.2 11.92015(153) 10.4 11.3 11.1 11.82016(153) 9.9 11.1 10.9 11.82017(167) 9.8 11.0 10.9 11.8

0

3

6

9

12

Females Live 1.5 Years Longer than US Pop.


25th 50th Average 75th2013(144) 8.2 8.6 8.8 9.42014(150) 8.1 8.6 8.7 9.22015(153) 8.1 8.6 8.7 9.22016(153) 7.8 8.6 8.6 9.22017(167) 7.8 8.5 8.5 9.3

0

3

6

9

12

Males Live 6 Months Longer than US Pop.


25th 50th Average 75th2013(142) 9.0 11.3 12.2 14.52014(149) 9.2 11.7 12.0 14.72015(152) 9.0 11.6 12.1 14.82016(153) 9.0 11.5 12.4 14.92017(162) 9.1 11.2 12.1 14.6

0

3

6

9

12

15

11 Assisted Living per 100 ILU Residents


25th 50th Average 75th2013(142) 8.6 11.7 12.6 15.82014(148) 8.4 11.3 12.4 15.52015(152) 7.7 10.9 12.1 14.82016(151) 7.7 10.8 11.5 14.62017(165) 7.1 10.3 11.3 14.3

0

3

6

9

12

15

18

Nursing Utilization Shows Slight Decrease


25th 50th Average 75th2013(144) 17.7 23.1 24.8 29.52014(150) 18.1 22.4 24.1 29.32015(153) 18.3 22.7 24.0 28.72016(153) 16.9 22.9 23.7 28.42017(166) 16.8 22.2 23.1 27.7

0

5

10

15

20

25

30

35

22 “Healthcare” per 100 ILU Residents


25th 50th Average 75th2013(143) 9.3% 11.2% 11.8% 13.8%2014(148) 9.4% 11.7% 12.1% 13.9%2015(153) 9.5% 11.6% 12.1% 14.2%2016(153) 9.5% 11.9% 12.4% 14.8%2017(166) 9.2% 11.9% 12.4% 15.0%Moving Avg 9.5% 11.6% 12.1% 14.3%

0%

5%

10%

15%

ILU Attrition approximately 12%


1. Average occupancy

2. Per capita expense per day

3. Average monthly fee increase

4. Average entry fee increase

Operating Statistics


25th 50th Average 75th2013(144) 81.6% 89.4% 86.7% 93.9%2014(150) 83.5% 90.8% 88.4% 94.8%2015(153) 85.1% 91.2% 89.3% 95.0%2016(153) 86.6% 92.4% 90.1% 95.5%2017(166) 88.1% 92.7% 90.8% 95.3%

70%

75%

80%

85%

90%

95%

100%

Benchmark ILU Occupancy: 95% (Same-site '17-'16 up 0.2%)


Benchmark ALU Occupancy: 90%

25th 50th Average 75th2013(140) 85.9% 91.4% 88.9% 95.0%2014(147) 84.1% 90.0% 87.1% 94.2%2015(149) 83.7% 90.9% 88.6% 94.4%2016(150) 86.7% 91.2% 88.5% 94.6%2017(159) 86.1% 90.9% 88.5% 94.4%

70%

75%

80%

85%

90%

95%

100%


25th 50th Average 75th2013(140) 84.6% 90.9% 87.9% 93.7%2014(145) 83.5% 89.3% 86.5% 93.3%2015(148) 82.0% 88.5% 86.0% 92.9%2016(149) 82.9% 88.0% 85.6% 92.0%2017(160) 80.0% 88.0% 84.2% 92.8%

70%

75%

80%

85%

90%

95%

100%

`

Benchmark NUR Occupancy: 90%


25th 50th Average 75th2013(144) $63.50 $73.97 $78.54 $88.352014(150) $66.81 $77.50 $80.53 $92.322015(153) $66.59 $78.23 $80.59 $91.892016(153) $70.02 $82.60 $85.80 $97.472017(167) $72.63 $83.62 $87.04 $98.14

$0

$25

$50

$75

$100

ILU Expenses up 1.2% (Same-site '17-'16 up 2.4%)


ALU Expenses up 3.2% (Same-site '17-'16 up 4.1%)

25th 50th Average 75th2013(139) $129.90 $155.08 $158.20 $176.322014(148) $133.35 $159.03 $164.74 $187.772015(151) $140.35 $162.29 $167.22 $191.802016(151) $146.51 $173.92 $179.63 $203.462017(161) $147.91 $179.45 $183.63 $211.45

$0

$50

$100

$150

$200

$250


25th 50th Average 75th2013(141) $237.78 $271.74 $281.12 $314.192014(149) $248.05 $288.44 $296.32 $335.862015(150) $262.42 $294.43 $303.67 $346.342016(152) $261.44 $299.65 $316.07 $363.952017(165) $275.75 $311.92 $331.56 $382.45

$0

$100

$200

$300

$400

NUR Expenses up 4.1% (Same-site '17-'16 up 1.8%)


25th 50th Average 75th2013(139) 3.0% 3.3% 3.3% 3.8%2014(148) 3.0% 3.3% 3.4% 4.0%2015(153) 2.5% 3.0% 3.2% 3.6%2016(152) 2.9% 3.0% 3.3% 3.5%2017(166) 3.0% 3.2% 3.2% 3.5%

0%

1%

2%

3%

4%

5%

Monthly Fees Increased 3.0% to 3.5%


Entry Fees Increased 1.6% to 3.9%

25th 50th Average 75th2013(140) 0.3% 2.8% 2.4% 3.5%2014(148) 0.0% 2.0% 2.3% 3.5%2015(151) 2.0% 3.0% 3.1% 4.0%2016(152) 2.0% 3.0% 3.3% 4.1%2017(165) 1.6% 3.0% 2.9% 3.9%

-1%

0%

1%

2%

3%

4%


AVP Standards and Benchmarks

Unified funded status 115%

Funded status 105%

New entrant surplus 10%

10-year reserve increase 2 times

Liquid reserve ratio 50%

Actuarial ratio 70%

Return on fixed assets 10%


1. Actuarial report card

a. Actuarial valuation

b. New entrant pricing analysis

c. Projected cash flows

d. Adequacy of health care beds

2. Graded on “a curve” objectively using database

How are Results Presented?


1. Grade based on quartile ranking

a. {up to B} first quartile (0 to 25th percentile)

b. {B to A-} second quartile (25th to 50th percentile)

c. {A- to A} third quartile (50th to 75th percentile)

d. {A to A+} fourth quartile (75th to 100th percentile)

2. CCRCs should target grades of A or higher

Grading System for Actuarial Report Card


1. Projecting total health care usage is more credible than individual levels of care

2. Grade based on expected and “highest” usage compared to capacitya. {up to B} capacity < expectedb. {B to A-} expected < capacity < 90th percentilec. {A- to A+} expected < 90th percentile < capacity

Grading System for Heath Care Adequacy

What do Resident Stakeholders Need to Know About Actuarial Reports?� �Are they a tool for confirming financial strength?��March 5, 2019 webinar for Agenda TopicsAbbreviation GlossaryASOP#3 Actuarial StudiesLimited Scope Actuarial StudiesFSO Caveats—Results can be MisleadingASOP#3 Solvency Criteria�Actuarial DashboardActuarial Opinion StatementIf Not in SAB, What Does it Mean?Frequency of ASOP#3 StudiesDistribution may be LimitedWhat Should a Resident Ask?TakeawaysAPPENDIX��Final 2017�Actuarial Statistics��Annual updates posted at:��http://www.avpowell.com/knowledge-base/ Overview167 CCRCs in Database�Actuarial Statistics�Unified Funded Status (UFS)�Distribution for ASOP#3 Status�83% of our Clients are SAB�(Same-site '17-'16 up 0.1%)�UFS by Years of Operation�Actuarial Funding is Marketable�(Same-site '17-'16 down 0.7%)�12% Surplus for Single Entrants �(Same-site '17-'16 up 0.4%)�11% Surplus for Coupled Entrants�(Same-site '17-'16 up 0.7%)�Typical Fees Show 12% Surplus�(Same-site '17-'16 up 0.9%)�Liquid Reserves More Than Double in 10 Years�Liquid Assets Fund Nearly 50% of Liabilities�Monthly Fees Cover >70% of Future Liabilities�Actuarial Return on Fixed Assets is 9%�Demographic Statistics�Female Entry Age Stays Constant at 80 Years�Male Entry Age is 1 Year > than Females�Female Attained Age is 86�Male Attained Age is the same as Females�Females Live 1.5 Years Longer than US Pop.Males Live 6 Months Longer than US Pop.�11 Assisted Living per 100 ILU Residents�Nursing Utilization Shows Slight Decrease�22 “Healthcare” per 100 ILU ResidentsILU Attrition approximately 12%�Operating Statistics�Benchmark ILU Occupancy: 95% �(Same-site '17-'16 up 0.2%)�Benchmark ALU Occupancy: 90%�Benchmark NUR Occupancy: 90%�ILU Expenses up 1.2% �(Same-site '17-'16 up 2.4%)�ALU Expenses up 3.2% �(Same-site '17-'16 up 4.1%)�NUR Expenses up 4.1% �(Same-site '17-'16 up 1.8%)�Monthly Fees Increased 3.0% to 3.5%�Entry Fees Increased 1.6% to 3.9%�AVP Standards and Benchmarks�How are Results Presented?�Grading System for Actuarial Report Card�Grading System for Heath Care Adequacy�

What do Resident Stakeholders Need to Know About Actuarial ......Mar 05, 2019 · PRIMER ON CCRC...

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