Ch 3 Life tables, underwriting, an intro to mortality analysis Flashcards
assessment method of funding
protection offered for specified period of time and necessary money to fund plan was raised by assessing each member an equal amount in advance.
annual mortality rates
tabulated by age, sex and other factors
dx
interval deaths, number of deaths occurring during interval
qx
interval probability of death
probability of death during interval
px
interval probability of survival
probability of survival during interval
x
specified period of time, interval
Ex
exposure during an interval (person X years)
persons exposed to risk dying X duration of interval exposure
lx
number individuals alive at beginning of interval exposed to risk of dying
qx
deaths / exposure
interval mortality rate, calculated by dividing # deaths occurring during interval by corresponding exposure
qx = dx/Ex
edrx
interval excess death rate
future values of fixed death benefit affected by?
inflation
-erodes future value
-claim occurring in future has less financial impact than shortly after policy issue. projected death claims are discounted for interest anticipated to be earned on investment
growth of secondary markets (viatical/elder life settlement) threaten?
to reduce policy lapse rates
-adversely affecting profitability
-pricing assumptions discount future death claims for anticipated lapse rates, premiums paid to that time & accumulated interest, no longer exposed to risk of claim w/lapse
-keeping policies in force, potential to overestimate lapse rates when setting pricing assumptions leading to underestimation of actual mortality experience
Population life table
tabulating death rates for large segments of population w/o regard to individual health, socioeconomic status or employment status
-segmented by sex, race, residence
-avg mortality rates across large segments of gen. pop
period life table (current)
tabulating death rates for particular period of time for individuals of different ages at time mortality data was collected
-1-3 yrs
-depicts death rates for large # of birth cohorts (groups)
cohort life table
tabulating year-to-year death rates for group (cohort) of individuals born around same time
-limits: only historical, does not predict future rates
types:
select & ultimate (basic)
annuity
group life
pension life
standard & ordinary
disabled life
basic table (select and ultimate, standard or better rates)
used to price life insurance products
-tabulating death rates for individuals who purchased insurance at standard or better rates
-subdivided by tobacco use and by select and ultimate periods
-higher proportions from higher socioeconomic groups and lower proportions of disabled/ill health
-non-tobacco select mortality rates substantially lower
select factors
scalar factors applied to life tables to reduce mortality rates to levels thought to be attractive to potential life insurance buyers while maintaining achievable mortality goals through the combination of target market selection, underwriting, and anticipated secular (gen. pop) mortality improvements
select period
period from policy issue to time at which the effect of underwriting has been assumed to no longer be effective in selecting standard or better risks from amount pool of insured persons
-20-25 yrs
-select portion of basic table is cohort life table
ultimate period
period after select during which effect of underwriting is assumed to no longer be effective in selecting standard or better risks from entire pool of insured persons
-beyond 20-25 yrs
-ultimate portion represents period life table
individual annuity tables
tabulating mortality rates of individuals who have purchased annuities
-lowest mortality rates
group life tables
aggregate life tables, little to no underwriting
-rates on par w/ slightly higher than individual select and ultimate tables
-requirement to be actively employed
social security/pension life tables
higher mortality rates close to but less than population
-rates of those actively employed at some time
-requirement be eligible for social security or pensions
standard & ordinary tables
collective aggregate insured lives table in which select and ultimate rates are combined to arrive at collective rates for each age, thus ignoring effect of selection resulting from underwriting
-rates higher than basic select and ultimate
-CSO table
-mortality on par w/ pension tables
disabled lives table
mortality rates of persons no longer able to work due to disability
-rates higher than general population
Table rankings
Annuity
select & ultimate: NT/ST
group, life and annuities
social security/pension
CSO - standard
population
disabled lives
comparing rates
no direct comparison
mortality rates observed in clinical population having impairment in question should be first compared to mortality rates in another population matched as closely as possible in other respects to population w/ impairment
excess death rate
calculated using relationship of observed to expected mortality
-difference in death rates observed in population having the impairment compared to death rates expected in otherwise matched population w/o the impairment
-can be compared to select lives mortality rates to calculate select relative mortality ratio from which a table rating can be derived.
edr
used to calculate amount of extra premium (flat extra) to be charged on annual basis to cover excess mortality risk
extra premium = edr + addl load for overhead/profit
base pricing assumptions
reflect mortality expected for individuals in good health and free from impairments
relative mortality ratio (rmr)
ratios between observed mortality rates and expected mortality rates
rmr=q/q1
-basis of classification system for rating substandard mortality risks in which a table of excess mortality risk represents 25% increase in risk over expected for standard mortality risks.
substandard ratings
25% of extra risk = 1 table
table rating
used to account for extra mortality risk by charging extra premium based on multiple of the base premium
-best way to charge extra premium to cover excess mortality cost if the excess mortality risk increases w/ each duration the policy remains in force
flat extra rating
used to account for extra mortality risk by charging constant extra premium in addition to base premium
-only if excess risk is to remain constant
-risks: occupational/ avocation/ foreign travel
ex $5 per $1,000 per year
-can convert excess premium from flat into equivalent permanent table rating
temporary flat extra
where excess mortality risk decreases w/ time
-avg cost of extra premium per $1,000 of coverage and duration in yrs over which exta risk is expected to be present
ex. $12.50 per $1,000 for 5 years
cancer
-avoids anti-selection for risks that decrease over time, minimizes selective lapsation if extra premium charged beyond time when risk returns to baseline levels.
anti-selection
individuals who know or suspect they are at an increased risk of dying apply for and retain larger amounts of insurance compared to healthy individuals w/ less risk of dying
3 objectives of temporary flat extra ratings
- postponement period avoids speculative risks during early duration when mortality is very high
- period over when temp flat extra is charged allows individuals to purchase affordable insurance when risk diminishes to more predictable levels, minimizing anti-selection.
- returning to standard pricing at later duration minimizes anti-selection that would result from selective lapsation
most common life tables to encounter
general population life: avg. annual mortality rates across large segments of gen. pop. w/o regard to socioeconomic status, health or tobacco use, race, sex, residence
basic select and utlimate life: annual mortality rates for persons insured at standard or better by age, sex, policy duration, tobacco use
early durations after issue
mortality rates are lower than general population mortality rates
