Chapter 10

Question 1

How are death benefits projected for life insurance products?

Answer 1

using historical mortality data to estimate patterns of death in an insurance group.
- terminations other than death- are projected using hx lapse data.

Question 2

how are death benefits projected for deferred annuities?

Answer 2

• effect of mortality on the cost benefit is limited to any account value payabale on the death of the cotnrdact owner.
• mortality affects the purchase rates for the payout and affects pricing of death benefit options under optional rider benefits.

Question 3

How are death benefits projected for immediate life annuities?

Answer 3

mortality rates are an important factor in determining an insurer’s cost to provide period payments, establishing abbuity reserves, and setting purcahse rates.

Question 4

Define mortality rate

Answer 4

rate of deaths amount a defined group of people.

Question 5

define the term Cohort

Answer 5

classified by age, gender, tobacco use (Smoking status) or other characteristics.

Question 6

Mortality rates are organized in mortality tables. Whats a mortality table?

Answer 6

statistical table that shows the number of people in a chohort and the number of rate of deaths for the cohort at given age.

Question 7

What are tabular mortality rates?

Answer 7

mortality rates that are shown in mortality tables

Question 8

what is mortality experience?

Answer 8

refers to the number or rate of deaths that actually occurs in a given cohort.

Question 9

define experience mortality rates

Answer 9

historical rates of death in a given cohort

Question 10

what is expected mortality?

Answer 10

refers to the number or rate of deaths, statistically likely to occur in a group of people that a given age,

Question 11

what is assumed mortality?

Answer 11

hypothetical or assumed number or rate of deaths in a given cohort.

Question 12

why do actuaries create mortality assumptions?

Answer 12

ricing, reserving and other modeling applications fo rlife and annuitiy products.

Question 13

What steps are included in creating motality assumptions

Answer 13

1) actuary estimates mortality costs by identifying approprioate mortality experience and calculating experience mortality rates.
2) next PRN, creates basic mortality rates.
3) Create a curve of expected mrotality rates.
4) Adjust expected mortality.

Question 14

Why would an actuary adjust the expected mortality curse (addressing what considerations)?

Answer 14

1) acknowledge any reasonable expectation that policy design, underwriting, the risk selection processes, or policyholder behaviro.
2) acknowledge any future trends in population mortality.
3) acknowledged any desired specific allowance for adverse deviation in mortality.

Question 15

Mortality rates are otten expressed in terms of deaths per / X?

Answer 15

deaths per thousands lives.

Question 16

Mortality tables permit us to determine the survival rates for each age. Whats a survival rate?

Answer 16

percentage of people who have attained a given afe and are expected to be alive at their next birthday.

Question 17

How does an insuere choose the type of mortality table to use?

Answer 17

depends on product type
purpose of calculation,
characteristics of population
acailability of the appropriate statistics based on the insurer’s own experience

Question 18

What is a population mortality table?

Answer 18

shows mortality statistics for all memebers of a given population.
*may differ by country,

Question 19

Why do insueres use lower mortality rates for annuity benefit design than for death benefit pricing?

Answer 19

annuitants tend to live longer than life insured’s.

Question 20

What is a life insurance mortality table

Answer 20

show the project mortality rates and survival rates for a population of life insured’s only.

Question 21

What is an Annuity mortality table?

Answer 21

shows projected mortality rates and surviral rates for a poppulation of annuitants only.

Question 22

define life expectancy

Answer 22

average number of years of life remianing for a group.

Question 23

techniques used to manage mortality risk to not apply to longevity risk. What are 4 effective techniques for managing longevity risk?

Answer 23

1) monitoring external and internal sources for data and incorporating estimated future longevity improvement into pricing.
2) monitoring company;s own sales of produts and evaluate the popularity amongs competitiors
3) updating prices regularly to refelct the company;s latest udnerstnading of longevity trends.
4) setting max premium volume of life annuity bsuiness that company will issue in any patticular time period.

** use different sets of mortality data for different products.

Question 24

What are the two most important uses for mortality tables?

Answer 24

1) estimating cost of a product’s benefit payment

2) calculating the amount of required reserves.

Question 25

what is basic mortality tables?

Answer 25

mortality tables with no margin built into the rates,

*sed for technical product desgin.

Question 26

What is valuation mortality tables?

Answer 26

tables with a margin build into the mortality rates,

• used to calculate policy reserves.
• more conservative

Question 27

Tables that reflect the effects of underwriting can be structured into what 3 types of tables?

Answer 27

1) selected mortality tables
2) ultimate mortality table
3) select and ultimate mortality tables.

Question 28

Define select mortality table

Answer 28

shows the expected mrotality rates of epople who have recently been underwritten.

Question 29

define ultimate mortality table

Answer 29

shows the expected mrotality rates of people who have not recently been underwritten for insurance policies.
ultimate mortality period= is the period after the select mortality period has ended/

Question 30

Define select and ultimate mortality table

Answer 30

combines coordinated sets of select mortality rates and ultimate mortality rates.
acute period = select rates
longer period = blend of select and ulttimate rates
period agter the effects of underwriting have diminished = ultimate mortality rates.

Question 31

Mortality tables can be contracted ona sex-distinct or unisex basis. Define this.

Answer 31

sex-distinct = gewnder based, shows different mortality rates for M vs F.
unisex show single set of mortality rates.

Question 32

Insurers use proprietary and published mortality tables. What does that mean?

Answer 32

1. proprietary motality tables arr tables a single insurance company develpps based on its experience and customers.
2. published tables, are tables that are made available to the general product.

• tables compiled and published by the society of actuaries are published.
• published tables can be used by insurers as benchmarking tables.

Question 33

What is the projection method?

Answer 33

method of modifying tabular mortality by multiplying the tabular mortality rates bya . chosen percentage.

Question 34

What do you call tables that have been adjusted using the projection method?

Answer 34

mortality tables with projection.

Question 35

What are static mortality tables?

Answer 35

mortality tables that have not been adjusted to account for future changes in mortality.

Question 36

What is the setback method?

Answer 36

modifying a mortality table rates by showing future decreases in mortality for people at a given age by using the tabular mortality rate for a younger age.

• insurers use values of 1-5 years,

Question 37

What is the equation for mmotality costs?

Answer 37

msotality costs = (expected number of benefit payments) x (amount of the average benefit payment)

Question 38

What is a mortality margen?

Answer 38

provision for conservatism in mortality risk projections.

-

Question 39

What is a positive mortality margin for life insurance products?

Answer 39

results from applying a higher mortality rate than would be found in a basic mortality table.
* method to build conservatism.

Question 40

What is a positive mortality margin for life annuity payout benefits?

Answer 40

results from applying a lower mortality rate than would be found in a basic mortality rate.

• fewer who die = more that will collect benefits.
• mortality profits decrease as actual mortality rates decrease and they tend to increase as mortality rates increase.