Chapter 3

Question 1

How are mortality rates for different ages calculated?

Answer 1

1. observing the number of deaths, occurring in the population over a specified period of time and determining the number of individuals exposed to the risk of dying during that interval.

Question 2

How do you calculate the exposure (Ex) ?

Answer 2

expressed as the product of a number of individuals who are alive at the beginning of an itnerval who are exposed to the risk of dying and the duration over which that exposure takes place, usually years.

**Expressed as: persons-years.

Question 3

Table 1. Definitions of terms used in mortality analysis

Answer 3

1x = number of individuals alive at the beginning of an interval (x) who are exposed to risk of dying

dx = number of deaths during an interval

Ex = exposure during an interval or = (persons exposed to risk of dying) * (duration of interval)

qx = interval mortality rate or = deaths/exposure

Question 4

How is the interval mortality rate calculated?

Answer 4

dividing the number of deaths occurring during an interval by the corresponding exposure.

Question 5

Mortality rates are typically annual/quarter-annual/semi-annual/doctorial?

Answer 5

Annual

Question 6

Life insurance pricing is based on the monetary cost of death claims therefore many life insurance tables are based on what?

Answer 6

the monetary amounts of claims instead of the number of deaths and substitue the total monetary amount of insurance in force for exposure. Since this is the total monetary sum that is “exposed” to the risk of being paid out as claims.

Question 7

What will a pricing assumption typically discount ?

Answer 7

1. future death claims for anticipated lapse rates
2. projected death claims for the interest anticipated to be earned on the investment

Question 8

What are population life tables?

Answer 8

based on death rates calculated for large segments of the population without regard to individual health, socioeconomic, or employment status.

• segemented by: race, sex, residence.
• large mortality rates across large segments of general population.

Question 9

What are period life tables?

Answer 9

Death rates calculated from data collected over a relatively short period (1-3 years) and for that reason the data are most applicable to the middle of that period.

Question 10

What is a Cohort (generation) life table?

Answer 10

represets the actual death rates for a group or cohort, of individuals born around the same time.

• They accurately report the hx death rates for a birth cohort up to the time the table was created.

Question 11

T/F. A limitation of all life tables, both cohort and period, is that they only report only historical death rates and do not predict future death rates.

Answer 11

True.

Question 12

What are some examples of insured lives life tables.

Answer 12

1. select and ultimate tables
2. annuity tables
3. group life tables
4. pension life tables
5. STD and ordinary tables
6. disabled life tables

Question 13

What are basic tables?

Answer 13

report the mortality of individuals who purchased life insurance at standard or better rates. death rates represent a select group of individuals having a greater proportion of persons from higher socioecobomic groups and a lower proportion of disabled persons and those with ill health, when compared to general population.

Question 14

Are basic tables subdivided at all?

Answer 14

Yes, they are subdivided by tobacco use.

Question 15

T/F. It is assumed that underwriting no longer conveys a beneficial effect after 20-25 years

Answer 15

True. However the beneficial effect of u/w and socioeconomic status usually results in mortality rates below those for the general population.

Question 16

Which tables are used by insurance companies to price life insurance products?

Answer 16

Basic Tables.

To price their products competitively, companies often further modify these tables by applying factors that reduce projected mortality rates to levels thought to be attractive to potential new policyholders while, presumably, remaining acheivable through the combination of target market selection, underwriting and secular (i.e., general population) mortality improvements.

Question 17

What are individual annuity tables?

Answer 17

They typically have the lowest mortality rates of any insured lives mortality tables.

They represent the mortality expected for holders of annuity products that are known because of their features to attract healthy persons having the greatest longevity.

Question 18

What are group tables?

Answer 18

They are aggregate life tables because little, if any, individual underwriting is done for group insurance.

They have mortality rates on par with or slightly higher than individual select and ultimate life tables.

Individuals to be actively employed to qualify for group insurance.

Question 19

What are social security or pension life tables?

Answer 19

They typically have higher mortality rates that are close to, but somewhat less than, population rates because selection is limited to the requirements that persons eligible for social security or pensions must have been actively employed at some time.

Question 20

What are standard and ordinary tables?

Answer 20

2017 Commissioners Standard Ordinary (CSO) tables- used by valuation actuaries to set policy reserves and determine cash values.
- more conservative.

Question 21

What are disabled lives life tables?

Answer 21

reflect mortality rates of persons no longer able to work because of a disability.
- mortality rates somewhat higher than general population mortality rates.

Question 22

What is one difference between the mortality rates in insured lives life tables, and the mortality rates in clinical mortality studies?

Answer 22

the former are typically based on the monetary value of policy amounts and claims, where as the latter are based on actual death rates.

Question 23

What is a major difficulty encoutnered when converting clinical mortality rates into insured lives mortality ?

Answer 23

expectations stems from the difference between the characteristics of the populations in clinical studies and of those who purchased life insurance.
- it would be hazardous to assume that the mortality results derived from clinical studies can be translated directly into those that would been seen in an insurance population?

Question 24

What are selections factors that are not calculated by populations entering clinical studies?

Answer 24

sex, socioeconomic status, risk factors, and comorbidities. Even age.

Question 25

What are selection factors that are important selection criteria in many life insurance products?

Answer 25

age, sex, income, risl factors, comorbidities.

Life insurance is also priced differently by age, sex, tobacco.

Question 26

there is one popular method used to reduce the effect that the basic underlying differences in two compred populations can have on the calculation of excess mortality risk.

Answer 26

Rather than directly comparing mortality rates from clinical studies to the mortality rates expected in an insured pop, the mortality rates observed in a clinical population having the impairement in question should first be compared to the mortality rates in another pop matched as closely as possible in other respects to the population with the impairement.
»»> Excesss death rate-

Question 27

How is Excess death rate calculated?

Answer 27

using the relationship of observed to expected mortality, in which the expected mortality is the mortality rate in a comparison population closely matched ot the population having the imprement, except for the presence of the impairement itself.

Question 28

What can you use an EDR (excess death rate) for?

Answer 28

1. calculate the amount of extra premium that must be charged on an annual basis to cover the excess mortality risk us.
2. can be compared to select insured live mortality rates to calculate a select relative mortality ration.

Question 29

What is the purpose of base pricing assumptions for Life insurance products?

Question 30

How do actuaries set substandard prices?

Answer 30

by modifying a basic mortality table, by multiplying the mortality rates in these tables by various factors reflecting market considerations and underwriting effectiveness. > results in aggregate standard prices

Question 31

Offers of insurablity at substandard rates are commonly expressed in one of two ways. Name them

Answer 31

1. as an excess death rate (edr)

2. as a relative mortality ratio (rmr)

Question 32

What is excess death rate

Answer 32

the diffrence in death rates observed in a population having the impairement compared to the death rates expected in an otherwise matched population wiht out impairement.

Question 33

what is the formula to calculate excess death rate

Answer 33

edr = q-q'
q= observed death rate 
q'= expected death rate

• in insurerd lives studies q’ represents the baseline mortality assumption.

Question 34

what is Relative Mortality rations? (rmr)

Answer 34

rations between observed mortality rates (q) and the expected mortality rates (q’).

Rmr = q/q’

• they form the basis of a classification system for rating substandard mortality risks in which a table of excess mortality risk reperesents a +25 increase in risk over that expected for STD rates.

Question 35

Ideally substandard premium rates would derive from what?

Answer 35

an analysis of insured lives mortality experienced similar to that used to set STD premium rates.
- for reliable numbers a substantial # of individuals with that impairement must be followed until death.

Question 36

True or False many companies share their mortality data on substandard isseus to create pooled data for inter-company mortality studies?

Answer 36

True- since few companies have large enough exposure on substandard policues to allow for a meaningful analysis by impairement.

Question 37

When is a table rating appropriate to assess the excess mortality cost of one or more impairements?

Answer 37

if the excess mortality rismk increases with each duration that the policy remains in force.
- assumed that most disease process exhibits a mortality multiple pattern of excess mortality risl

Question 38

When is a flat extra an appropriate method of excess mortality cost on one or more impairements?

Answer 38

if the excess mortality is thought to remain constant.

ie. occupation, avocation, foreign travel

Question 39

When is a temporary flat extra appropriate?

Answer 39

when a excess mortality risk decreases with time.
This is trypically exprtessed in terms of the average cost of extra premium per 1K of coverage and the duration in years over which the risk is expected to be present.

Question 40

How is cancer rated?

Answer 40

1. pp’d during time of tx to assess tx results.
2. excess mortality risk is calculated on a basis that many cancers exhibit a decreasing pattern of excess mortality.
3. when cancer appears to have been cured the flat extra premium is usually dropped.

Question 41

The strategy of creating a table for cancer ratings with postponed time since date of dx prior to adding flat extra, as well as calculations for years it takes for the risk to return to 0 is designed to achieve what 3 objectives?

Answer 41

1. PP period avoids assuming speculative risk during the earliest duration when the mortality is very high.
2. a finite period over which a more modest temporary flat extra premium is charged allows most individuals to purpose insurance at affordable prices when the risk diminishes.
3. returning to STD pricing at the later duration is designed to minimize the anti- selection that would otherwise result from selective lapsation, if extra premium were charged beyond the time when the mortality risk had returned to baseline levels.

Question 42

Is it appropriate to convert temporary flat extra ratings into table ratings?

Answer 42

No, but it is appropriate at times to convert perm flat extras into tables ratings.

Question 43

Define select factors

Answer 43

scalar factors applied to life tables to reduce projected mortality rates to levels thought to be attractive to potential life insurance buyers while remianing achievable through the combination of target martket selection/u/w/ancitipacted secular mortality improvements.

Question 44

what is a select period?

Answer 44

the period from life insurance policy issue to the time at which the effect of u/w has been assumed to no longer be effective in slecting STD or better risk from amoung the entire pool of insured persons (20-25 yrs)

Question 45

define the ultamate period

Answer 45

the period after the select period during which the effect of u/w is assumed to no longer be effective in selecting STD or better risk from the entire pool insured persons (period beyond 20-25 years after u/w)

Question 46

“Post death” method

Issues associated with this method

Answer 46

Funding death benefits in which each member of the society agreed to pay a specific amount of money when a fellow member died.

1. contributions were voluntary and thus the death benefit could not be guaranteed.
2. unless a new member was recruited to the society, the group gradually diminished d/t continued deaths and death benefits.
3. the # of claims increased each year b/c the group aged