Chapter 3 - Life Tables, Underwriting, and Introduction to Mortality Analysis Flashcards
How are mortality rates calculated?
Observing the number of deaths (dx) occurring in a population over a specified period (an interval, designated by “x”) and determining the number of individuals exposed to the risk of dying during that interval
Exposure (ex)
exposure during an interval, or
= (persons exposed to risk of dying) (duration of interval exposure), or
= (lx) (interval duration)
Lx
of individuals alive at the beginning of an interval (x) who are exposed to the risk of dying
Dx
of deaths during an interval
Qx
interval mortality rate, or
deaths/exposure, or
dx/Ex
Why express mortality rates in monetary terms?
This allows the advantage of weighting mortality experience by policy size, thus providing a better indication of the financial impact of mortality
Population life table
A life table tabulating death rates for large segments of the population without regard to individual health, socioeconomic status, or employment status
What are population tables segmented by?
Sex, race, and residence (but not by any other factors)
Period (current) life tables
A life table tabulating death rates for a particular period of time for individuals of different ages at the time mortality data was collected (different birth cohorts)
Cohort (generation) life tables
Report the actual death rates for a group (cohort) of individuals born around the same time
What is a limitation of all life tables, both cohort and period?
They report only historical death rates and do not predict future death rates
Types of insured lives life tables
- Select and ultimate (aka basic) tables
- Annuity tables
- Group life tables
- Pension life tables
- Standard and ordinary tables
- Disabled life tables
Basic tables
Report the mortality of individuals who purchased life insurance at standard or better rates (also separate by tobacco use)
What is the select period in a basic table?
The period after policy during which the effect of underwriting continues to result in lower death rates compared to the entire pool of policyholders
What are ultimate rates?
Death rates following the select period
What type of table is the select portion of a basic table?
Cohort life table
How are basic tables used by insurance companies?
To price products
Annuity life table
Table tabulating the mortality rates of individuals who have purchased annuities (lowest mortality among insured lives)
Social security (pension) life table
Table tabulating the mortality rates of individuals who were actively employed at some time
Standard and ordinary life tables
Aggregate insured lives tables in which select and ultimate mortality rates are combined to arrive at aggregate death rates for each age, thus ignoring most the effect of selection resulting from underwriting (more conservative than select and ultimate tables)
Disabled lives life table
Tabulating the mortality rates of persons no longer able to work due to a disability
Excess death rate
the observed death rate (q) - expected death rate (q’)
q’ = baseline mortality assumption
Relative mortality ratio
observed mortality (q)/expected mortality (q’)
Types of substandard ratings
Table rating and flat extra
When are table ratings more appropriate over flat extras?
If the excess morality increases with each duration that the policy remains in force
When is a flat extra more appropriate than a table rating?
If the excess mortality risk is thought to remain constant
Should you ever convert temp FEs into table ratings?
No
Ultimate period
The period after the select period during which the effect of underwriting is assumed to no longer be effective in selecting standard or better risks from the entire pool of insured persons (generally 20 to 25 years)
