ILA Extension Flashcards
What are 7 key indicators in the L and H Risk Control assessment? (ERM123)
- Risk identification
- Experience studies
- Risk limits
- UW standards and authorities
- Product development process and new business monitoring
- Feedback loop (experience monitoring, claims, UW, pricing, risk management)
- Pricing and valuation assumptions (prudent and refreshed frequently)
What does SCR stand for? (ERM414)
Solvency Capital Requirement, as defined by Solvency II
What is the SCR vision and how is it defined? (ERM414)
- Top-down vision
- Defined as the 1-year VaR at the 99.5% confidence level, then drills down to modules and submodules of risks that conform this vision
What is the RBC vision and how is it defined? (ERM414)
- Bottom-up calculation
- No time horizon or risk metric defined, nor confidence level. Updates are made at a component level.
How is the RBC updated? (ERM414)
By incrementalism, where new factors are being targeted to very specific risks and/or lines of business
What does RBC stand for? (ERM414)
Risk-based capital, as defined by the National Association of Insurance Commissioners
How is SCR applied? (ERM414)
Can be applied by all insurers, but insurers that meet certain qualifications are allowed to use their own risk models
What is the advantage of using a full internal model, instead of the SCR formula? (ERM414)
An insurer can simulate its losses more accurately, calculate a multivariate VaR, with a dependency structure more complicated than implied in the Basic SCR formula
What are the strengths of VaR? (ERM414)
- Easy to interpret;
- Clear connection to probability of insolvency (i.e., capital depletion);
- A lot of computational tools to calculate it efficiently.
What are the weaknesses of VaR? (ERM414)
- Risk blindness: does not reveal the shape of the loss distribution beyond that point
What are the strengths of CTE? (ERM414)
- Addresses risk blindness problem;
- Subadditivity property;
- Requires smaller confidence intervals for the same number of scenarios when using Monte Carlo
What are the weaknesses of CTE? (ERM414)
Difficult to interpret
How is risk aggregated under SCR? (ERM414)
Variance-Covariance approach ~ Gaussian Copula: Many insurers use the Basic SCR formula to calculate module/submodule VaR, and use correlation coefficients to aggregate total SCR.
How is risk aggregated under RBC? (ERM414)
Implied correlations are 0 (total independence) or 1 (perfect correlation)
What is the time horizon for RBC? (ERM414)
None. RBC is a point-in-time assessment of capital levels and a retrospective view.
What is the time horizon for SCR? (ERM414)
One-year capitalization time horizon
When is time horizon truly relevant for solvency measurements? (ERM414)
When using cash flow modeling
What is the problem with a one-year view of capital? (ERM414)
It misses latent, developing risks that build over time to affect capital
What is the problem with run-off / long term time horizons? (ERM414)
- Introduces model uncertainty;
- Practical problems with modeling extended time horizons
What is the standard scenario under RBC? (ERM414)
- Single scenario with specified assumptions independent of a company’s experience,
- Serves as a floor for the reserves and required capital,
- Provides reasonable constraints to the flexibility given to actuarial judgment when doing stochastic modeling
What are the (6) key differences between US, Canadian and SII capital regimes, as quantified in a 2009 study? (ERM414)
- Diversification credits for term-life: SII > US
- Interest rate capital: SII > (US or Can)
- Liability valuation: BE for SII, BE + Explicit PAD for Can, Implicit methodology and assumption margins for US
- UW Risks: SII > US
- SII explicit risks, US has non-explicit risk charcges
- Interest rate and Credit risks: SII > (US or Can)
What are the (3) focuses of traditional risk management? (ERM415)
- Risks insurers are underwriting
- Adequacy of reserves and reinsurance to cover unexpected losses
- Managing investment portfolio risks
Why has ERM replaced traditional risk management? (ERM415)
- To overcome limitations of traditional RM and to expand loss control capabilities,
- To develop a comprehensive mechanism to (a) identify, (b) measure, (c) mitigate enterprise-wide exposures
- Similar to traditional RM, to protect the company against tangible, knowable, and measurable risks relying on historical data
What are strategic risks, as defined by Deloitte? (ERM415)
Emerging threats that count undermine assumptions at the core of a company’s value and foundational business model
What are the challenges with strategic risks? (ERM415)
- Not addressed by traditional loss-control programs,
- Difficult to foresee, measure and minimize
- Unclear ownership
- Company expertise is mostly on risk exposure arising in normal course of business
How does SRM differentiate from operational/enterprise RM? (ERM415)
- SRM primarily addresses potentially disruptive changes in STEP (society, technology, economy, politics)
- Traditional RM and ERM do not typically address potential upside of risk
What are (2) examples of materialized strategic risks in the insurance market? (ERM415)
- Telematics-driven, usage-based insurance products - challenging the auto insurers business
- Non-traditional capital sources such as insurance-linked securities (ILS) - challenging reinsurers
What are (3) examples of potential disruptive challenges in the insurance market? (ERM415)
- Tech/Culture shifts, such as: driverless cars, sharing economies, Internet of Things
- Accelerating medical breakthroughs, such as: gene tests, wearable fitness devices, personalized medicine, 3D printing
- New insurance distribution channels, such as: online, peer-to-peer, value-based prices, social brokers
What are the (3) advantages of adopting an SRM framework? (ERM415)
- Quicker to spot (potentially) disruptive risks
- Effectively adapt products, services, and business model to changing competitive environments
- Better positions to survive and thrive in evolving market conditions
What are the 4 main steps of the SRM Framework? (ERM415)
- Establish an SRM capability
- Integrate SRM into risk-sensing
- Prepare a scenario-based action plan
- Leverage cognitive tools to enhance decisions
How many steps are there in the SRM Framework? (ERM415)
4
What are the main items in step 1, “Establish an SRM capability”? (ERM415)
- Identify a leaders
- Map the implications of strategic risks with the company’s risk appetite
- Leverage risk-sensing tools to generate early warning signals for emerging strategic risks
What are the main items in step 2, “Integrate SRM into risk-sensing”? (ERM415)
- Build or fortify a risk- sensing system to help the C-Suite and Board to remain on top of strategic risks
What are the main items in step 3, “Prepare a scenario-based action plan”? (ERM415)
- Prepare an action plan formulated by a strategic risk oversight committee, with input and approval from management and the board
- Conduct periodic mock drills to test preparedeness
What are the main items in step 4, “Leverage cognitive tools to enhance decisions”? (ERM415)
- Use computer-based simulation models to test strength of executive decisions under various scenarios
- Power a feedback loop to identify cognitive traps in strategic risk assessments
- Implement remedial programs to enhance decision making and minimize bias
What are (4) examples of biases? (ERM415)
- Overconfidence bias - trust our gut when we shouldn’t
- Availability bias - inflate importance/likelihood of recent knowledge
- Confirmation bias - pay more attention to what we already believe
- Optimism bias - thinking nothing bad will happen
What are the 4 faces of the insurance company CRO in the SRM context? (ERM415)
- Strategist (i.e., connect risk limits to growth targets)
- Catalyst (i.e., promote risk-focused culture)
- Steward (i.e., manage risk framework and communicate to internal/external stakeholders)
- Operator (e.g., day-to-day execution)
What is YRT Reinsurance? (ERM410)
- a.k.a., “Risk-premium reinsurance” - Cedent pays annual premiums - Reinsurer covers mortality or morbidity benefits - Cedent will receive capital/solvency margin credit for the risk transferred - May include ceding commissions, expense allowances, and/or profit sharing
What is Coinsurance? (ERM410)
- a.k.a., “Original terms reinsurance” - Cedent pays a constant % of direct premiums - Reinsurer covers all policyholder benefits - Typically includes expense allowances; May include ceding commissions, and/or {profit sharing or experience refunds} - Typically transfers most of the capital/solvency margin requirements from the cedent to the reinsurer
What risks are and are not added through Coinsurance? (ERM415)
- Business/Operational risk (C-4) is NOT transferred to the reinsurer 2. Counterparty risk is added to the cedent, mitigated through haircuts
Compare the following between YRT and Coinsurance:
- Benefits
- Reinsurance premiums
- Reserve credit
- Capital/Solvency Margin relief
What are the three variants of coinsurance?
- Pure coinsurance
- Coins with Funds Withheld
- Modified coinsurance
What is Co FW?
(ERM410)
- a.k.a., “coins with deposit back”
- Cedent retains assets funding Reinsurer’s reserve liability
- Cedent estalibhsed a Funds Withheld liability or payable, which increase/decrease with Reinsurer’s cash inflows/outflows
- Reinsurer received a Funds Withhelds Investment Credit
What is a ModCo adjustment?
(ERM410)
= Change in Modco reserve - Modco Investment Credit
A payment from the Reinsurer to the Cedent
Why consider coinsurance?
(ERM410)
- Allow insurer to write more business
- Allow insurer to manage business mix
- Act as a “signaling effect”, third-party validation system for product pricing and a business block’s value
- Monetize embedded value in a block that would be otherwise capital intensive
What are 3 methods to manage counterparty risk in coinsurance?
(ERM410)
- Assets in trust
- Letter of credit (LOC)
- Special purpose reinsurance vehicle (SPRV)
What are the benefits of having interest earnings assumptions in illustrations?
(ERM411)
- Lower premiums:
a) for cash-vaue-dependent policies,
b) fund premiums with cash value,
c) fund premiums with dividends,
d) fund premiums with policy hoans,
e) lower minimum required premiums for shadow accounts; - Higher CSV
What are the (3) general structures of permanent life insurance products?
(ERM411)
- Premium dependent
WL, GUL, VUL w/GMDBs, IUL wi/GMDB
- Dividend dependent
WL w/term riders, modified prem WL, suspended premium WL
- Cash-value dependent
UL, VUL, IUL
How do premium-dependent policy structures work?
(ERM411)
- Require specified premium amount to provide DB
- Amount of premium is generally known upfront
How do dividend-dependent policy structures work?
(ERM411)
- Rely on non-guaranteed dividends to facilitate/fund policy activities
How do cash-value dependent policy structures work?
(ERM411)
- Premiums generate a cash value which acts as a sinking fund, which funds monthly mortality charges
- Coverage will terminate if cash value is insufficient, unless additional premiums are paid
What are the general impacts of sustained low interest rates on premium-dependent product structures?
(ERM411)
What are the general impacst of sustained low interest rates on cash-value dependent product structures?
(ERM411)
What are the general impacts of sustained low-interest environments on dividend-dependent product structures?
(ERM411)
What are (8) examples of policy stressors?
(Policy stressor: Policy designs/features which create additional pressure from a low interest rate environment)
(ERM411)
- Reduced earnings on policy loans
- Increase on NAAR/term rider
- Increasing DB/ROP option
- High late duration mortality charges
- Premium spike in WL variants
- Permanent premium increases for term blends
- Continued loans to pay premiums for WL with no admin notice
- Rising interest rates on policy loans
Describe the mechanics of WL with Term Rider
(ERM411)
What’s the hierarchy of liquidity of (10) different cash sources?
(ERM412)
- Current bank deposits
- Short-term savings accounts
- Overdraft facilities / Credit Cards
- Sale of securities
- Friends/Family support
- Increase mortgages
- Policy loans
- Stop life insurance premiums
- Surrender life insurance with savings
- Sale of property
What are the (5) factors to consider when surrending a life insurance policy?
(ERM412)
- Surrender charges
- Inability to obtain comparable coverage elsewhere
- Loss of guaranteed interest rates
- Loss of additional savings benefits / opportunity costs of surrender
- Tax penalties
What are (2) extreme circumbstances that may cause mass surrenders?
(ERM412)
- Collapsing confidence in a company
- Rating downgrade
- Published regulatory measures
- Downturn in stock price
- Scandals
- Changes in the macroeconomic environment
- Interest rates
- Change in country’s currency
- Change in unemployment rates
- Tax rate hike
What is the emergency fund hypothesis vs the interest rate hypothesis?
(ERM412)
- Emergency fund hypothesis: personal finance distress forces to surrender
- Interest rate hypothesis: higher interest rates offered elsewhere incentivices to surrender
- Neither have impact on normal circumstances and are predictable, but may differ in changing macroeconomic environment
How do insurance companies manage surrender risk (6)?
(ERM412)
- Do not rely on short-term funding to finance their business model
- Design product features to meet long-term needs
- Design product features to reflect liquidity demands
- Surrender value?
- Investment risk in policyholder or insurer?
- Surrender penalties?
- Monitor and manage liquidity risks, including surrender risk
- Cash sources vs cash needs
- Perform liquidity stress tests
- Perform liquidity management at the group level
What is the basic MCEV formula?
(OR - Fair Value)
MCEV = ANW + PVFP - TVFOG - FCRC - CRNHR
Adjsuted net worth = Stat Required Capital + Free Surplus
PV of future profits = after tax Stat book profits
Time value of financial options and guarantees = additional value of embedded guarantees due to possibility of exercise
Frictional cost of required capital = cost associated with holding capital
Cost of residual non-hedgeable risks = reduction in value due to exposure to risks
What are the three main theoretical differences between (a) U.S. GAAP / IFRS and (b) MCEV?
(OR - Fair Value)
1. Income taxes
U.S. GAAP / IFRS = Fair value liability is calculated pre-tax, taxes are in the deferred tax liability in the B.S.
MCEV = income taxes are a liability CF
2. Risk margins
U.S. GAAP / IFRS = hold a risk margin, not CoC
MCEV = explicit through cost-of-capital approach
3. Non-performance risk
U.S. GAAP / IFRS = add a spread on top of r.f. for non-performance
MCEV = add a spread of top of r.f. for liquidity premium associated with insurance contracts
What are 3 categories (“standard framework”) for risk management approaches for fair value liabilities?
(OR - Fair Value)
1. Accepting financial risks in liabilities
- Product mix
- Product design
2. Immunizing financial risk in liabilities
- ALM > Hedging
- Reinsurance
3. Miscellaneous
What are common techniques for risk management under the “Product Mix and Product Design” category?
(OR - Fair Value)
- Use MCVNB (Market-Consistent Value of New Business), which avoids negative economic value business and limits volume of NB
- Restrict types of funds available in VA, which reduces basis risk, etc.
- Set up fee structures that are not tied to AV
- Account for cost of heding in pricing
- Eliminate guarantees for unpredictable policyholder behavior
What products are commonly hedged and how?
(OR - Fair Value)
1. VA
2. LTC
Using forward starting swaps or interest rate swaps
3. Equity-indexed annuity and life guarantees
Buy call options
What is “macro hedge”?
(OR - Fair Value)
a.k.a., capital hedge
Out-of-the-money put options to protect total company capital from a significant market turndown
Not specific to any single product
What are 5 heding practices for Fair-Valued VAs under U.S. GAAP?
(Hint: GREEKS)
(OR - Fair Value)
- Delta
- Market price risk
- Short futures, Total return swaps
- Gamma
- Second-order market price risk
- Put options
- Vega
- Implied volatility risk
- Variance swaps, put options
- Rho
- Interets rate risk
- Interest rate swaps, swapations
- Cross-greeks
- Other second-order risk
- Custom derivative from banks
What are 2 potential methods to measure the effectiveness of a hedging program?
(OR - Fair Value)
1. Relative to overall financial risk
- Relevant to CRO/CFO
2. Relative to hedged portfolio’s financial risk
- Relevant to hedging program
What are common features of VA hedging programs across companies?
(OR - Fair Value)
- Dynamic hedging
- Exclude nonperformance risk and/or risk margins
- Use unadjusted implied volatilities to calcualte hedge target
What are challenges in VA hedging?
(OR - Fair Value)
- Requires significant investment from the company
- Must exercise judgment with illiquid investments
- Depends on prediction of policyholder behavior
- Difficult to interpret and explain accounting movements (e.g., losses in up-market)
- Computing capacity to rebalance hedge daily
What are reasons for lack of VA reinsurance today?
(OR - Fair Value)
- Unwilling to lock future loss
- Additional compensation to reinsurer for policyolder behavior risk (as oppposed to financial risk only in hedging)
- VA is dominated by large companies (i.e., no economices of scale gain)
- Systematic risk exposure (i.e., no law of large numbers)
- Pricing gap between cedent and reinsurers
Why would VA reinsurance still take place?
(OR - Fair Value)
- Smaller companies (i.e., economies of scale)
- RBC formula relanance (low insurance risk C-2, high financial risks)
- Reinsurance statutory reserve credit
What are the components of interest rates?
(OR - Fair Value)
R.F. rate ( ~ swap curve or U.S. treasury)
+ expected loss from default
+ liquidity premium
+ risk premium
How do mortality and longevity risks offset each other?
(ERM331)
Life insurance and annuities have opposite sensitivity changes to mortality:
Increase in life expectancy > Loss in annuities, Gain in life insurance
What factors reduce the mortality-longevity offset in life insurers?
(ERM313)
- Different ages (younger life insurance, older annuities)
- Different countries / territories
- Different products / cash flows
What are the 5 mortality improvement drivers (“vitagions”), according to Risk Management Solutions (RMS) Model?
(ERM313)
- Lifestyle behaviors
- Health environment (e.g., pollution, sanitation,…)
- Medical intervention
- Regenerative medicine
- Anti-age process (delay biological clock)
What are two important characteristics in each “vitagion”?
(ERM313)
- Speed of progress limit
- Burn-out / Wear-off of the vitagion’s benefit
What is RMS’s conclusion on mortality-longevity correlation?
(ERM313)
- Strong negative correlations between mortality and longevity, therefore, adding longevity risk can reduce mortality risk
- As longevity risk is accummulated, the strong negavite correlation declines
What are the benefits of mortality-longevity offset?
(ERM313)
- Overall life insurers’ risk is reduced
- Earn premium while reducing risk, creating business value
- Pension funds have no mortality offset, so they are willing to pay to get rid of longevity risk. Therefore, longevity risk is pushed from pension funds to life insurers by the invisible hand
What are the life insurance risks, as mapped by the AAA?
(ERM401)
- Credit risk - counterparty fails to pay obligation
- Market risk - related to adverse movements in market rates or prices
- Liquidity risk - counterparty is not able to meet obligation due to iliquidation of assets or inadequate funding
- Operational risk - due to people, process, technology
- Legal risk - from unenforceable contracts, lawsuits, adverse judgments
- Reputation risk - impacting company’s publicity
What are two types of second guarantees in the early days?
(ERM405)
- Specified-premium: tracks cummulative premium payments to test satisfaction of guarantee
- Shadow account: phantom FV is tracked and must be positive to keep guarantee
What are some considerations of designing and pricing a secondary guarantee product?
(ERM405)
- Pricing risks under multiple bases (deterministic, stochastic, risk-neutral)
- Regulatory stances (current, future)
- Surplus management
- Type of product chassis (protection, accumulation, crediting mechanism)
How are ULSG product similar to UL?
(ERM405)
- Target premiums
- Current and guaranteed credited rates
- Current and guaranteed COI
- Current and guaranteed expense charges
- Surrender charges
- Loan provisions
- DB corridor factors
How are ULSG products different from UL?
(ERM405)
- ULSG generate modest CSV that disappear by AA 90
- Explicit charge for ULSG
- Policy loans interact with ULSG
What are two broad categories of ULSG product designs?
(ERM405)
- Protection-oriented
- Accumulation-oriented
How do Accumulation-Oriented ULSG products differ from Protection-Oriented?
(ERM405)
- They lessen the load structure and interest spread to improve AV accumulation
- Higher lapse rates
- Higher expected premiums
How do VUL and IUL products differ from traditional fixed versions?
(ERM405)
- Crediting mechanisms are tied to separate accounts or indexed
What are the 2 primary risks of direct ULSG writers?
(ERM405)
- Policyholder behavior
- Economic conditions related to in-the-moneyness of the second guarantee
What are some types of surplus relief for protection products?
(ERM405)
- Fund reserve requirements internally (for companies with strong capital positions)
- Reinsurance
- Increase retention levels through capital reinsurers
- Reserve relief from banks’ balance sheets
- Securitization to fund redundant reserves
What does ULSG surplus relief aim to achieve?
(ERM405)
Replace equity funding of the redundant reserve with debt-like funding that is
(a) raised from capital markets and
(b) has off balance sheet treatment or operating leverage treatment.
What is an EIA?
(ERM407)
- A protected investment product
- Primarily offered through banks and insurance agents
- Single-premium annuity with a minimum guaranteed floor on the performance of a reference equity index
What does the insurance company use the EIA’s single premium for?
(ERM407)
- Pay commissions, admin costs, taxes, and any other associated fees (e.g., hedging)
- Buy fixed-income security for minimum guarantee floor
- Buy derivatives to fund upside particulation in the index (e.g., calls)
What are commond EIA product features?
(ERM407)
- Minimum guarantee (“floor” value)
- Index participation rate
- Yield-spread cost factor (the fees paid to the insurer as a direct reduction of the invertor’s participation rate)
- Growth-rate cap
- Premium bonus credits (~ROP)
- Surrender charges
- Market-value adjustment (MVA)
What are the 6 categories of EIAs?
(ERM407)
- Multi-year, point-to-point
- Multi-year, point-to-point average
- High water mark
- Annual reset
- Annual reset average
- Annual reset, monthly cap on gain
What are captives used for?
(ERM408)
To manage regulatory reserving and capital requirements, predominantly used by U.S. life insurers
What are some credit negatives of using captives?
(ERM408)
- RBC ratio is less relevant to measure capital adequacy
- Lack of transparency
- Introduces risk associated with funding reserves
- Lower capital and reserve levels for the industry as a whole
- Light regulation diminishes scrutiny
What are some credit positives of using captives?
(ERM408)
- Tax efficiency
- Improve hedging and focus on economics (as opposed to non-economic volatility of accounting standards)
What are the steps needed to quantify life insurers’ use of captives?
(ERM408)
- Reserve credits - examine reserve credits through regulatory filings
- Modco reinsurance - add reserve credits back to affiliates through a modco structure
- Rank companies by reserve relief as a % of total reserves
What is Financial Reinsurance?
(ERM409)
Reinsurance that affects the cedant’s financial statements and ratios
Can be a substitute for other forms of insurance-company financing (debt, equity, etc)
What are 2 basic forms of FinRe?
(ERM409)
- Statutory Capital Relief - reduce solvency margin requirements by reinsuring the associated risks
- Value-in-force (VIF) Financing - increase statutory surplus by monetizing the conservative portion of the VIF
What is economic capital?
(ERM409)
Economic or BE asset requirement needed for a block of business
What is redundant capital?
(ERM409)
Statutory reserves and/or required capital above the economic capital
Describe how total required capital and VIF relate to the balance sheet
(ERM409)
What is value-in-force?
(ERM409)
Future profits from the current business inforce
Divided into convervative (i.e., likely to emerge) and optimistic (i.e., the remainder)
What are the 3 key principles for analyzing risk tranfer?
(ERM409)
- Cedant retains less risk after reinsurance than before
- There should be a reasonable risk and capital relationship taken by the cedant
- There should be a plausible chance of loss in the reinsurer which is at least equal to the capital benefit taken by the cedant
What are the business goals helped by FinRe?
(ERM409)
- Improve the timing and / or level of earnings
- Improve solvency margins / regulatory capital
- Improve IRR / ROE / capital leverage
- Support growth
- Unlock capital
- Finance strain from new business, joint ventures, and acquisitions
- Replace some valuation conservatism with more economic reality
What are some key differences between FinRe and other forms of financing?
(ERM409)
- Reduce the amount of required capital
- No change in leverage ratios
- Non-dilutive
- Lower execution costs and more flexibility
- Introduces counterparty risk
- May require substantial restrictions on management actions
- May require substantial admin and system changes
What are the challenges of understanding policyholder behavior?
(OR - PolBeh)
- Assumption setting - Actuaries focus on fitting a curve, rather than why or what
- Information assymmetry - There is a gap between policyholder and actuarial views
- Data - Challenge in capturing, interpreting and aggregating data
- Human behavior - not straightforward or understandable
What are some recent enhancements made to better understand policyolder behavior?
(OR - PolBeh)
- Increased acceptance of behavioral economics
- Increased data availability to study policyholder behavior
- Increased computing power to simulate consumer interactions
- New analytical techniques to build dynamic models for policyholder behavior
Why is understanding policyholder behavior important? (i.e., what are some areas impacted by policyholder behavior?)
(OR - PolBeh)
- Product design - what type of behaviors should product design encourage or discourage?
- Pricing - experience may deviate from pricing expectations
- Reserving / Capital Management - reserve levels and volatility
- Asset and Liability Cash Flows - risks are non-diversifiable and non-hedgeable!
- ERM - (same as above)
What are some factors that have influenced mortality improvements?
(OR - MortImp)
- Levels of malnutritions in infants/children
- Child health interventions (e.g., immunization)
- Maternal mortality
- HIV prevention efforts
- Rates of mortality for non-communicable diseases (e.g., cancer, heart disease, diabetes)
- Tocabbo use
- Access to health care (in both developed and under-developed countries)
What is a heat map?
(OR - MortImp)
- Common and useful tool to study over-time patterns of mortality improvement by age and gender
- Allows for easier identification of trends and patterns across large datasets
What are 2 broad patterns of mortality improvement discussed in literature?
(OR - MortImp)
- Cohort patterns
- Characterized by higher levels of mortality improvements for a specific generation compared to those before and after
- Period patterns
- Strong/stable levels of mortality improvements over an extended period of time across broad range of ages
What are some factors that should be considered when setting an assumptions for insured mortality improvement?
(OR - MortImp)
- New UW approaches across product generations
- Changes to the “standard” insurance risk classification definition (e.g., expansion or modification)
- Changes in products, target populations, and/or distribution channels
- Changes in lifestyle for the target population
- Lapse and anti-selection during certain periods
- Industry experience studies’ basis in the underlying historical data used for the analysis
- Potential future shifts in:
- New products with changes in risk classifications
- New target markets
- New UW tools (e.g., genetic testing)
- Changes in lifestyle (positive or negative)
What factors have potential predictive value in analyzing mortality experience over time?
(OR - MortImp)
- Gender
- Race/Ethnicity
- Geographical location
- Access to medical care
- Financial/Socieconomic status
- Marital status
