2011 Health Meeting June 13-15, 2011 Session #68 PD: Mortality Issues for Group Life Insurance

William P. Sakel, ASA, MAAA David Waddington, PMP Moderator Robert B. Hardin, FSA, MAAA, FCA

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Group Life Mortality

June 14th -- 4:00 to 5:15 Session 68 A Panel Discussion Speakers
Bob Hardin FSA Bill Sakel ASA Dave Waddington PMP

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Agenda
Update from SOA Group Life Experience Committee One approach to creating a set of Group Life Manual Rates How to use census data to answer questions important to Group Life actuaries.

Experience Committee
Two products were produced in 2005/6
2005 Group Term Life Waiver of Premium Table 2006 Group Term Life Experience Report

Committee was led by Sue Sames assisted by John Bettano and Marty Loughlin plus another almost 12 actuaries

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Krieger Table
The Krieger Table was the defacto WOP table Based on data from 12 companies 135,000 life years of experience Published in the 1968 SOA Reports Never presented to or adopted by NAIC Used by most Group Life Insurers

The Historical Steps

In 2002 the need for two studies was recognized:
Replace the Krieger Table Update the last Group Life Experience Study which was issued in 1994 base on 85-89 date

Data call were issued in 2002 Data submissions were in 2003 and 2004 Final reports were issued in 2006

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2005 Waiver Table

Data from 17 companies 750,000 life years (6 x Krieger) Covered period form 1993 to 2002 Develops reserves of about 62% of Krieger AAA formed a Group Term Life Waiver of Premium working group NAIC adopted guidelines in 2008 Applies to individuals who become disabled on or after January 1, 2009

2006 Experience Table

Covered period 1999 to 2001 18,580,000 life years Only raw data was reported with no smoothing or other adjustments Waiver Rate is incidence rate only Primary source of information is in one of two Pivot Tables

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Pivot Table
Provides data by:
Individual Exposure vs. Self-Administered Death, WOP, and AD&D Gender Central Age (17 and up) SIC (two digit) Lives Band (# of lives in group) Coverage type (basic, optional, and supplemental) for AD&D only

Current Status
Starting to update the 2006 Experience Table Have decided not to update the 2005 Waiver Table at this time Draft of data request completed Vendor has been selected: Towers Watson Data request will go out in early June Hope to be done by end of 2012

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Mortality Issues for Group Life Insurance

June 14, 2011 4:00 5:15 pm William P. Sakel, A.S.A., M.A.A.A. Nationwide Life Insurance Company

Overview of Agenda
Review of 2006 Group Life Study Interpolate, Smooth and Compare to Current Modeling results Additional Pricing Considerations Considerations of Implementation Presentation Summary

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Review of 2006 Group Life Study

12 Companies data from 1999 2001 covered period
Data included all types: single employer, union, association and MET Active Employee lives by Age and Gender Key included Individually billed data Raw data, not smoothed, 5 year age brackets

Excluded Groups
Retiree lives Dependent coverage Conversions Experience under Continuation of Coverage or portability Mass marketed business

Interpolate, Smooth and Compare

Interpolate the Group Life factor IE and SA combined Excel: 2nd Degree Polynomials and 2nd Differences Excel 7 Insert, Scatter table with only Markers Layout, Trendline, Trendline Options Polynomial, display equation and R-squared values (Coefficient of Determination) http://mathbits.com/mathbits/tisection/statistics2/correl ation.htm Smooth using First and Second Differences Construct the Completed Table

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Interpolation

Smoothing

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Mortality Table Comparison

2005 Group Term Life Waiver Reserve Table Report 03/2006

The Committee reviewed raw experience rates and smoothed them to develop graduated experience values, using 2nd degree polynomial trend lines and other spreadsheet application tools in Excel, as well as some manual adjustments. In some cases, we used the slope of the 1970 Table. Used current table or other published table

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Results after Smoothing

Results of First Differences

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Results of the Second Differences

Modeling Results
Compare to your current table to determine level of mortality improvement by age and gender
Modeled by Case level: High/low ages, High/low female content

Compare the mortality discounts to your current underwriting discounts: market adjustment vs. risk adjustment Compare results using the new table to actual sold cases to determine levels for new underwriting discounts

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Additional Pricing Considerations

Determine if state filing is required, develop actuarial memorandum and rate manual Will the table be used for Basic Group Term Life and/or Voluntary Group Term Life? Should Area factors be considered from current experience? Should SIC factors be revised? (Reinsurers) AD&D factors were used directly from the 2006 Group Life Study Retiree and early retiree by age: Separate table or load % Lives Band or SIC are used for case specific pricing Dependent coverage (basic and voluntary) Price spouse coverage using employee rates and ages Develop a separate table for spouse and use spouse age Use employee age setback for females (3 or 5 years) (not used for domestic partners) Waiver of premium charges were added to the basic (no waiver) rates. Charges were developed from first principles: incidence x PV(claims) where incidence and termination factors were taken from the 2005 SOA Waiver study. Adjust the table to current time annual mortality improvement(x) Over 1% per year improvement varying by age and gender 2006 Table (2000) * (1- x)^ (2000 to mid year of the guaranteed period) Conversion costs to be included Add a flat load of x% to the basic table (all ages) or Add a conversion charge to the claim experience at the time of renewal , 4 age brackets

Considerations of Implementation
Table(s) development DOI approval Rater(s) changes Algorithm, Factors or both Web, Intercompany LAN, and/or Spreadsheet Input screens, edits and factor page Billings System(s) and Rate Renewal System(s) Testing to insure results are correct and consistent across all raters and systems

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Presentation Summary
Care should be exercised in applying the results. State filings, as required Interpolation and Smoothing of the mortality factors to generate graduated experience values Additional tables or factors Retiree and Dependent factors Waiver and Conversions costs Standard Industry Code Risk and Market Adjustments (Underwriting Discounts) Testing and Modeling Results in Rater(s) and System(s) Develop a Management Report that identifies anticipated mortality improvements by age brackets and genders

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Mortality Data from the U.S. Census Bureaus Population Estimates and Projections Programs
David Waddington Chief, Population Projections Branch Population Division, U.S. Census Bureau
Presentation Prepared for the Society of Actuaries 2011 Health Meeting Boston, Massachusetts, June 13-15, 2011
This presentation is released to inform interested parties of ongoing work and to encourage discussion of work in progress. Any views expressed on statistical, methodological, technical, or operational issues are those of the author and not necessarily those of the U.S. Census Bureau.

Outline
Overview of the Population Estimates and Projections Programs Population Projections Methodology and Assumptions Historical and Projected Mortality Trends Accessing and Using the Data

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Population Estimates
(what we publish)
Population
National, state, and county by age, sex, race, and Hispanic origin Incorporated place and minor civil division totals Puerto Rico Commonwealth and municipios by age and sex

Components of Change (births, deaths, migration)

National by race and Hispanic origin State, county, and Puerto Rico Commonwealth totals

Releases
Annually

The Population Estimates are Produced Under a Federal Mandate

U.S.C. Title 13, Section 181:
During the intervals between each census of populationthe Secretary, to the extent feasible, should annually produce and publish for each State, county, and local unit of general purpose government which has a population of fifty thousand or more, current data on total population and population characteristics and, to the extent feasible, shall biennially produce and publish for other local units of general purpose government current data on total population.

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Population Projections
Population
National by age, sex, race, and Hispanic origin

Components of Change
Net international migration by age, sex, race and Hispanic origin Deaths by age, sex, race and Hispanic origin Births by sex, race and Hispanic origin

Releases
2008 National Projections, using Census 2000 2009 4 national level analytic series, using Census 2000 2012 (planned) national, using Census 2010 base

Projections of Net International Migration for the United States: 2010 to 2050
(In thousands) 2008 National Projections High NIM Series Low NIM Series Constant NIM Series Zero NIM Series

500

0 2010

2015

2020

2025

2030

2035

2040

2045

2050

NIM = Net International Migration Source: U.S. Census Bureau, 2008 and 2009.

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Projected Population for the United States: 2010 to 2050

(In millions) 2008 National Projections 500 450 400 350 300 250 200 150 100 50 0 2010 High NIM Series Low NIM Series Constant NIM Series Zero NIM Series

2015

2020

2025

2030

2035

2040

2045

2050

NIM = Net International Migration Source: U.S. Census Bureau, 2008 and 2009.

Projected Population by Age for the United States: 2010 to 2050

(In millions)

150 18 to 44 years 45 to 64 years 129 114 102 88 81 84 72 98 89 65 years and over

0 to 17 years

75

40

2010
Source: U.S. Census Bureau, 2008.

2030

2050

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Projected Distribution of the Population by Race and Hispanic Origin for the United States: 2010 to 2050
(Percent)

2010
79.5 76.6 74.0

2030

2050

64.7

55.5

46.3

30.2 23.0 16.0 12.9 13.0 13.0 4.6 1.0 1.2 1.2 6.3 7.8 0.2 0.2 0.3 3.7 1.8 2.6

White

Black

Source: U.S. Census Bureau, 2008. Hispanics may be of any race. Race refers to race alone

American Indian and Alaska Native

Asian

Two or Native Hawaiian More Races and Other Pacific Islander

Non-Hispanic White alone

Hispanic

Methodology
Cohort-Component Method P2 = P1 + B - D + NM
where : P1 = Population at time 1 P2 = Population at time 2 B = Births D = Deaths NM = Net migration

Estimates
Benchmarked to the Census Calculated using the cohort-component method
Components of change come from the latest administrative records and vital statistics

Projections
Based on the Census Calculated using the cohort-component method
Components of change are projected out into the future based on assumptions and historical trends

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Net International Migration Assumptions (projections)

Projected primarily using historical time series of data on immigration of the foreign born (1972-2002) Supplemented with cross-sectional data from Census 2000 (primarily for race/ethnicity assignments) Projected for four groups based country-of-birth Age and sex based on administrative records

Fertility Assumptions
Time series analysis of vital statistics data from 19802003 Projected in two tiers
Three large race/ethnic groups
Hispanic Non-Hispanic Black alone All other non-Hispanic

Detailed race within the big three groups

(did not differentiate assumptions below the big three groups)

Fertility is projected to converge in 2100 near replacement level (2.1) for all groups Assignment of race to births
Race of potential mothers (women age 15-49) Racial composition of men in the projected population Observed racial/ethnic makeup of families from Census 2000

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Mortality Assumptions
Time series analysis of vital statistics data from 1984-2003 Projected in two tiers
Three large race/ethnic groups
Hispanic Non-Hispanic Black alone All other non-Hispanic

Detailed race within the big three groups (did not differentiate assumptions below the big three groups)

Mortality projected to converge for all race/ethnic groups in 2075 (Male e0 = 83.8, Female e0= 87.8)

Life Expectancy at Birth for the United States: 1984 to 2003

90

85 35

80 30

75

70

10

Male Female

0 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

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Projections Mortality Assumptions

(projected life expectancy at birth)
Year 2010 2030 2050 Hispanic Non-Hispanic Non-Hispanic (any race) Black alone all other races Male Female Male Female Male Female 78.4 83.7 70.1 77.1 76.4 81.1 80.2 85.0 74.8 80.9 78.7 83.2 81.9 86.3 79.0 84.3 81.0 85.3

Life Expectancy at Birth for the United States: 1984 to 2050

90

85 35

80 30

75

70

Male Female
10

0 1984 1989 1994 1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049

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Where can you find the data?

Where can you find projections data?

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Where can you find projections data?

Summary Table Example (1)

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Summary Table Example (2)

Summary Table Example (3)

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Downloadable Files

File Layout Sample

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Downloadable File Example

Using the Data

Combining the population and components, you can calculate:
Survival rates Life expectancy Crude death rates Age-sex-specific death rates

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Crude Death Rate (CDR)

CDR = deaths 1000 population( mid period )

Examples:
CDR2030 = 3,316,342 1,000 = 8.92 (370,297,901 + 373,503,674) / 2

Age Specific Death Rate (ASDR)

Both Sexes
ASDR2030,age= 50 = 14,284 1,000 = 3.23 (4,327,028 + 4,528,235) / 2

Female
ASDR2030,age = 50 = 5,153 1,000 = 2.31 ( 2,174,749 + 2,278,777) / 2

Male
ASDR2030,age = 50 = 9,131 1,000 = 4.15 (2,152,279 + 2,249,458) / 2

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Projected Age Specific Death Rates (ASDR): 2030

450 400

350

ASDR - Female ASDR - Male

300

ASDR

250

200

150

100

50

0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

Age
Note: ASDR per 1,000 population Source: 2008 National Projections

National Center for Health Statistics

www.cdc.gov/nchs/deaths.htm

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National Longitudinal Mortality Study

www.census.gov/did/www/nlms/index.html

Contact Information
David Waddington Chief, Population Projections Branch Population Division U.S. Census Bureau
Office: 301-763-2428 Fax: 301-763-6636 E-mail: David.G.Waddington@census.gov www.census.gov

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