New predictive model analysis showed that expected mortality levels by plan are not as large as the traditional analysis would suggest, indicating that other correlated variables explain the difference, according to Towers Watson’s newest study, titled “The Older Age Mortality Study 3” (TOAMS 3), the company’s third study of U.S. life insurance industry mortality.
“It’s no secret that the low interest rate environment has placed downward pressure on life insurers’ profitability. Insurers have had to reprice many products with profit streams vulnerable to low interest rates, heightening the need for greater pricing accuracy,” said Elinor Friedman, director, life practice, Towers Watson. “Our study gives insurers the tools to address trends in life expectancy and fine-tune their pricing assumptions.”
TOAMS 3 includes predictive modeling analysis of the participant-submitted data using Towers Watson’s proprietary generalized linear modeling (GLM) tool, Emblem. Emblem uses advanced modeling procedures to determine, in this case, the expected mortality rate. According to Towers Watson, TOAMS 3 is the first industry-wide mortality study to combine traditional experience analysis with GLM.
“The potential impact of predictive modeling for participants in the industry is very significant, as it helps guide a more precise view of how relationships among underlying factors can affect mortality results,” said Karen King, senior consultant, life practice, Towers Watson.
Seventy-six percent of the exposure by face amount was in the two highest bands ($250,000 and higher), according to TOAMS 3, while 81 percent of the exposure by policy count was in the four lowest bands (up to $250,000). Additionally, the research found that, overall, mortality is 62 percent of the 2001 VBT by face amount and 75 percent of the 2001 VBT by policy count. Experience as a percentage of the 2008 VBT showed higher percentages (83% by face amount, 90% by policy count).
The study spanned the five-year experience period from 2006 to 2010 for insureds attained ages of 50 and above. The 21 participating companies provided $8.2 trillion of face-amount for 48 million policy years. Over 700,000 deaths in the study represent $40 billion of death claims. The study was performed on an issue age and duration basis, using a 25-year select period, consistent with the Society of Actuaries 2001 and 2008 Valuation Basic Table (VBT).
The original TOAMS, released in 2005, covered mortality experience for insureds attained ages of 50 and higher during 2000, 2001 and 2002. The subsequent TOAMS 2 report, issued in 2008, covered older age mortality during 2003, 2004 and 2005.
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