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Mortality Aggregation Examples - naic.org

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Mortality Aggregation ExamplesNAIC National MeetingSummer 2019
Rachel Hemphill, MAAA, FSA, FCASPat Allison, MAAA, FSA
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Agenda
Key Concepts and Applicable VM-20 LanguageExamples and Comparison of ApproachesNext Steps
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Key Concepts forMortality Aggregation
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Mortality segments subject to the same or similar underwriting processes may be aggregated to calculate credibility
Using separate mortality segment experience to set each corresponding assumption and then simply grouping the segments together to calculate credibility isnotmortality aggregation under VM-20
The aggregate experience must inform the mortality segment assumptions; two approaches are allowed under VM-20
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If the company uses the aggregate company experience for a group of mortality segments when determining the company experience mortality rates for each of the individual mortality segments in the group, the company shall either:Use techniques to further subdivide the aggregate experienceinto the various mortality segments (e.g., start with aggregate non-smoker then use the conservation of total deaths principle, normalization or other approach to divide the aggregate mortality into super preferred, preferred and residual standard non-smoker class assumptions), orUse techniques to adjust the experience of each mortality segment in the group to reflect the aggregate company experience for the group (e.g. by credibility weighting the individual mortality segment experience with the aggregate company experience for the group).
VM-20 Section 9.C.2.d
Top Down Approach
Bottom Up Approach

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Disclaimer:The examples presented are for illustrative purposes to demonstrate acceptable approaches. They are not intended to cover all complexities that may arise in practice. Additional variations and other methods may be appropriate. These examples are intended to illustrate general principles, not to be an exhaustive presentation of acceptable methods.
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Approach:“Bottom Up”
Level of Aggregation:All Segments
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Calculate Expected Claims andA/E Ratios
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If the company uses the aggregate company experience for a group of mortality segments when determining the company experience mortality rates for each of the individual mortality segments in the group, the company shall either:Use techniques to further subdivide the aggregate experienceinto the various mortality segments (e.g., start with aggregate non-smoker then use the conservation of total deaths principle, normalization or other approach to divide the aggregate mortality into super preferred, preferred and residual standard non-smoker class assumptions), orUse techniques to adjust the experience of each mortality segment in the group to reflect the aggregate company experience for the group (e.g. by credibility weighting the individual mortality segment experience with the aggregate company experience for the group).
VM-20 Section 9.C.2.d
Top Down Approach
Bottom Up Approach

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Approach:“Top Down”
2 Levels of Aggregation:Smoker Segments,Non-Smoker Segments
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Calculate Relativity Structure(here based on RR Tool output)
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Set the Assumption for theCompany Experience Mortality Rates
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Other examples have been developed.See Excel spreadsheet.
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Next Steps
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Consider exposing examples for public comment
Review comments and revise accordingly
Post examples to the Industry Tab on the NAIC website
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Mortality Aggregation Examples - naic.org