Mortality Aggregation ExamplesNAIC National MeetingSummer 2019
Rachel Hemphill, MAAA, FSA, FCASPat Allison, MAAA, FSA
1
August 2019
Agenda
Key Concepts and Applicable VM-20 LanguageExamples and Comparison of ApproachesNext Steps
2
August 2019
Key Concepts forMortality Aggregation
3
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
August 2019
4
August 2019
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
5
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.
August 2019
6
Approach:“Bottom Up”
Level of Aggregation:All Segments
August 2019
7
August 2019
Calculate Expected Claims andA/E Ratios
8
August 2019
9
August 2019
10
August 2019
11
12
August 2019
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
13
Approach:“Top Down”
2 Levels of Aggregation:Smoker Segments,Non-Smoker Segments
August 2019
14
August 2019
Calculate Relativity Structure(here based on RR Tool output)
15
August 2019
Set the Assumption for theCompany Experience Mortality Rates
16
August 2019
17
August 2019
18
August 2019
19
August 2019
20
Other examples have been developed.See Excel spreadsheet.
August 2019
Next Steps
21
Consider exposing examples for public comment
Review comments and revise accordingly
Post examples to the Industry Tab on the NAIC website
August 2019
0
Embed
Upload