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Developing Mortality Improvement Formulas

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  • Johnny Li
  • Mary Hardy
  • Ken Tan

Abstract

Longevity improvements have contributed to widespread underfunding of pension plans and losses in insured annuity portfolios. Insurers might reasonably expect some upside from the effect of lower mortality on their life business. Although mortality improvement scales, such as the Society of Actuaries Scale AA, are widely employed in pension and annuity valuation, the derivation of these scales appears heuristic, leading to problems in deriving meaningful measures of uncertainty. We explore the evidence on mortality trends for the Canadian life insurance companies, data, using stochastic models. We use the more credible population data to benchmark the insured lives data. Finally, we derive a practical, model-based formula for actuaries to incorporate mortality improvement and the associated uncertainty into their calculations.

Suggested Citation

  • Johnny Li & Mary Hardy & Ken Tan, 2010. "Developing Mortality Improvement Formulas," North American Actuarial Journal, Taylor & Francis Journals, vol. 14(4), pages 381-399.
    • Handle: RePEc:taf:uaajxx:v:14:y:2010:i:4:p:381-399
    DOI: 10.1080/10920277.2010.10597597
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    Cited by:

    1. Ahmadi, Seyed Saeed & Li, Johnny Siu-Hang, 2014. "Coherent mortality forecasting with generalized linear models: A modified time-transformation approach," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 194-221.
    2. Li, Johnny Siu-Hang & Liu, Yanxin, 2020. "The heat wave model for constructing two-dimensional mortality improvement scales with measures of uncertainty," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 1-26.

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