MORTALITY TABLE UPDATE VBT & 2017 CSO

Transcription

1 MORTALITY TABLE UPDATE VBT & 2017 CSO Presented from research on behalf of the Joint American Academy of Actuaries Life Experience Committee and Society of Actuaries Joint Preferred Mortality Project Oversight Group

2 REGULATORY MORTALITY IN DEVELOPMENT Table Regulatory Use Status 2015 VBT Basic Tables 2015 VBT Relative Risk Tables 2017 CSO and 2017 CSO Preferred Structure Tables PBR Margins AG38 VM-20 Deterministic reserves VM-20 Stochastic reserves Net premium reserves Tax reserves Non-forfeiture determination Basis for 7702/7702A Cap for universal life cost of insurance charges VM-20 Deterministic and Stochastic reserves GI/SI/Preneed CRVM reserves In progress Exposure period ended June 18 Expected adoption August 2015 Loading structure and coverage tests complete Tables currently tested via impact study Waiting for exposure margins approved by LATF Recommendations complete Reserve impacts of margins tested via impact study Waiting to be exposed

3 ADOPTION PROCESS All tables must be exposed for at least 30 days VBT and Relative Risk Tables Exposure period has ended Very few comments received Expect adoption at August NAIC meeting CSO and CSO Preferred Structure Tables Not yet exposed NAIC LATF has approved in concept the level of the loading, margin structure and coverage level Underwriting Criteria Scoring Tool and PBR Margins Not yet discussed by NAIC LATF or exposed Targeting exposure and adoption along with CSO tables Will be adopted via Amendment Proposal Forms for the Valuation Manual to be exposed this summer

4 2015 VBT DEVELOPMENT

5 UNDERLYING EXPERIENCE SOA s Individual Life Experience Committee (ILEC) experience data from Significant increase in exposure and number of claims over the studies underlying both the 2008 and 2001 VBT tables Exposure Actual deaths Companies Study/Table By Amount By Number Number Claims Number / 2015 VBT $30.7 trillion 266 million 2.5 million / 2008 VBT $6.9 trillion 75 million 0.7 million / 2001 VBT $5.7 trillion 175 million ~ 1.25 million 21 Increase from 2008 VBT 345% 255% 257% 46% Increase from 2001 VBT 439% 52% 100% 143%

6 MORTALITY IMPROVED FROM 2008 VBT Study Period Male Female Aggregate (underlying 2008 VBT) (underlying 2015 VBT) Exposure (Trillion) # Death Claims 101.1% 100.5% 100.9% $ , % 94.7% 94.3% ,549, experience for common companies to study 92.3% 94.3% 92.8% ,940, k+ 88.3% 89.2% 88.5% , k+ 84.1% 85.4% 84.4% ,570 Expected basis is 2008 VBT RR 100 Table Source: Society of Actuaries, Individual Life Experience Reports 2002 through 2009 Preliminary

7 EXPERIENCE VARIES BY MANY FACTORS A/E* Ratio NS versus SM Smoker Status A/E Ratio by Amount Non-smoker 92.3% Smoker 97.5% Unknown Status 99.8% Aggregate 94.3% * Expected basis = 2008 VBT Primary Tables, ANB ** for common companies drops to 55% but credibility is limited Source: Society of Actuaries, Individual Life Experience Reports 2003 through 2009 Preliminary A/E* Ratio By Amount Face Amount Band ($) A/E Ratio by Amount 50,000 99, % 250, , % 1,000,000 2,499, % 5,000,000 9,999, % Aggregate 94.3% A/E* Ratio By Issue Age Issue Age A/E Ratio by Amount % % 80-89** 61.6% 23

8 EXPERIENCE VARIES SIGNIFICANTLY BY COMPANY A/E Ratios for contributing companies non-smoker risks By amount Average 92.5% Range [36% - 1,164%] By count Average 110.1% Range [49% - 863%] Expected basis = 2008 VBT RR 100 Table

9 EXPERIENCE BY COMPANY, CONT D A/E Ratios for contributing companies Smoker risks By amount Average 97.7% Range [41% - 194%] By count Average 110.0% Range [75% - 184%] Expected basis = 2008 VBT RR 100 Table

10 2015 VBT AND RR TABLE STRUCTURES VBT Primary Tables NS/SM/Uni-smoke M/F ANB/ALB Select & Ultimate, Ultimate only Juvenile rates on unismoke basis only Select factors vary by gender and issue age Omega rate of per 1,000 at attained age 112 No omega age RR Tables 10 NS/4 SM tables M/F ANB, ALB No juvenile rates or unismoke tables Utilizes preferred wear-off pattern that wears off by age 95 RR 100 Table same as VBT Primary Table New UCS Calculator

11 SELECT PERIOD Varies by issue age and gender Considered both observable as well as prospective select period Underlying select period independent of preferred wear-off Select Period for Sample Issue Ages Issue Age MALE FEMALE

12 JUVENILE RATES Consider ages 0-17 as juveniles Examined mortality relative to population mortality and insured mortality (2008 VBT) No clear relationship to population mortality No smoker/non-smoker distinction No observable select period Proposed table juvenile rates attained age only Some grading/graduation was necessary to smoothly grade at attained age 26 into adult attained ages

13 3 ADJUSTMENTS TO UNDERLYING EXPERIENCE 1. Adjust data to remove post level term anti-selective mortality; 2. Adjust data to recognize differences in experience from different underwriting eras; and 3. Improve the underlying experience to start date of table (2015)

14 1. REMOVE EFFECTS OF POST LEVEL TERM MORTALITY Calculated actual to expected (A/E) ratios based on face amount by issue age group and duration in total and for 10, 15 and 20 year term plans Recalculated the A/E ratios estimating impact of removing the post level term experience Determined the ratio of the A/E excluding post-level term to the total A/E. This provided the proposed adjustment to decrease the total rates to account for the impact of post-level term experience. Factors vary by issue age/duration Average 2.9% at duration 13 versus 1.3% at duration 18

15 2. ACCOUNT FOR DIFFERENT UNDERWRITING ERAS Issue era Underwriting Consideration Prior 1980 Aggregate smoker basis This experience comprises the bulk of the ultimate data Early to mid- 1980s Mid-1980 s to early 1990 s Introduction of SM/NS distinct rates; Introduction of blood testing High replacement activity amongst NS risks Anti-selective mortality High preponderance of SM risks in underlying data SM/NS distinct rates Preponderance of experience on aggregate NS or aggregate SM basis Early 1990 s and later Introduction of preferred underwriting and better utilization of blood profiles High replacement activity amongst Preferred risks Anti-selective mortality Exhibit lower overall mortality than the earlier generations of policies both through the select period and beyond

16 2. ACCOUNT FOR DIFFERENT UNDERWRITING ERAS Adjustment factors to select period mortality to account for differences in underwriting eras

17 3. MORTALITY IMPROVEMENT Considerations General population improvement US Vital Statistics Human Mortality Data Base (HMD) Social Security Administration Data (SSA) After looking at 3 sources, SSA data selected as source for general population Insured data Common company data for period Given short period of time for historical experience and volatility from year over year, believe general population data is preferable Additional factors

18 3. MORTALITY IMPROVEMENT, CONT D Additional factors considered Gender; Attained age; Smoker status; Socio-economic status; and Differences in cause of death for insured lives vs general population.

19 3. MORTALITY IMPROVEMENT, CONT D For period : Apply actual mortality improvement to adjust each experience year. For period : Apply annual improvement rates varying by attained age and gender = average of: (a) Average annual improvement rates implied by the SSA s most recent intermediate level projection of mortality for the social security population; and (b) Actual average annual improvement rates from historical SSA data for the most recent 10-year period. Beyond 2015, annual improvement factors will be determined and published on SOA website

20 3. MORTALITY IMPROVEMENT, CONT D 2015 VBT Mortality Improvement Factors from Male Age Improvement Factor Female Age Improvement Factor % % % % % % % % % % % % % % % % % % % % % % % % % % % %

21 GRADUATION APPROACH Explored 3 separate approaches to graduating data and resulting fit Projection pursuit regression (PPR); Whittaker-Henderson (WH); and Generalized Additive Model (GAM). For the ultimate date, all three models produced reasonable results; For the select data, the models did not perform equally - GAM approach had best fit overall with little to no loss of monotonicity Additional adjustments made for young adult issue ages and issue ages 70 and above

22 RELATIVE RISK TABLE DEVELOPMENT Start with 2015 VBT Primary NS/SM tables Analyzed relativity of mortality experience showed needed an expansion of the range of non-smoker RR tables Keep the number of tables the same Smoker RR tables use the same range as in the 2008 VBT package 2008 VBT RR table relationships used as a base to construct 2015 VBT RR tables Underwriting Criteria Score (UCS) calculator revised Tool to help determine the appropriate RR table for each preferred class New score is based on quantative mathematics and assumption expectations Prior version was based on qualitative professional opinions of most common criteria

23 PREFERRED WEAR-OFF FACTORS Analyzed level of wear-off but industry experience still emerging. There is virtually no additional information available from the 2008 VBT analysis, which was extensive. The preponderance of aggregate NS data in early durations further complicated the analysis; therefore, also examined Milliman s MIMSA study. Therefore, the preferred wear-off factors are the same or similar at most ages as for the 2008 VBT, with the exception that they grade off to age 95, same as the underlying select period rather than 90. The factors used to grade from age 90 to 95 were based on professional judgment.

24 Number of companies Legal & General America 24 DETERMINATION OF RELATIVITY FOR RR TABLES 14 Range of A/Es for all NS risk classes by number of claims Claims Claims <25 Claims A/E where E=2015 VBT Resulting NS RR tables = RR 50, 60, 70, 80, 90, 100, 110, 125, 150, 175 SM relativity same as 2008 VBT = RR 75, 100, 125, 150 E = 2015 VBT with, for each company, the mortality improvement that is built in to the VBT removed from the midpoint of each company s data period removed

25 PREFERRED WEAR-OFF FACTORS SELECT AGES/DURATIONS Duration Issue Age % 0.0% 0.0% 0.0% 0.0% 2.2% % 0.0% 0.0% 2.1% 5.6% 11.4% % 1.8% 5.3% 11.1% 19.3% 29.9% % 5.2% 14.0% 25.2% 39.0% 55.3% % 11.0% 27.4% 46.8% 66.2% 81.4% % 22.8% 51.1% 72.5% 94.3% 100.0% % 27.8% 82.9% 100.0% 100.0% 100.0%

26 RESULTING EXPERIENCE SAMPLE AGES AND DURATIONS Male Risks

27 RESULTING EXPERIENCE TABLE

28 RESULTING EXPERIENCE TABLE

29 RESULTING EXPERIENCE TABLE

30 RESULTING EXPERIENCE TABLE

31 RESULTING EXPERIENCE SAMPLE AGES AND DURATIONS Female Risks

32 RESULTING EXPERIENCE TABLE

33 RESULTING EXPERIENCE TABLE

34 RESULTING EXPERIENCE TABLE

35 RESULTING EXPERIENCE TABLE

36 2017 CSO DEVELOPMENT

37 4 PURPOSES OF THE MARGIN CONSIDERED Consideration 1 Confidence of experience study 2 Variation of individual company s experience relative to the mean 3 Random fluctuation due to smaller exposure 4 Unknown variation such as catastrophic events Resolution Dismissed for 2017 CSO Significantly more data than in prior underlying studies 439% increase in exposure by amount There is variability by company A/E by amount ranges for NS risks from < 40% to > 200% Not practical to vary loadings by size of company exposure Purpose of capital and surplus Purpose of capital and surplus

38 2017 CSO DEVELOPMENT Margins applied NAIC LATF guidance: margins consistent with 2001 CSO to cover 70-79% of the mortality from contributing companies in the underlying mortality study Purpose of margin to cover the variation of an individual company s mortality around the mean (company variation)

39 CSO MARGIN COMPARISONS COVERAGE LEVEL Table 1980 CSO 2001 CSO 2017 CSO Underlying Experience Coverage % 50% 81% 70.6% # Companies Included # Companies Covered Amount of data in underlying study Exposure by Amount $0.77 trillion $5.7 trillion $30.7 trillion Exposure by Count Info not in report 175 million 266 million Actual # Claims Info not in report 1.25 million 2.5 million # Common Companies to 2017 CSO N/A

40 % Margin Required Legal & General America APPROXIMATE MARGIN REQUIRED 35% 30% 25% 20% 15% 10% 5% 0% -5% Non-Smoker 31% 22% 21% 14% 14% 8% 4% 6% 2% -1% 50% 55% 60% 65% 70% 75% 80% 85% % Coverage % Margin ($ Weighted) % Margin (Count Weighted) 35% 30% 25% 20% 15% 10% 5% 0% -5% Smoker 31% 25% 21% 18% 17% 9% 4% 9% 5% 1% 50% 55% 60% 65% 70% 75% 80% 85% % Coverage % Margin ($ Weighted) % Margin (Count Weighted) Based on A/E using 2008 VBT as a base, adjusted so aggregate A/E = 1

41 CSO MARGIN STRUCTURES COMPARISONS 80 CSO* CSO Table Structure of Margin 2001 CSO** 2001 CSO Preferred Structure Same as 2001 CSO 2017 CSO Graded flat %, averages 18% * Margins were calculated for the unismoker ultimate rates and then used for both SM & NS ultimate rates. ** The formula margin for attained age 100 was graded to 0 at attained age 120.

42 CSO LOADING COMPARISON

43 Reserve p/$1,000 Legal & General America WHOLE LIFE RESERVE COMPARISONS* Comparison of CRVM WL Mean Reserves - Issue Age 45, Male NS Percentage Attained tvx per 1,000 Attained Change Age Change Age Largest Change -21.5% 45 $ (49.0) 69 Smallest Change 0.0% 96 $ (0.1) 96 Largest Increase 0.4% 101 $ Average Change - 7.6% $ (22.2) Duration 2001 CSO 2017 Unloaded CSO 2017 CSO * Ultimate Table, 4.5% Interest Rate, Fully Continuous

44 Reserve p/$1,000 Legal & General America WHOLE LIFE RESERVE COMPARISONS* Comparison of CRVM WL Mean Reserves - Issue Age 45, Male SM Percentage Attained tvx per 1,000 Attained Change Age Change Age Largest Change -26.7% 45 $ (33.9) 116 Smallest Change 0.0% 100 $ (0.2) 100 Largest Increase 0.3% 103 $ Average Change - 4.0% $ (14.4) Duration 2001 CSO 2017 Unloaded CSO 2017 CSO * Ultimate Table, 4.5% Interest Rate, Fully Continuous

45 Reserve p/$1,000 Legal & General America WHOLE LIFE RESERVE COMPARISONS* Comparison of CRVM WL Mean Reserves - Issue Age 45, Female NS Percentage Attained tvx per 1,000 Attained Change Age Change Age Largest Change -38.6% 45 $ (29.7) 116 Smallest Change 0.0% 82 $ (0.0) 82 Largest Increase 2.9% 98 $ Average Change - 4.7% $ (6.1) Duration 2001 CSO 2017 Unloaded CSO 2017 CSO * Ultimate Table, 4.5% Interest Rate, Fully Continuous

46 Reserve p/$1,000 Legal & General America WHOLE LIFE RESERVE COMPARISONS* Comparison of CRVM WL Mean Reserves - Issue Age 45, Female SM Percentage Attained tvx per 1,000 Attained Change Age Change Age Largest Change -29.1% 45 $ (32.62) 116 Smallest Change 0.1% 74 $ Largest Increase 4.2% 90 $ Average Change - 1.3% $ Duration 2001 CSO 2017 Unloaded CSO 2017 CSO * Ultimate Table, 4.5% Interest Rate, Fully Continuous

47 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES 2015 VBT as base, projected with improvement to 2017 (referred to as Preferred Structure Basic Tables) Similar structure as 2001 CSO Preferred Structure Tables 3 NS NS and SM classes, when weighted together, equal 2015 VBT aggregate NS and SM mortality, 2 SM respectively Tables were subsequently improved to 2017 Omega age of 121 same as 2001 CSO Grading to omega rates begins at attained age 107

48 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 1: Assessed preferred experience based on the ILEC data collected for business issued under a preferred structure basis. Business for nonsmoker risks with 3 or more classes limited to issues since 1990 resulting in little to no data beyond duration 15 Business for smoker/nonsmoker risk structures limited to issues since 1980s

49 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 2: Mapped classes into preferred risk class structure (NS classes to Preferred Plus, Preferred and Residual Standard; SM classes to Preferred and Residual Standard) 3 class structures were mapped directly, 4 class structures mapped best class to best class, 2 nd best to 2 nd best, and 3 rd and 4 th classes to standard 2 class NS data was ignored as the experience was not consistent with the 3 and 4 NS class structures

50 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 3: Determined a single A/E estimate for the experience by combining All available durations Male and female (because UCS scored do not distinguish between genders) Step 4: Determined the Relative Risk of each class, using the combined male and female A/E to point to an RR table. For example, if A/E is 72%, then use 80% of RR 70 and 20% of RR 80

51 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 5: Performed Aggregation test separately for MNS, MSM, FNS, and FSM to examine if the following equation holds (e.g., for MNS): Expected claims MNS 1 + Expected claims MNS 2 + Expected claims MNS 3 = Expected claims MNS where, Expected claims for preferred structure classes were calculated by multiplying the average mortality of 5-year age bands, and 5-year duration bands with the total amount exposed for that age band and the first 10 durations The resulting difference for all four categories combined was about % of the total amount exposed. This difference was deemed too small to make any adjustments.

52 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 5, cont d: The relative risk and prevalence is as follows: Risk Class Relative Risk ( by A/E) Prevalence (by Face Amount Exposed) Prevalence (by Amount of Expected Claims) Super Preferred NS (Class 1) 77% 40% 24% Preferred NS (Class 2) 98% 27% 27% Residual NS (Class 3) 120% 32% 49% Preferred SM 87% 64% 55% Residual SM 119% 36% 45%

53 2017 CSO DEVELOPMENT PREFERRED STRUCTURE TABLES Step 6: Developed factors to apply to the 2017 unloaded CSO using the ratio of the RR table for each preferred class to the underlying RR100 table. All factors were developed using unrounded tables Unrounded, unloaded preferred structure basic tables were loaded with CSO margins Loaded tables were then rounded to 2 decimal places Same percentage load for all tables

54 Reserve p/$1,000 Reserve p/$1,000 Reserve p/$1,000 Legal & General America PREFERRED STRUCTURE TABLES RESERVE COMPARISONS Regulation XXX 20-year Level Term Mean Reserves* Male, NS, Issue age Super Preferred NS - Male, Issue Age Duration 2001 Super Preferred VBT 2001 Super Preferred CSO 2017 Super Preferred Unloaded CSO 2017 Super Preferred CSO Preferred NS - Male, Issue Age Duration 2001 Preferred VBT 2001 Preferred CSO 2017 Preferred Unloaded CSO 2017 Preferred CSO Residual Standard NS - Male, Issue Age Residual VBT 2001 Residual CSO 2017 Residual Unloaded CSO 2017 Residual CSO Duration % Change tvx SPNS -72.0% -30.3% -27.7% -25.7% -24.8% PNS -67.8% -30.0% -28.1% -26.5% -24.4% NS -70.4% -46.5% -45.3% -44.2% -41.8% $ Change p/$1,000 SPNS ($ 0.18) ($ 1.42) ($ 2.38) ($ 2.34) ($ 0.52) PNS ($ 0.20) ($ 1.86) ($ 3.19) ($ 3.17) ($ 0.66) NS ($ 0.28) ($ 4.50) ($ 8.04) ($ 8.25) ($ 1.76) * Select & Ultimate Table, 4.5% Interest Rate, Fully Continuous

55 Reserve p/$1,000 Reserve p/$1,000 Reserve p/$1,000 Legal & General America PREFERRED STRUCTURE TABLES RESERVE COMPARISONS Regulation XXX 20-year Level Term Mean Reserves* Female, NS, Issue Age Super Preferred NS - Female, Issue Age Duration Preferred NS - Female, Issue Age Duration 2001 Super Preferred VBT 2001 Super Preferred CSO 2017 Super Preferred Unloaded CSO 2017 Super Preferred CSO 2001 Preferred VBT 2001 Preferred CSO 2017 Preferred Unloaded CSO 2017 Preferred CSO Residual Standard NS - Female, Issue Age Duration 2001 Residual VBT 2001 Residual CSO 2017 Residual Unloaded CSO 2017 Residual CSO Duration % Change tvx SPNS -66.7% -31.5% -31.8% -32.8% -32.1% PNS -64.4% -36.4% -37.0% -38.2% -35.9% NS -67.2% -50.2% -51.0% -52.0% -49.0% $ Change p/$1,000 SPNS ($ 0.13) ($ 1.32) ($ 2.49) ($ 2.69) ($ 0.60) PNS ($ 0.14) ($ 2.00) ($ 3.82) ($ 4.11) ($ 0.86) NS ($ 0.19) ($ 4.29) ($ 8.24) ($ 8.73) ($ 1.79) * Select & Ultimate Table, 4.5% Interest Rate, Fully Continuous