Actuarial Notes

Credibility Educational Resource for Pension Actuaries: Application of Credibility Theory to Mortality Assumption

By Irina Pogrebivsky · Society of Actuaries · 2017

Study guide: Exam RET-201

An August 2017 Society of Actuaries paper, written by Irina Pogrebivsky and sponsored by the SOA Pension Section Council, on applying credibility theory to the mortality assumption for pension plans. It aims to give a clear and concise overview of credibility theory, to describe and compare the standard approaches, and to show how they apply to adjusting a standard mortality table to fit a specific plan's experience.

On the syllabus

  • Exam RET-201 — Outcomes 2d; the whole paper, which the SOA describes as important because credibility theory is used in the selection of many types of assumptions.

1 Executive Summary

  • 1.1 Background
  • 1.2 Objectives
  • 1.3 Limitations of Use

2 Overview of Credibility Theory

  • 2.1 What is Credibility Theory?
  • 2.2 Types of Credibility Approaches
    • 2.2.1 Greatest Accuracy Credibility Theory Overview
    • 2.2.2 Limited Fluctuation Credibility Theory Overview
    • 2.2.3 Comparison of GACT and LFCT
  • 2.3 Limited Fluctuation Credibility Theory
  • 2.4 Application of Actuarial Standards of Practice
    • 2.4.1 Actuarial Standard of Practice No. 25
    • 2.4.2 Actuarial Standard of Practice No. 35
    • 2.4.3 Canadian Institute of Actuaries Standards of Practice and Educational Notes

3 Application of Credibility Theory to Mortality Assumption in Pension Plan Valuations

  • 3.1 Data Needed for Credibility Analysis
  • 3.2 Building a Mortality Table From Scratch
  • 3.3 Selection of Standard Mortality Table for Credibility Analysis
    • 3.3.1 Generational Mortality
  • 3.4 Adjusting a Standard Table to Reflect Plan Experience
    • 3.4.1 Full Credibility
    • 3.4.2 Partial Credibility
    • 3.4.3 Amounts- Versus Counts-Weighted
  • 3.5 Actuarial Judgment in Adjusting Standard Table
    • 3.5.1 Is an Adjustment Required?
    • 3.5.2 Does the Shape of the Plan's Mortality Experience Match the Shape of the Standard Table?
    • 3.5.3 Applying Credibility by Age Groupings
    • 3.5.4 Applying Credibility for Subgroups
  • 3.6 Updating Existing Credibility Analysis
    • 3.6.1 Frequency of Experience Studies
    • 3.6.2 Selection of a Relevant Experience Base Mortality Table in an Updated Credibility Analysis

4 Limitations of Adjustments Based on Plan Experience

5 Appendix

  • 5.1 Resources
  • 5.2 LFCT Full Credibility Model
    • 5.2.1 Counts-Weighted Derivation
    • 5.2.2 Amounts-Weighted Derivation
  • 5.3 Overview of the Bühlmann Credibility Model
  • 5.4 Mortality Tables

Sources