Actuarial Notes

Table Development

By David B. Atkinson · Society of Actuaries · 2018

Study guide: Exam ILA-101

A February 2018 Society of Actuaries paper, sponsored by its Experience Studies Executive Committee, documenting the process of creating experience-based tables for mortality, lapse, incidence, severity and other rates used to predict outcomes for life, health, annuity and pension products. It is intended to serve as a reference manual for the development of future tables, documenting common and alternative practices.

On the syllabus

  • Exam ILA-101 — Table Development, Feb 2018, excluding Appendices C, D, F, G and H; outcomes 2d.

1 Overview

  • 1.1 Scope
  • 1.2 Project Planning and Oversight
  • 1.3 Table Development Flow Chart
  • 1.4 Future Table Development

2 Data Development

  • 2.1 Preliminaries
    • 2.1.1 Clarify Purpose and Goals
    • 2.1.2 Data Confidentiality
    • 2.1.3 Available Data
  • 2.2 Data Call
  • 2.3 Common Data Challenges
  • 2.4 Experience Study Calculations
    • 2.4.1 Age Basis
    • 2.4.2 Experience Study Summary Records
    • 2.4.3 Count-Based Results
    • 2.4.4 Amount-Based Results
    • 2.4.5 Expected Results
    • 2.4.6 Summary

3 Data Analysis

  • 3.1 Overview of Data Analysis Process
  • 3.2 Data Acquisition
  • 3.3 Data Validation and Preliminary Exploration
    • 3.3.1 Preliminary Data Exploration
    • 3.3.2 Outlier Analysis
  • 3.4 Data Visualization and Preparation
    • 3.4.1 Variable Grouping
    • 3.4.2 Variable Creation
    • 3.4.3 Variable Reduction
  • 3.5 Determination of Analytical Approach
    • 3.5.1 Exploratory Analytics
    • 3.5.2 Advanced Analytics
  • 3.6 Model Creation and Assessment
    • 3.6.1 Selecting Appropriate Model Forms
    • 3.6.2 Generalized Linear Models
    • 3.6.3 Survival Models
    • 3.6.4 The Modeling Process
    • 3.6.5 Count- and Amount-Based Rates
  • 3.7 Final Model Selection
  • 3.8 Minimizing Table Dimensions
  • 3.9 Replacing Grids with Factors

4 Graduation of Rates

  • 4.1 Input Rates
  • 4.2 Insufficiently Credible Data and Grouping of Data
  • 4.3 Graduation Methods
  • 4.4 Graduation Components
  • 4.5 The Graduation Process
    • 4.5.1 Populate and Adjust Graduation Input
    • 4.5.2 Review and Evaluate Graduation Results
  • 4.6 Variance for Amount-Based Observed Rates
  • 4.7 Interpolation of Graduated Rates
    • 4.7.1 Use of Weighted Averages Instead of Midpoints
    • 4.7.2 Common Interpolation Methods

5 Extension of Rates

  • 5.1 Using Rates from an Existing Table
  • 5.2 Using Data from Other Sources
  • 5.3 Using Formulas

6 Review and Adjustment of Rates

  • 6.1 Creative Reviews
    • 6.1.1 Preservation of Events
    • 6.1.2 Creating Acceptable Rates
  • 6.2 Enforcing Relationships
    • 6.2.1 Define Relationships to Be Enforced
    • 6.2.2 Define When Relationships Will Be Checked
    • 6.2.3 Create Spreadsheets to Check Relationships
    • 6.2.4 Checking Select and Ultimate Mortality Rates
    • 6.2.5 Adjusting Rates to Enforce Relationships

7 Projecting Future Rates

  • 7.1 Data Considerations for Projecting Future Rates
  • 7.2 Connecting Cause and Effect
  • 7.3 Three Types of Projections

8 Financial Impact

  • 8.1 Considerations
  • 8.2 Internal Table versus Industry Table in Life Insurance
  • 8.3 Impact on Reserves for Financial Reporting
  • 8.4 Impact on Best-Estimate Actuarial Assumptions
    • 8.4.1 Life and Health Insurance
    • 8.4.2 Pensions
  • 8.5 Impact on Life and Health Insurance Premium Rates

9 Finalization of the Table

  • 9.1 Creation of Derived Tables
    • 9.1.1 Common Constraints
    • 9.1.2 Projected Trend Factors
    • 9.1.3 Valuation Loading Factors
    • 9.1.4 Rates for Additional Age Definitions
    • 9.1.5 Gender-Blended Rates
    • 9.1.6 Relative Risk Rates
  • 9.2 Project Documentation
  • 9.3 Project Oversight

Appendix A Introduction to Exposure

Appendix B Select Period Considerations

Appendix C Table of Standard Deviations and 90% Confidence Intervals

Appendix D Using Howard’s Whittaker-Henderson Functions

Appendix E Estimating Variance for Amount-Based Observed Rates

Appendix F Mortality Study of 100 Oldest People

Appendix G A Method for Creating Acceptable Rates

Appendix H Converting Mortality Rates between Age Nearest and Age Last Birthdays

Appendix J Valuation Loading

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