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Tuesday
Oct132015

SOA 2015 Session 184 Presentation

Thursday
Jun052014

Experience Study Method Overview

Experience studies are used by actuaries to determine appropriate assumptions for valuing the liabilities arising from existing contracts, and for pricing new contracts. An actuarial experience study is the analysis of a particular type of behaviour within a population of lives, where the behaviour represents a decrement or exit from the population under study, for example by death i.e. mortality. In a mortality study, the objective is to calculate the mortality rate which is the probability of death over a period, usually one year. The mortality rate is calculated as the number of deaths from the population over a period divided by the amount of time the population is exposed to the risk of death within the period. As mortality varies by a number of factors such as gender and age, the study divides the population into sub-populations for each set of factors for which mortality rates are calculated. A mortality table is the set of rates calculated for each set of factors, such as gender and age. The study then compares the actual rates against an existing standard mortality table. There are a variety of methods that can be used to calculate the mortality study. A study method will incorporate a number of components including the exposure method, the age definition, study period and other factors under consideration. The key determinants in the design of a study are the nature of the source data available and the nature of the systems available to process the study, the objectives of the study and the flexibility and interactivity required by the study analysts. The validity of any experience study requires that the same population of lives contributes to both the number of deaths and the exposure. The lives contributing to the number of deaths should also contribute to the exposure, and the exposure should only include lives that would be counted in the deaths if they died. Experience study systems usually have limitations around the flexibility of the study. Results are normally available at some pre-determined level of aggregation due to the sheer volume of data generated in processing the study. The study parameters are embedded in the design of the study: the system must be reprocessed to change the study period or the standard tables, and the system itself must be modified to add additional mortality factors. Discussion around the main study factors is set out including formula for rates, exposures, ages, study period. Different jurisdictions can have different terminology and emphases for the same methods, which can lead to some confusion. This is true for experience studies between North America and in the United Kingdom: divided by a common language as ever. A blend of terminology is used here, with reference made to other possible terms.

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