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Lapse and Mortality of Post-Level Period Term Plans

Lapse and Mortality of Post-Level Period Term Plans. Tim Rozar FSA, MAAA, CERA Derek Kueker FSA. International Actuarial Association. Background. Introduction to Post-Level Term. 10-Year Term: Premium Structure with Jump to ART. $7,395 Duration 11 Premium. 20 times Premium Jump.

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Lapse and Mortality of Post-Level Period Term Plans

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  1. Lapse and Mortality of Post-Level Period Term Plans Tim Rozar FSA, MAAA, CERA Derek Kueker FSA International Actuarial Association

  2. Background

  3. Introduction to Post-Level Term 10-Year Term: Premium Structure with Jump to ART $7,395 Duration 11 Premium 20 times Premium Jump $375 Level Premium

  4. Who Pays the $7,395 Rather Than Dropping Coverage or Getting a New Policy? The Sick… • The Lazy… • The Unaware… …And ALL 3 have extra mortality risk!

  5. Lapse Rate • Sharp increase in premium after level period leads to large anti-selective shock lapse. • Mortality on persisting policyholders is substantially worse in the post-level period. 2008 VBT Mortality Ratio

  6. SOA/RGA Post-Level Term StudyLapse Study Experience Results

  7. Shock Lapse Experience Results Overview 2000-2012 Policy-Year Study Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  8. Shock Lapse Experience (Jump to ART) T10 By Duration Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  9. Shock Lapse Experience T15 By Duration Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  10. Shock Lapse Experience (Jump to ART) T10 By Premium Jump Ratio Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  11. Shock Lapse Experience (Jump to ART) T10 By Duration & Premium Jump Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  12. Shock Lapse Experience (Jump to ART) T10 By Duration & Premium Jump Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  13. Shock Lapse Experience T10 By Duration and Issue Age Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  14. Shock Lapse Experience (Jump to ART) T10 By Premium Jump and Issue age – duration 10 Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  15. Shock Lapse Experience T10 By Duration & Face Amount Band Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  16. Shock Lapse Experience (Jump to ART) T10 By Premium Jump and Face Amount Band – duration 10 Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  17. Shock Lapse Experience T10 By Duration & Gender Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  18. Shock Lapse Experience T10 By Duration & Risk Class Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  19. Shock Lapse Experience T10 By Duration & Premium Payment Mode Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  20. SOA/RGA Post-Level Term StudyMortality Study Experience Results

  21. Mortality Experience Overview 2000-2012 Calendar Year Study Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  22. Mortality Experience (Jump to ART) T10 By Duration Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  23. Mortality Experience T15 By Duration Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  24. Mortality Experience (Jump to ART) T10 Duration 11 Mortality by Premium Jump Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  25. Mortality Experience (Jump to ART) T10 Duration 11+ Mortality by Issue Age Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  26. Mortality Experience (Jump to ART) T10 Duration 11+ Mortality by Face Amount Band Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  27. Mortality Study Experience Results – Jump to ART T10 Duration 11+ Mortality by Gender Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  28. Mortality Study Experience Results – Jump to ART T10 Duration 11+ Mortality by Risk Class Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  29. Mortality Experience (Jump to ART) T10 Duration 11 Mortality by Duration 10 Shock Lapse by Company Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  30. Practical Applications

  31. Shock Lapse Experience Skewness of Lapses Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  32. Grace Period Subsidy Grace period creates mismatch between exposure basis for claims and premiums No duration 11 premium received, but effective duration 10 exposure extends into grace period. Premium-paying persisters must subsidize “free insurance” during the grace period for policyholders who intended to lapse on their anniversary. Much bigger impact with shock lapse Small number of premium-payers…lots of lapsers Magnitude increases for higher lapse rates or longer grace periods

  33. Grace Period Subsidy - Example Assumptions: Cohort mortality = 0.1 / 1000 monthly in durations 10 & 11 Lapse on anniversary at end of duration 10 All lapsers will passively lapse and enter the grace period 2-month grace period

  34. Grace Period Subsidy – Example5% Lapse Rate; No Anti-Selection

  35. Grace Period Subsidy – Example60% Lapse Rate; No Anti-Selection

  36. Grace Period Subsidy – Example90% Lapse Rate; No Anti-Selection

  37. Grace Period Subsidy – Example90% Lapse Rate; 200% Anti-Selection

  38. Mortality Experience Duration 11 Mortality by Month Source: http://www.soa.org/Research/Experience-Study/Ind-Life/Persistency/research-2014-post-level-shock.aspx

  39. SOA/RGA Post-Level Term StudyAssumption Survey Results

  40. Assumption Survey Results Sent to top 100 term providers based on 2012 term insurance sales Responses from 41 companies Responses represented 62% of 2012 term sales Overview Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  41. Assumption Survey Results Post-Level Premium Structure Dominant Structure is Jump to an ART Scale Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  42. Assumption Survey Results Expected Changes to Post-Level Premium Structure No change expected for most term new business Minimal changes reported to inforce term business Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  43. Lapse Assumptions Post-Level Lapse Rate Structure Most companies assume only one shock lapse, generally grading down thereafter Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  44. Lapse Assumptions Used a common pricing cell for consistent comparisons in upcoming charts Factors impacting shock lapse assumptions Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  45. Lapse Assumptions Annual and cumulative lapse assumptions by duration, 10-year term Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  46. Lapse Assumptions Duration 10 lapse assumptions by issue age, 10-year term Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  47. Lapse Assumptions Post-Level Lapse Rate Assumption by Premium Jump, 10-year term Broad range of assumptions by premium jump Trend is somewhat inconsistent with experience Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  48. Mortality Deterioration Assumptions Post-Level Mortality Deterioration Structure Assumptions vary broadly by structure of mortality deterioration Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  49. Mortality Deterioration Assumptions The same pricing cell that was used in the Lapse Assumptions charts is used in this section Factors impacting mortality deterioration assumptions Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

  50. Mortality Deterioration Assumptions Post-Level Mortality Methodology Dukes-MacDonald (or derivatives) and Flat Multiple are the primary assumptions used in developing mortality after the shock lapse Source: http://www.soa.org/Files/Research/Projects/research-shock-lapse-survey-report.pdf

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