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Copyright © 2015 by the American\ Academy of Actuaries. All Rights Reserved.
Joint American Academy of Actuaries Life Experience Committee and Society of Actuaries Preferred Mortality Oversight Group
Dieter Gaubatz, MAAA, FSA, FCIA
Chairperson, Underwriting Criteria Team
July 16, 2015
2015 VBT Table Development
2015 UCS calculator
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 2
Purpose of UCS calculator
2
2015 VBT Relative Risk (RR) Tables
• Used in the calculation of VM-20 Prudent Estimate Mortality assumption for
Deterministic and Stochastic reserves
RRRs (Relative Risk Ratios)
• Used to determine which RR table to use for each risk class in structure
Underwriting Criteria Score (UCS)
• Used to determine the RRR
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 3
Definitions
RR(R)
• Relative Risk (Ratio)
• Mortality as % of average standard mortality for a specific characteristic cell
UCS
• Underwriting Criteria Score
• RRR (at issue) score for a particular risk class
• Standard is defined in comparison to sub-standard as determined by the
underwriting process
• A characteristic cell would normally be for a specific gender, smoking
status and issue age/duration
3
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 4
Underwriting Criteria Score
How it fits into the process
2015 VBT
(NS – 10 RR tables)
50 60 70 80 90 110 150 100 125 175
Super Preferred Preferred Standard ? ?
4
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 5
Blended
UCS Score
USC = RRR
Actual experience
Choosing a valuation RR table
Credible
Non-credible Partial credibility
5
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 6
Output
Provide a single RRR per risk class to determine which table to use
Output Results
NT TB
NT Class RRR Prev RRR Prev TB Class
Super pref NT 72.0% 25.00% 83.0% 70.00% Pref TB
Pref NT 98.0% 40.00% 139.7% 30.00% Std TB
Std NT 122.3% 35.00%
6
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 7
Score comparisons
Sample UCS Calculator Results
RRR score Prevalence
Risk class Risk class
4 NT risk classes
Co. P1 P2 P3 Std P1 P2 P3 Std
A 84.2% 100.4% 110.4% 155.7% 51.8% 28.7% 6.0% 13.6%
B 85.6% 117.8% 166.4% 194.9% 69.4% 21.4% 7.8% 1.1%
3 NT classes
Co. P1 P2 Std P1 P2 Std
C 77.5% 98.0% 142.8% 27.5% 55.4% 17.1%
D 89.2% 129.9% 169.7% 79.7% 13.8% 6.5%
E 85.1% 96.3% 119.0% 40.4% 23.2% 36.4%
F 82.5% 98.7% 130.6% 36.9% 36.7% 26.3%
7
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 8
Highlights of version 2015
Act
ual
ex
per
ien
ce
Obtained from various sources
Ass
um
pti
on
str
uct
ure
s
More consistent with reality
Allows for recognition of “J” and “U” mortality relationships
Lo
gic
Reflects actual underlying KO and DC qualification logic
Ag
e ra
ng
e
Allows flexibility in age range definitions for all criteria
Def
ine
“sta
nd
ard
”
Company can use its own definition of standard (in context of standard vs. sub-standard)
8
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 9
Enhancements
Output
Eliminate need for UCS to RRR
conversion
Inputs
Revised structure
Criteria expansion
Logic
Improved KO and DC
formulas
Assumptions
Revised structure
using RRRs and prevs
J/U curve RRR
assumptions
Data storage
Flexibility to add macros
9
With the new UCS, the levels are based on actual math / science / research related to
each of the criterion. The prior approach was based on formulas and assumptions
developed using much more professional judgment.
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 10
0%
2%
4%
6%
8%
10%
12%
14%
0%
50%
100%
150%
200%
250%
300%
15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Prev
RRR
Prevalence
Assumption structure Body Mass Index (BMI)
Relative Risk %
BMI
RRRs and prevalences for
each range
Normal
substandard risks
Normal standard risks
10
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 11
Assumptions
Source of data
Heritage Labs data
Large direct insurer
RGA/LexisNexis MVR study
Professional judgment
Reasonableness checks with
SOA experience
11
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 12
Assumption cautions
Consistent with valuation needs
RRRs and prevelances are
portfolio averages,
not characteristic specific
Potential correlations among
assumption not evaluated
12
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 13
Input changes
Criteria
Revised Structure
• Family history (coronary, cerebro)
• Personal medical (coronary, cerebro, mental/nervous)
• Debit Credit and Knockout inputs combined
• Flexible age banding
• Multiple input structure
• Conditional formatting
• Separate NS/SM input worksheets
13
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 15
What’s next
Remaining work
Full report Web-based
chassis solution
15
Copyright © 2015 by the American Academy of Actuaries. All Rights Reserved. 16
Thanks to:
Underwriting Criteria Team members
Jaron Arboleda (MIB
representative)
Jean-Marc Fix (actuary)
Kim Genik (underwriter)
Anna Hart (underwriter)
Carl Holowaty (MD)
Doug Ingle (underwriter)
Al Klein (actuary)
Peter Komsthoeft
(underwriter)
Ev Kunzelman (underwriter)
Kevin Larsen (actuary)
Jack Luff (SOA actuary)
Cynthia MacDonald
(SOA actuary)
Matt McLaughlin
(actuary)
Brad Roudebush (actuary)
David Winsemius
(MD)
David Wylde (actuary)
Dieter Gaubatz – chair
(actuary)
16