Practical Analysis of PBR Mortality Credibility for Term Insurance
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In determining principle-based reserves (PBR) for U.S. life insurance, the credibility level of company mortality experience often has a large impact on the level of PBR deterministic reserves for term insurance. Generally the lower the credibility of company experience, the higher the blended mortality rates since industry mortality often is higher than individual company mortality experience. In addition, the mortality margin increases with lower credibility levels of company experience. Other factors impacting the blended mortality rates are a company’s own mortality experience and mortality improvement assumptions used to project reserves in future nodes needed for pricing products.
The purpose of this study is to provide a resource for actuaries and others to enhance understanding of the impact of VM-20 mortality credibility requirements on life insurers and of the potential solutions for increasing credibility levels.