Derivation of the DAV 2008 T mortality table for life insurance policies with death benefit

Abstract

From 2006 to 2008, the Biometric Calculation Basis Working Group of the DAV Life Insurance Committee conducted studies on mortality in life insurance policies with death benefits. To this end, mortality levels were examined using data from the life insurance portfolios of German life insurance companies and data from German population statistics, and compared with international developments. The results of the studies are presented in this paper. It was first adopted as a DAV guideline on 4 December 2008.

As part of the regular review process for technical principles, the technical relevance of the guideline was reviewed in 2018. The review found that there is no reason to discontinue using the results of the guideline as a reserve table for life insurance policies with a death benefit and risk assessment. The results of this analysis are summarised in the report Review of the guidelines ‘Derivation of the DAV 2008 T mortality table for life insurance policies with death benefit’ and ‘Smoker and non-smoker mortality tables for life insurance policies with death benefit’ dated 7 June 2018.

The material scope of the Directive concerns actuaries in life insurance. The Directive introduces a mortality table for the reservation of the following life insurance policies with death benefits as of the 2009 balance sheet date:

• Unit-linked life insurance policies
• endowment life insurance policies
• term life insurance

However, the mortality table is not suitable for reserving products without risk assessment (in particular funeral insurance), as such products are likely to be subject to significant excess mortality.

The directive sets out binding rules on the methodology for deriving mortality tables for reserves and the procedure for setting safety margins for the above-mentioned products. These methodological requirements represent a minimum standard in general terms, which must be ensured in particular when deriving company-specific tables.

Of course, every responsible actuary must check whether there are any company-specific circumstances that would prevent the mortality table derived in the guideline from being adopted unchanged for the reservation of a particular company. Similarly, the responsible actuary must decide whether the table can be used unchanged for the reservation of a particular product. If necessary, the responsible actuary must make appropriate adjustments to the mortality table.

An application portfolio, i.e. the portfolio of death-related insurance policies of a specific life insurance company, will differ from the portfolio data used as a basis for the derivation or the model portfolio, for example with regard to

• the observed mortality level (e.g. as a result of the customer structure, the distribution of insurance sums or the health examination procedure),
• the size and structure of the portfolio (e.g. age structure, product parameters, proportion of endowment insurance policies)

distinguish.

The responsible actuary of a life insurance company must therefore check whether

• the second-order mortality of the DAV 2008 T mortality table,
• the structure and level of the safety margins and the level of security achieved by them in the DAV 2008 T mortality table

are appropriate for the company's portfolios and sufficiently prudent in accordance with the specifications described in this paper. If necessary, the responsible actuary must make an appropriate increase in the mortality level included in the calculation or in the relevant safety margins.

If a company does not have sufficiently reliable data on mortality rates in its own portfolio based on its own mortality studies, the DAV 2008 T with all the safety margins listed in the report represents the lower limit of the reserve. On the basis of careful mortality studies, which include a comparison of observed and expected deaths and lead to actuarially reliable findings on the portfolio, parts of the error margin specified in more detail in the text can be dispensed with. If there are sufficiently large portfolios and reliable age-dependent findings on mortality levels, it is still possible to derive company-specific tables taking into account the minimum methodological standards.

The DAV 2008 T mortality table is also generally suitable for calculating premiums for life insurance policies with death benefits, with the exception of policies without a health examination.