Smoker and non-smoker mortality tables for life insurance policies with death benefits

Abstract

From 2006 to 2008, the Biometric Calculation Bases Working Group of the DAV Life Insurance Committee conducted studies on mortality tables for smokers and non-smokers in order to verify whether DAV Communication No. 12 on this topic was still appropriate. This review covered both the methodology used to derive mortality tables for smokers and non-smokers and the currency of the data sources used. The results of the studies are presented in this paper. It was first adopted as a DAV guideline on 4 December 2008 and replaces DAV Communication No. 12, which was repealed when the guideline was adopted.

As part of the regular review process for technical principles, the technical relevance of the guideline was reviewed in 2018. For the current review, the first step was to check the appropriateness of the DAV 2008 T aggregate table. Using the results and more up-to-date assumptions for smoking rates and smoking mortality rates, the appropriateness of the DAV 2008 T NR/R was then also examined. The analysis showed that there is basically no reason not to continue using the results of the guideline on smoking and non-smoking mortality tables for life insurance policies with a death benefit as reservation tables for tariffs differentiated according to smoking status. 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 a death benefit’ and ‘Smoker and non-smoker mortality tables for life insurance policies with a death benefit’ dated 7 June 2018.

The material scope of the directive concerns actuaries in life insurance. In particular, the directive contains a smoker and a non-smoker mortality table with the designations DAV 2008 T R and DAV 2008 T NR, which were derived on the basis of the aggregate table DAV 2008 T. These mortality tables are the minimum reserve standard for tariffs differentiated according to smoking status as of the 2009 balance sheet date, unless at least one of the following conditions for the derivation or application of less conservative approaches is met:

• Careful mortality studies, in which the actual observed deaths were compared with the expected deaths according to the DAV 2008 T table or, differentiated according to smoking status, with the expected deaths according to the DAV 2008 T R and DAV 2008 T NR tables, lead to the actuarially verified conclusion that parts of the error margin specified in more detail in the text can be dispensed with. If, in the course of such a mortality analysis, it has been determined that mortality in a company is below the level of the DAV 2008 T 2nd order aggregate table, this does not mean, however, that tariffs differentiated according to smoking status can be reserved without further examination using less conservative tables than DAV 2008 T R or DAV 2008 T NR can be reserved without further examination based on smoking status, as the lower aggregate mortality level may be caused in particular by a below-average proportion of smokers, without the mortality level of non-smokers being below DAV 2008 T NR 2nd order.
• On the other hand, if there is evidence that an above-average proportion of smokers are represented in a company's portfolio, this may justify lowering the DAV 2008 T R and DAV 2008 T NR tables, even if the observed mortality level in aggregate is not below the DAV 2008 T 2nd order table.
• If sufficiently large populations are available and reliable age-dependent data on mortality levels can be obtained, it is still possible to derive company-specific tables – either based on an aggregate table or directly as tables differentiated according to smoking status – taking into account the minimum methodological standards.

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

The guideline also contains information that must be taken into account when deriving company-specific mortality tables for smokers and non-smokers. This relates in particular to the aspects that must be considered when determining safety margins for such tables, the proportion of smokers to be used in the derivation, if applicable, and the excess mortality of smokers.

The DAV 2008 T R and DAV 2008 T NR mortality tables are generally also suitable for calculating premiums for life insurance policies differentiated according to smoking status with death benefits, but not for tariffs without a health check (e.g. funeral insurance).