Problem #8 Many of these problems will stay with us forever no matter what we do. This is a big big problem.
Solution #1 Do not guarantee annuity rates. To do so could lead a company to bankruptcy if scientists find a cure for cancer.
Solution #2 - use of credibility theory to adjust a currently-in-use mortality table Fast and effective Simple – anybody can use Applicable to any situation, any time Not perfect, but a vast improvement over the unadjusted table
Example Company uses CL1 table (q). Expected total deaths = 600 (E) Actual total deaths = 360 (A) m = A/E = 0.6 Z = 0.03 sqrt(E) or 1,whichever is smaller = 0.735 q = [1 – 0.735 (1 – 0.6)] q = 0.706 q
Notes For internal use, not for regulatory filing For conservatism – add 5% for insurance, minus 5% for annuity Disregard accuracy for individual ages – this would be an impossible task Introduction from - Foundations of Casualty Actuarial Science, 4 th edition, 2001 by Casualty Actuarial Society