Developing reliable life tables is one of the most important objectives for life insurance companies. Mortality rates for single ages are usually minute numbers and we need a rather large sample size to obtain reliable estimates. Otherwise, they are too sensitive to small changes in the number of death cases. This is often a problem when it comes to estimating mortality in very high ages. From an actuarial perspective, it is a challenge that an individual dies only once.
In middle age, when the probability of death is roughly one per-mille, an actuary would need more than 20 000 person-years to derive reliable mortality rates. This is usually not an issue since this is the core age range for policyholders of life insurance products. However, for both genders in high ages, we observe a rapid reduction in the lives exposed and therefore the number of death cases (see chart). Although mortality rates increase nearly exponentially with age, there is a rapid drop in death cases for males above age 85 and above age 90 for females. A similar pattern is observed for many populations.
Understanding the uncertainty around mortality and risk profiles in advanced ages is of crucial importance for life insurance companies. Family studies show genetic factors can explain 20%‒30% of the variation in longevity, whereas most of the remaining variation is attributed to environmental effects……
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