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Future Mortality Improvement ScaleDevelopment (VM-20)UPDATEMortality Improvements Life Work Group (MILWG) of theAcademy Life Experience Committee and SOA PreferredMortality Project Oversight Group (“Joint Committee”) 2021 American Academy of Actuaries. All rights reserved. 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission.Life Actuarial Task Force (LATF) Winter Meeting— December 2021
RECAP: Individual Life Insurance Future Mortality Improvement(FMI) for VM-20 ProductsGOAL: To allow a prudent level of future mortality improvement (FMI) for VM-20 productsbeginning with the 2022 valuation manual 2FMI scale will be developed, updated and made available to practitionersannuallyUpdates will be limited to a threshold of materiality for making a changeTwo versions of the scale will be published: Basic (“Best Estimate”) andLoaded (“with margin”)Period of scale application: 20 yearsVaries only by gender and attained age 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Topics for Presentation 32022 scale development planIssues to be addressed in 2022 recommendationNext steps/future considerations 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
2022 MI Scale Development Plan (VM-20)2022 MI Scale Development1. Receive 2020 data from CMS and SOA creates preliminary estimate for 20202. Determine preliminary 2022 HMI and FMI Scales by applying approved methodology to SOA 2020 estimate3. Develop recommendation for reflecting COVID impact4. Determine method for smoothing (FMI)5. Finalize approach for application of margin6. Develop revised version of 2022 HMI and FMI scales - apply COVID, smoothing, and margin adjustments7. Receive SSA Trustees Report - Intermediate Projections for 20228. Develop final recommendation for HMI and FMI scales for 2022 (basic and loaded versions) and present to LATF for exposure9. Receive SSA mortality improvement data (final SOA estimates for 2020)10. Respond to exposure comments obtain LATF approval of 2022 HMI and FMI scales - both basic and loaded versions11. Publish 2022 HMI and FMI scales on SOA website4 2021 Society of Actuaries. All rights reserved.May not be reproduced without express 5/20229/30/2022 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Issues to be Addressed in 2022 Scale Recommendation 5COVID-19 impactsSmoothing methodMargin application 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Issues to be Addressed in 2022 Scale RecommendationCOVID-19 Impacts 6Quantification of COVID-19 impact Data sources Short vs medium vs longer term impacts Return to improvement over time or continued deterioration Insured vs general population impacts Differences in COVID-19 impact/adjustment approaches by companyApproach for reflecting impacts Direct adjustment or reflected in margins Consistency across product lines (“Think Tank Group” recommendations) 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Issues to be Addressed in 2022 Scale RecommendationSmoothing Method7 Unsmoothed historical estimates vary materially by age Consider reflecting larger differences in smoothed rates for FMIrecommendation Consider implications to HMI smoothing for 2022 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Issues to be Addressed in 2022 Scale RecommendationSmoothing MethodSample Male Unsmoothed FMI Rates (Basic)Sample Male Smoothed FMI Rates (Basic)3.5%3.5%3.0%1.5%1.0%0.5%0.0%Attained 5% 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission.20212025203020352039Attained rtality Improvmenet Rate2.5%-0.5%82020 - VM20 Historical MI 9859197103109115Mortality Improvement Rate3.0% 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Issues to be Addressed in 2022 Scale RecommendationMargin Application9 Apply any adjustments for COVID-19 impacts as determined bysubgroup work Specify approach for application where FMI rates are zero, nearzero or negative 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Next Steps and future considerations10 Threshold of materiality for making a change in a given year Impacts of opioid epidemic Obesity impacts Mental health impacts Slowdown in cardiovascular mortality improvement Smoker status impacts Socioeconomic differences (between general and insured population beyondCOVID-19 impacts) 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Questions?11 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Contact InformationMarianne Purushotham, FSA,MAAACorporate Vice President, Research Data ServicesLLGlobalmpurushotham@limra.comKhloe GreenwoodLife Policy AnalystAmerican Academy of Actuariesgreenwood@actuary.org 2021 American Academy of Actuaries. All rights reserved. 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission.
Appendix13 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
FMI Scale Development—Methodology Review 14Best estimate FMI grades from the historical basis toa long-term MI rate (“LTMIR”) at 10 yearsRemains level from 10 to 15 yearsGrades to no additional improvement at 20 yearsSeparate exercise for initial published scale toconsider COVID-19 impacts 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Sample Best Estimate FMI RatesUnsmoothed—Male—2020 Valuation3.5%2020 - VM20 Historical MI Scale2023202620292032203520382041 Mortaity Improvement Rate3.0%2.5%2.0%2021202420272030 - MI %0.5%0.0%-0.5%-1.0%-1.5%147 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118Attained Age15 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Example Best Estimate FMI RatesUnsmoothed—Female—2020 Valuation3.0%2020 - VM20 Historical MI ScaleMortality Improvement Rate2.5%202320262030 - MI 147 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100 103 106 109 112 115 118Attained Age16 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
2020 Smoothed Best Estimate FMI RatesFemale Smoothed—Best Estimate MI 0211720252030 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission.203520392041 Male Smoothed—Best Estimate MI Rates2021202520302035203920402041 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Margin RecommendationMARGIN ON THE INCREMENTAL MORTALITY IMPROVEMENT SCALE Margin will be included for all companies Companies may use a more conservative MI scale but not less conservative Margin will take the form of a flat % reduction in the best estimate MI scale 18Recommendation for 25% flat reduction 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
Considerations in Margin Recommendation 25% reduction in best estimate scale is a material cushion to reserve impact Conservatism in best estimate MI scale 19 Not explicitly included Methodology has some conservatism—i.e., limiting cumulative improvements to 20 yearsAbility to change best estimate MI scale each year No lock in of assumptions under VM-20 Corrections can be made if trends change 2021 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2021 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.
RECAP: Individual Life Insurance Future Mortality Improvement (FMI) for VM-20 Products GOAL: To allow a prudent level of future mortality improvement (FMI) for VM-20 products . Develop final recommendation for HMI and FMI scales for 2022 (basic and loaded versions) and present to LATF for exposure 6/30/2022 9. Receive SSA mortality .
