Construction Of Life Tables

Abstract

The project discusses the construction, selection and use of an important toolkit that actuaries use in their valuation and rate making work, mortality tables. It discusses the suitability of standard mortality tables to represent given populations and construction of new tables where standard tables are not suitable.

Further a comparison of the Kenyan mortality curve arising out of qx values obtained from the Association of Kenya Insurers'-Hannover Re Study for the period 1996-2001, with that of the US Life tables for 1996 is done to determine any similarity.

For constructed mortality tables there is need J.o~adjust the tables so that they meet the needs of actuaries who use the tables fo.. r valuation or ratemaking in a process known as graduation.

The graduation process depends very much on the purpose to which the mortality table is required. The final choice of the standard table or graduation is therefore a matter of judgment.

In order to price insurance products, and ensure the solvency of insurance companies through adequate reserves, actuaries must develop projections of

future insured events (such as death, sickness, disability, etc.). To do this, actuaries develop mathematical models of the causes of these events, as well as the amount and timing of the events. They do this by studying the incidence and severity of these events in the recent past, developing expectations about how the drivers of these past events will change over time (for example, whether the increase in Life expectancy that has been experienced by most generations over prior generations will continue) and, accordingly, develop an expectation for what the timing and amount of such events will be into the future. These expectations usually take the form of tables of percentages indicating the number of such events that will occur in a population, usually based on the age or other relevant characteristics of the population. More specifically, they may be referred to as mortality tables (if they provide rates of mortality, or death), morbidity tables (if they provide rates of disability and recovery), or by other names if they cover other decrements.

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From the comparison of the Kenyan mortality curve with that of the United States of America similarities can be seen despite Kenya having a higher mortality at all ages compared to United States.