What Is an Underlying Mortality Assumption?

Underlying mortality assumptions are projections of expected death rates used by actuaries to estimate insurance premiums and pension obligations. This is based on mortality tables, which are statistical tables of expected annual mortality rates. Because of the critical importance of the underlying mortality assumption, actuaries have to follow guidelines set by pension and insurance regulators in deciding on an appropriate assumption.

Also called the mortality assumption.

Understanding the Underlying Mortality Assumption

The underlying mortality assumption is a key variable in estimating life expectancies, which in turn determines the cost of insurance for an insurer and the long-term obligations of a pension fund. If the underlying mortality assumption is too low, a life insurer may underestimate the actual cost of insurance and may have to pay out more in death benefit claims than it had forecast. Conversely, if the underlying mortality assumption is too high, the actuary may underestimate life expectancies of the pension-plan members and hence, the long-term obligations of the pension fund.

Mortality in the United States

For most people, death is the last thing they want to think about. For life insurers and pension administrators, it's the first thing they think about. Any good actuary can tell you that people often misjudge the statistics about mortality. They don't understand that mortality at birth and mortality in advanced age are two different things. 

According to the Centers for Disease Control 2017 data, there were 2,712,630 deaths in the U.S. and a death rate of 844.0 deaths per 100,000 population. Life expectancy at birth was 78.8 years, and the infant mortality rate was 5.90 deaths per 1,000 live births.

The leading causes of death: Heart disease: 633,842; cancer: 595,930; chronic lower respiratory diseases: 155,041; accidents (unintentional injuries): 146,571; stroke (cerebrovascular diseases): 140,323; Alzheimer’s disease: 110,561; diabetes: 79,535; influenza and pneumonia: 57,062; nephritis, nephrotic syndrome and nephrosis: 49,959; intentional self-harm (suicide): 44,193.

For males, life expectancy changed from 76.3 in 2015 to 76.1 in 2016;  For females, life expectancy remained the same at 81.1 years. The life expectancy for females was consistently higher than it was for males. In 2016, the difference in life expectancy between females and males increased by 0.2 years from 4.8 years in 2015 to 5.0 years in 2016.

Once you make it to advanced age, a new set of statistics comes into play, the CDC noted. "In 2016, life expectancy at age 65 for the total population was 19.4 years, an increase of 0.1 years from 2015. Life expectancy at age 65 increased 0.1 years to 20.6 years for females and was unchanged at 18.0 years for males."