Structured settlement annuities, part 2: mortality experience 1967--95 and the estimation of life expectancy in the presence of excess mortality.

BACKGROUND the mortality experience for structured settlement (SS) annuitants issued both standard (Std) and substandard (SStd) has been reported twice previously by the Society of Actuaries (SOA), but the 1995 mortality described here has not previously been published. We describe in detail the 1995 SS mortality, and we also discuss the methodology of calculating life expectancy (e), contrasting three different life-table models. RESULTS With SOA permission, we present in four tables the unpublished results of its 1995 SS mortality experience by Std and SStd issue, sex, and a combination of 8 age and 6 duration groups. Overall results on mortality expected from the 1983a Individual Annuity Table showed a mortality ratio (MR) of about 140% for Std cases and about 650% for all SStd cases. Life expectancy in a group with excess mortality may be computed by either adding the decimal excess death rate (EDR) to q' for each year of attained age to age 109 or multiplying q' by the decimal MR for each year to age 109. An example is given for men age 60 with localized prostate cancer; annual EDRs from a large published cancer study are used at duration 0-24 years, and the last EDR is assumed constant to age 109. This value of e is compared with e from constant initial values of EDR or MR after the first year. Interrelations of age, sex, e, and EDR and MR are discussed and illustrated with tabular data. CONCLUSIONS It is shown that a constant MR for life-table calculation of e consistently overestimates projected annual mortality at older attained ages and underestimates e. The EDR method, approved for reserve calculations, is also recommended for use in underwriting conversion tables.