Chapter 02

Outline
Life tables
Fractional age assumptions
National life tables
Select and ultimate survival models and tables
Mortality trends and heterogeneity
FINA3220A
Actuarial Models I
Chapter 2
Life Tables and Selection
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Chapter 2 Life Tables and Selection
Life Table Functions and Survival Function
A published life table usually contains tabulations

By individual ages
Of the basic functions qx, lx, dx, and additional derived
functions
Recall that the conditional probability that (x) will die within
1 year is
Consider a random survivorship group of l0 newborns, indexed

by j = 1, 2, , l0
Each newborns age-at-death has a distribution specified
by s.f., S0(x)
Let (x) denote the groups number of survivors to age x
Here, Ij
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is called the indicator for the survival of life j
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We also denote nx be the number of death between ages x
and x + n from among the initial l0 lives
Denote E(nx) by ndx and we have
Since E(Ij) = S0(x), we have
lx
represents the expected number of survivors to age x

from the l0 newborns
Under the assumption that the indicators Ij are mutually
independent
(x) has a binomial distribution with parameters n = l0
and p = S0(x)
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Note that we omit the prefixes when n = 1
Similarly results are obtained if we constructed a life table

starting from age x0 rather than age 0
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US Decennial Life Tables for 1979-1981
The table contains the functions tqx, lx and tdx with l0 =

100,000
Except for the first year of life, the value of t in the
tabulated functions for tqx and tdx is 1
The U.S. Life Table was based on estimates of probabilities of
death, given survival to various ages, derived from the
experience of the entire U.S. population in the years around
the 1980 census
It was not constructed by observing 100,000 newborns
until the last survivor died
We must assume that the probabilities derived from the table
will be appropriate for the lifetimes of those who belong to
the survivorship group
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Two points to note with actuarial implication:

It is often assumed that there is an age such that S0(x) > 0
for x < and S0(x) = 0 for x
The age is called the limiting age

Although not defined explicitly, the limiting age is 110 for
practical purpose
Although
the values of lx have been rounded to integers,

there is no compelling reason to do so
For insurance purposes, most studies of human mortality use
the representation S0(x) = lx/l0 from the life table
Analytic form is not used
Since 100,000 S0(x) is displayed for only integer values of x
There is a need to interpolate in evaluating S0(x) for
noninteger values
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Consider the graph of lx:
Other points to note:

Infant mortality
bathtub mortality
Accident hump
Local minimums are located at ages 10 to 11 and ages 26 to

28 and a local maximum is located at ages 23 to 24
More
than 77% of people is expected to survive to age 65

At age 83, the largest number of deaths is observed
The function lx is proportional to the survival function S0(x)

It can be interpreted as the expected number living at age
x out of an initial group of size l0
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Exercise 2.1
Force of Morality and Life Table Functions
Based on the US Decennial Life Tables for 1979-1981

Calculate
The probability that (30) will live to 100
The probability that (40) will die before 70
The probability that (20) will die in the tenth decade of life
From the relationship lx = l0 S0(x), we have
Recall that
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x can be interpreted as the expected density of

deaths in the age interval (x, x + dx)
Hence, lx
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Exercise 2.2
Show the following relationships
Consider the graph of x:
The force of mortality is positive and the requirement that

x dx = and hence limtSx(t) = 0 appear to satisfied
The force of mortality starts out rather large and then drops
to a minimum around age 10
This pattern is called bathtub mortality
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The Deterministic Survivorship Group
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Consider the graph of lx x:
A second, and nonprobabilistic, interpretation of the life table

Rooted mathematically in the concept of decrement
(negative growth) rates
Related to growth-rate applications in biology and
economics
As it is deterministic in nature, it is called the concept of
deterministic survivorship group or cohort
This graph is called the curve of deaths

lx x is the expected density of deaths at age x, under the
random survivorship group idea
Local minimum is at about age 10 and the mode of the
distribution of deaths is around age 80
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A deterministic survivorship group, as represented by a life

table, has the following characteristics:
The group initially consists of l0 lives age 0
The members of the group are subject, at each age of their
lives, to effective annual rates of mortality (decrement)
specified by the values of qx in the life table
The group is closed
No further entrants are allowed beyond the initial l0
The only decreases come as a result of the effective annual
rates of mortality (decrement)
The progress of the group is determined by
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Alternatively, the progress can be rewritten as
There is an analogy between the deterministic survivorship

group and the model for compound interest
The deterministic survivorship group is conceptually simple
and easy to apply but does not take account of random
variation in the number of survivors
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The life table specifies the probability distribution of Kx

completely
To specify the distribution of Tx from the life table, an
assumption about the distribution between integers must be
made
Three assumptions are widely used in actuarial science:
Linear interpolation
Exponential interpolation
Harmonic interpolation (Not to be discussed)
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Assumptions for Fractional Age
Here, lx is the number of lives attaining age x in the

survivorship
The value l0 is called the radix
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These assumptions can be stated

In terms of survival function
In a form to show the nature of interpolation over the
interval (x, x + 1)
In the following, we let
x be an integer
0 s < 1
Linear interpolation (UDD):

Also
known as the uniform distribution, or more properly,

a uniform distribution of deaths (UDD) assumption within
each year of age
Under this assumption, t px is a linear function
Exponential interpolation (constant force of mortality):
A
linear interpolation on log S0(x + s)

Assumption of a constant force of mortality within each
year of age
Under the assumption, t px is exponential
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Exercise 2.3
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Exercise 2.4
Under the UDD assumption, show that for integer x, 0 s < 1

and 0 y < 1 s
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You are given:

45.5 = 0.50
Deaths are uniformly distributed over each year of age
Calculate
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Exercise 2.6
Exercise 2.5
Under the constant force of mortality (in the life table)

assumption, show that for integer x, 0 s < 1 and 0 y < 1 s
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Uniform Distribution of Deaths Assumption
Given that
q70 = 0.010413
q71 = 0.011670
Calculate 0.7q70.6, assuming a uniform distribution of deaths
and a constant force of mortality (in the life table)
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Uniform Distribution of Deaths Assumption
Further insight can be obtained by defining a random

variable Rx, with integer x
The joint distribution of Kx and Rx is given by
Here,
Tx is time-until-death
Kx is the curtate-future-lifetime:
A non-negative integer random variable
Rx
is the random variable representing the fractional part

of a year lived in the year of death:
A continuous-type random variable with all of its probability

mass on the interval (0, 1)
Hence,
the random variables Kx and Rx are independent

under the UDD assumption
Rx
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Since the joint probability of Kx and Rx can be factored into

separate probabilities of Kx and Rx
has a uniform(0,1) distribution
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Recursion Formulae
Exercise 2.7
Recursion formulae are used to evaluate the functions in life

table more effectively
Two forms of recursion formulae:
Backward recursion formula
Forward
Show that the backward recursion formula for completeexpectation-of-life is
What is the starting value for

What is the formula under the UDD assumption?
recursion formula
The variable x is usually a non-negative integer

To evaluate a function u(x), for a domain of non-negative
integer values of x, we need to have available values of
c(x) and d(x)
A starting value of u(x)
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Survival Models for Insured Lives
Effect of Life Insurance Underwriting
The mortality experience of people who purchase life

insurance policies tends to be different from the population as
a whole
Several possible reasons
There are large variations in mortality rates between
subgroups of the population
People who purchase life insurance are likely to be among
the better paid people in the population, which might have
better survivorship
The selection or underwriting process ensures that people
who purchase life insurance cover are healthy at the time
of purchase
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Consider one-year probability of death (106) extracted from

Continuous Mortality Investigation (CMI) TFC00 Table
Age at Purchase of Policy
Age
20
20
40
21
22
21
62
41
22
86
64
43
23
24
25
23
111
89
66
44
24
139
115
92
69
25
230
144
120
96
72
48
26
241
241
151
126
100
75
27
252
252
252
158
132
105
28
265
265
265
265
166
138
29
279
279
279
279
279
175
30
295
295
295
295
295
295
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Effect of Life Insurance Underwriting
Exercise 2.8
CMI TFC00 table is based on data for females who

purchased term insurance for different ages ranging from 17
to 90 between years 1999 to 2002
Observations
The more recently the policy was purchased, the lower the
one-year probability of death
Effect of underwriting
At
age 30, the one-year probability of death does not

depend on whether the policy was purchased at ages 20 to
25
Consider men who need to undergo a complex surgery with

only 50% chance that the patients will survive for a year
following surgery
If they do survive for a year, they are fully cued and their
future mortality is the same as those for the whole population
You are given:
The effect of underwriting eventually wears off, after 5 years
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Calculate the probability that a man aged 60 who is just

about to have surgery will be alive at age 70
Calculate the probability that a man aged 60 who had
surgery at age 59 will be alive at age 70
Calculate the probability that a man aged 60 who had
surgery at age 58 will be alive at age 70
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Select and Ultimate Table
Without the particular information for (x)

The form of mortality at duration t would be a function of
only the attained age x + t, denoted as previously by x+t
Given the additional information at x
The force of mortality at x + t is a function of this
information at x and duration t
The notation will be [x]+t
Note that the additional information is usually not explicit in
the notation but is conveyed by the context
The complete model for such lives is a set of survival
functions including one for each age at which information is
available
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This set of survival functions are function of two variables

Age at selection, [x]
The duration since selection, t
Life table functions associated with this bivariate survival
function is a two-dimensional array on [x] and t
From these definitions
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Suppose some special information is available about group of

lives age 30
A special life table can be built for these lives
The conditional probability of death in each year of
duration would be denoted by q[30]+i for i = 0, 1, 2,
These are entered in the table on the first row
The second row in the table contains the probabilities of
death for lives on which the special information became
available at age 31
In actuarial science, this two dimensional life table is call a
select life table
A schematic diagram to illustrate these ideas
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The impact of selection on the distribution of time-to-death,

T, may diminish following selection
Beyond this time period the qs at equal attained age would
be essentially equal regardless of the ages at selection
Mathematically, for all ages of selection [x] and for all j > 0,
there is a smallest integer r such that for a small positive
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The first r years of duration comprise the select period

The resulting array remains a set of life tables, one for each
age at selection
For a single age at selection, the life table entries are
Horizontal during the select period, and then
Vertical during the ultimate period
It would be economical to construct a set of select-andultimate tables by truncation of the two-dimensional array
after the (r + 1) column
For durations beyond r, we would use
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The SOA mortality studies of lives who were issued

individual life insurance on a standard basis use a 15-year
select period
Beyond
the select period, the probabilities of death are

subscripted by attained age only
That is, q[x j]+r+j is written as qx+r
Example: with r = 15, q[30]+15 and q[25]+20 would both be
written as q45
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Exercise 2.9
Given the 1-year mortality rates of a select-and-ultimate

table, the construction of corresponding select-and-ultimate
life table is started with the ultimate portion
We start with the computation of lx+r = l[x]+r based on the
ultimate mortality rates, with the starting age at x0 and the
starting value
We then complete the select segments by using the relation
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Aggregate table
A life table in which the functions are given only for
attained ages
Ultimate table
A special aggregate table in the last column of a select-andultimate table
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For y x + r > x + s > x + t x x0, show that
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Exercise 2.10
Exercise 2.11
Write an expression for 2|6q[30]+2 in term of l[x]+t and ly for

approximate x, t and y, assuming a select period of 5 years
A select survival model has a select period of three years

The ultimate table has the following values of lx
You are given that for age x 65,

p[x] = 0.999, p[x1]+1 = 0.998 , p[x2]+2 = 0.997
Calculate the probability that an insured currently aged 70
will survive to age 75 given that
She was select at age 67
She is select at age 70
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Exercise 2.12
Heterogeneity in Mortality
Construct a select and ultimate life table based on the

mortality rate in CMI AMN00 Table
Calculate
4 p[70]
3 q[60]+1
2| q73
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Factors which affect the difference in mortality:

Country
Sex
Race
Smoking habit
Social class
Self-selection
Underwriting policy
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Comparison of US & HK 2001 Life Tables
US Life Expectancy by Race & Sex, Newborns

90
0.014
80
0.012
All (US)
Males (US)
Females (US)
70
Males (HK)
0.010
Females (HK)
60
0.008
50
0.006
White Male
40
White Female
0.004
Black Male
Black Female
30
0.002
20
19001902
0.000
0
10
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20
30
40
50
19091911
19191921
19291931
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Mortality Trends
Survival probabilities are not constant over time

Commonly, mortality experience gets lighter over time
Mortality improvement
Three components of changes in mortality
Trend general reduction over time
Shock jump due to war or pandemic disease
Idiosyncratic year to year random variation
19491951
19591961
19691971
Mortality Trends
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19391941
19791981
19891991
19992001
60
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A common model for projecting mortality

q(x,
s) is the mortality rate for a life aged x in year s

q(x, 0) is the mortality rate for a life aged x for a baseline
year
rx is called mortality reduction factors, dependent on age x,
with typical values in the range of 0.95 to 1
Given a baseline survival model, with mortality rates
q(x,0) = qx and a set of age-based reduction factors, rx, the
survival probabilities from the baseline year, t p(x,0), is
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Outline

Chapter 2 Life Tables and Selection

Life Table Functions and Survival Function

Life Table Functions and Survival Function

A published life table usually contains tabulations

Consider a random survivorship group of l0 newborns, indexed

Chapter 2 Life Tables and Selection

is called the indicator for the survival of life j

Chapter 2 Life Tables and Selection

Life Table Functions and Survival Function

Life Table Functions and Survival Function

Since E(Ij) = S0(x), we have

represents the expected number of survivors to age x

Chapter 2 Life Tables and Selection

Note that we omit the prefixes when n = 1

Similarly results are obtained if we constructed a life table

Chapter 2 Life Tables and Selection

US Decennial Life Tables for 1979-1981

US Decennial Life Tables for 1979-1981

The table contains the functions tqx, lx and tdx with l0 =

Chapter 2 Life Tables and Selection

Two points to note with actuarial implication:

The age is called the limiting age

the values of lx have been rounded to integers,

Chapter 2 Life Tables and Selection

US Decennial Life Tables for 1979-1981

US Decennial Life Tables for 1979-1981

Consider the graph of lx:

Other points to note:

Local minimums are located at ages 10 to 11 and ages 26 to

than 77% of people is expected to survive to age 65

The function lx is proportional to the survival function S0(x)

Chapter 2 Life Tables and Selection

Chapter 2 Life Tables and Selection

Force of Morality and Life Table Functions

Based on the US Decennial Life Tables for 1979-1981

From the relationship lx = l0 S0(x), we have

x can be interpreted as the expected density of

Chapter 2 Life Tables and Selection

Chapter 2 Life Tables and Selection

US Decennial Life Tables for 1979-1981

Show the following relationships

Consider the graph of x:

The force of mortality is positive and the requirement that

Chapter 2 Life Tables and Selection

Chapter 2 Life Tables and Selection

The Deterministic Survivorship Group

US Decennial Life Tables for 1979-1981

Consider the graph of lx x:

A second, and nonprobabilistic, interpretation of the life table

This graph is called the curve of deaths

Chapter 2 Life Tables and Selection

Chapter 2 Life Tables and Selection

The Deterministic Survivorship Group

The Deterministic Survivorship Group

A deterministic survivorship group, as represented by a life

The progress of the group is determined by

Chapter 2 Life Tables and Selection

Alternatively, the progress can be rewritten as

There is an analogy between the deterministic survivorship

Chapter 2 Life Tables and Selection

Chapter 2 Life Tables and Selection

The life table specifies the probability distribution of Kx