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Mortality analysis of The Netherlands and Germany

Mark den Hollander, Eefje Roelfsma,
Mark van Kampen, Luuk van der Kleij (11004517)
University of Amsterdam - Faculty of Economics

June 2017

Introduction
The life expectancy of people has had a significant increase in the last 30 years. The main reason for this
increase is improved medical technology and better public healthcare. To visualize this increase we analyze
the mortality rates of Germany and the Netherlands using data from the HMDB, between 1970 and 2008. We
also separate males and females. Unfortunately, however, this increase in life expectancy comes at a price; an
increase in healthcare costs. Therefore it is essential for insurance companies to accurately predict mortality
rates. We perform a step-by-step analysis for predicting life annuity and death benefits for females aged 65 in
the year 2008, using the Lee-Carter model.

I. Developments since 1970 German males and Dutch females approximately 2.9
years longer. However, in 2008 this difference is de-
We start this report by analyzing the developments creased to 1.0 and 0.14 for males and females respec-
of mortality since 1970. One way to do this is by calcu- tively. The same developments can be seen for the
lating the logarithm of the central death rate for each expected remaining lifetime at age of 65, as shown in
year (t): log xt = log( D
Ext ). In figure 1 we plotted the figure 3. It seems that for all cases the (remaining)
xt

logged central death rates of the Netherlands and Ger- life expectancy converges. This convergence could be
many for ages between 25 and 100 in the years 1970 explained by better global healthcare and better coop-
and 2008. As expected does the death rate steadily eration between countries. However, we expect there
increase over age. Also, observe that there has been a to be a difference due to geographic differences.
downward shift in death rates since 1970 for all obser-
vations. Surprisingly, the mortality rate for women in
1970 is approximately equal to the mortality rate for
men in 2008. This observation holds for both the Dutch
and German data. As Stoeldraijer et al. (2013) sug-
gest, this could be due to the different smoking habits
of males and females.

Figure 2: Life expectancy at birth

Figure 1: Log Central Death rates

To get a better understanding of the life expectancy

between both countries and genders in the years 1970
and 2008 we look at figure 2 . Notice that in 1970
Dutch males lived approximately 3.5 years longer than

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 Figure 3: Remaining life expectancy at age of 65

II. Current mortality per age

The central death rates used in the previous section
are estimators which are relatively inefficient. In or-
der to obtain a more efficient model, we turn to the
Gompertz formula: x,2008 = ea+bx . The Gompertz
mortality rates are in figure 4 for various adjustments.

Figure 5: Age specific mortality

The first observation that can be made is that for

Figure 4: Gompertz Mortality Rate
This figure gives us several fitted lines to the actual
central death rates. When fitted to the data we can see
that the OLS and WLS methods fit the actual values
quite well, although the logged OLS method is slightly
biased for high ages. On the other hand, when we take
the logarithm of the mortality values, we can clearly
see that the logged OLS model fits the actual values
more accurate than the other methods. Using the log-
arithm of Gompertz formula gives a linear function of
age, which is often preferred to use.
III. A dynamic model for mortal-
ity
newborn x are relatively high (-4) but drops to around
-7 after a few months. This characteristic indicates the
relative high infant mortality. After the age of 14 the
x seems to increase until the age of 20. Literature
explains this increase is due to an increase in reck-
lessness, which leads to more accidents, the so called
accident hump (Heligman Pollard , p58). Notice
that his effect is more present for males. After these
years, there is a short period of decrease, which might
depict that people get fewer accidents. This decrease
is followed by a lifelong increase.
The estimated parameter x can be interpreted as
the sensitivity to time changes at a specific age. From
figure 7 we directly see that all observations follow the
same trend. Notice that the sensitivity is at its highest
for the early years, which suggests that time changes
have the most effect on youngsters. New innovations
in healthcare can greatly reduce the infant mortality
for example. The sensitivity starts to increase after
the age of 55 up until until the age of 70, after which it
decreases again. A possible explanation for this is that
healthcare has a larger effect on people between 55
and 70. After that the effect seems to decrease steeply
because death can only be stalled for so long. Notice
however that for Dutch males this trend starts around
the age of 30 up until the age of 65.

Although Gompertz method gives accurate esti-

mates for mortality, this model does not include the
time characteristic. Mortality rates are likely to change
over time, due to new medical improvements. To get a
better understanding of this time effect we turn to the
Lee-Carter model for mortality. This model estimates
the rate of mortality with the parameters x , x and
t . Estimating these parameters with our data and
plotting them, gives us the following information:

The estimated parameter x can be interpreted as

the age-specific parameter over all time points. Figure
5 plots x for both countries and genders. We directly
see that all observations approximately follow the same
trend. However, it is also quite clear that males have
a higher mortality rate than females. Therefore, it
Figure 6: sensitivity to time changes
would be best to model them separately (which is in
line with reality). The estimated parameter t can be interpreted

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as the mortality trend at a specific time (year). As in
accordance with the literature we notice an approxi-
mate decreasing linear relation over time, which seems
to be steeper for Germans (figure 7 ). This might indi-
cate that medical and socioeconomic changes over time
decrease mortality.

Figure 9: Dutch males; forecast 2008 - 2058

V. Uncertainty in predictions
In this section we continue on our random walk
model in IV , but instead of using 25 simulations we
will now perform 1000. Because of noisy predictions
Figure 7: Time effect on mortality after the age of 90, we use a scheme proposed by Kan-
nisto to extrapolate death probabilities.
First, we create a histogram with the complete remain-
ing cohort life expectancy for females aged 65 in the
IV. Simulation of a dynamic year 2008. The results for both countries are displayed
model below:

Using the estimates for the Lee Carter model, we ob-

tain a prediction for the mortality rates. We forecast
the one-year probability of dying (q65 ) for the years
2008 to 2058. Figure 8 and figure 9 illustrate the an-
nual trend for q65 for German males and Dutch males
respectively. Because of the stochastic nature of the
Lee Carter model, we run 25 simulations and plot them
all in the figures. We can see that our predictions fol-
low the same trend as the model of Lee and Carter (Lee
Carter , 1995, p. 662). Figure 10: Life expectancy at age of 65 for females
For German males, we observe that the one-year prob-
ability of dying starts around 0.035 in 1970 and de-
creased to 0.016 in 2008. In 2058 all of our predictions Figure 10 shows that the remaining lifetime for both
are between the values of 0.009 and 0.004. The one- German and Dutch women is approximately 22 years.
year probability of dying for Dutch men decreased from Although the results are quite similar, it becomes clear
0.033 in 1970 to 0.013 in 2008 and in 2058 our obser- that German females have a somewhat higher life ex-
vations are between 0.003 and 0.007. Also notice that pectancy than Dutch females, but this difference is only
the one-year probability of dying for Dutch males is, in a few months.
all years, lower than those of German males. Second, based on our findings we will determine the
present value of life annuities and death benefits for
both groups. The annuity pays 1000 at the end of ev-
ery year when alive, while the death benefit pays 1000
at the end of the year in case of mortality. A discount
rate of 3% is used. The figures are presented below:

Figure 8: German males; forecast 2008 - 2058 Figure 11: Present value of life annuity

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 VI. Alternative models
Besides our models we also discuss an alternative
model introduced by the Dutch actuarial institute: het
Actuarieel Genootschap (AG). The AG introduced a
new model in 2014 for predicting life expectancy. This
model differs from the original Lee-Carter model in a
way that makes use of data from multiple comparable
countries as opposed to a singular. The model can be
Figure 12: Present value of death benefits
described as a two-step model and is first proposed by
Since the life expectancy for females is almost simi- (Lee and Li, 2005). The model is defined as follows:
lar for Germany and The Netherlands, the value of the (i) (i) (i)
annuity and the death benefits are also very similar for log(mx,t ) = x(i) + Bx Kx + x(i) kt + x,t ,
both countries. The mean value of the annuity for both
countries is around 15,500-15,600. However, since Ger- with x {xmin , ..., xmax(i)}, t {tmin , ..., tmax }, i the
man females have a somewhat higher life expectancy, population parameter, x,t the modeling error and Kt
the value of the annuity is also a little bit higher. The the unknown parameter for the common trend for all
reason for this is that they expect to receive more pay- populations.
ments. But since they also have to wait a couple of First of all, the unknown parameter Kt is estimated
months longer, before they receive their death benefit, by applying the Lee-Carter model to the full data set.
(i)
the value of the death benefit is somewhat lower for Secondly, ax minimizes the total modeling error and
Ptmax
German females, due to the discount factor. The ex- using the Lee-Carter constraint t=tmin Kt = 0 we get
pected value of the death benefit for both countries is
approximately 555-560. n tX max o
(i)
min (log(mx,t ) x(i) Bx Kt )2
t=tmin
Ptmax (i)
t=tmin log(mx,t )
= x(i) = ,
T
with T the number of years in the data set. Finally,
(i) (i)
the unknown parameters x and x can be estimated
by applying a singular value decomposition per popu-
lation i.
The advantage of using a multi-population model, as
described above, is an increase in robustness which
gives us better and more stable data. The disad-
vantage, however, is that if the data are from non-
comparable countries the estimators will be biased.
(Ouburg 2013) compares the multi-population model
against the general Lee-Carter model and concludes
that it indeed gives a significantly better fit for males
(for females this effect is only slightly better).

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