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June 30, 2005

Tillinghast Study on Older Age Mortality

The Tillinghast business of Towers Perrin today announced findings of the life insurance industry's most comprehensive study of mortality experience data at older ages -- The Tillinghast Older Age Mortality Study (TOAMS), was conducted in the fall of 2004 and included data from 38 life insurance companies.

time.jpg The demand for life insurance at older issue ages has outpaced overall demand for life insurance in the U.S. The U.S. MIB Life Index showed a 10% growth in life insurance sales for ages 60 and older during 2003 over the prior year. Despite a more modest gain in 2004 (0.5%), growth for Q1 2005 was 3.2% for older ages, while sales declined for all other ages. Life insurance mortality studies have typically been based on data extrapolated from younger ages, rather than on "experience" data. Tillinghast's study sought to address the need for more actual data at the older ages to provide insurers with new insights on the coverage they provide to this growing demographic.

"As demand for life insurance at older ages grows, there is clearly a need in the marketplace to better understand older age mortality and how underwriting can influence mortality experience," said Al Klein, Senior Consultant. "The extensive data analysis from this study can serve as an impetus for insurers to develop more innovative approaches to addressing underwriting and expanding their product offerings for older individuals."

Among the main findings from the study:
A Better Picture of Cause-of-Death Patterns: Cancer was the leading cause of death by face amount (33% for males and 37% for females), and cancer deaths were higher in the first few policy durations than in subsequent durations. Accidental and violent deaths were greater by face amount than by policy count and were also higher in the first few policy durations. "These results point to the challenges that insurance underwriters have in screening for things like cancer," said Mike Taht, Principal. "These data patterns can give insurers a better picture of the trends."

Discrepancies in Mortality Patterns: The study found that older age mortality experience was inconsistent by gender at the later durations when compared with the 2001 Valuation Basic Table (VBT) -- the most recently published mortality table. For instance, TOAMS showed a 14 percentage-point difference between male nonsmoker and male smoker mortality, and a much larger (23 percentage-point) difference between female nonsmoker and female smoker mortality. "Though many studies have indicated a decrease in mortality in the U.S., this is not uniformly the case, especially among women -- the study indicated mortality rates are higher in some areas than they were 20 years ago," said Mr. Klein. "Also, smoking seems to have more of an impact on female mortality than male mortality, for which there could be several possible explanations," Mr. Klein said.

Second Home for Life Policies
Life settlements -- the secondary market for life insurance policies -- has grown substantially in recent years. According to A.M. Best data, more than $14 trillion of life insurance is in force in the United States, and some are projecting that the potential life settlement market could top $100 billion as the value of life insurance covering seniors is expected to reach $492 billion.

"The life settlements industry is booming, in part due to differences in mortality expectations between primary and secondary markets," said Mr. Taht. "This study shines a light on how to address some of those differences."

About the Tillinghast Older Age Mortality Study
TOAMS is the largest study of older-age mortality in the U.S. life insurance industry ever completed. It includes 51 million policy years and $3.355 trillion face amount of exposure during the years 2000 to 2002. Over 50% of the exposures in the study were associated with issue ages 50 and older. There were over one million deaths and $18 billion of death claims included in the study. The study was performed on an issue age and duration basis, using a 25-year select period, consistent with the Society of Actuaries 2001 Valuation Basic Table. To purchase a copy of the study, you can download the order form at http://www.towersperrin.com/tillinghast/r/olderagemortality.htm. If you have questions about the study, contact Al Klein at al.klein@towersperrin.com or (312)609-9153.

Posted by Tom Troceen