Biometric assumptions
Actuarial assumptions on mortality, morbidity and behavior that underpin the pricing of life and health contracts.
Biometric assumptions are the actuarial parameters relating to human life that underpin the pricing, reserving and risk management of life, health and protection contracts. They include mortality rates, by age and sex, structured into tables, morbidity, incidence and continuance rates for disability or long-term care, entry and exit rates, as well as behavioral assumptions such as lapses and surrenders. These assumptions are estimated from historical data, regulatory tables or the insurer's own experience, then projected into the future incorporating trends such as mortality improvement. Their quality is decisive: an erroneous assumption propagates over the entire duration of obligations that can run for decades, with a considerable cumulative effect. Insurers regularly adjust these assumptions in light of observed experience, and the gaps between assumptions and reality are a major source of technical result in life insurance. For the actuary, the choice and revision of biometric assumptions are at the heart of the profession.
Textbook case: an insurer revising its mortality tables in light of recent experience adjusts its annuity reserves, reflecting a gap between biometric assumptions and observed reality.
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