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Effect of Mortality Stress Assumptions on Life Insurance Reserve Requirements

Abstract

Mortality stress assumptions represent adverse adjustments to expected mortality rates used to assess the potential effect of unfavourable mortality experience on life insurance liabilities. They provide a basis for evaluating how changes in mortality conditions may affect the amount of funds required to meet future policy benefits. The application of mortality stress assumptions is therefore an important consideration in life insurance reserve estimation, risk assessment, and financial planning. The study examines the effect of mortality stress assumptions on life insurance reserve requirements. It will assess how changes in mortality assumptions under stressed conditions influence the level of reserves required by life insurance companies. The study will also examine the relationship between mortality rates, policyholder age, policy duration, benefit amounts, expected claims, and life insurance reserve requirements under alternative mortality scenarios. The study will focus on mortality stress assumptions, mortality rates, survival probabilities, policy duration, benefit amounts, expected death claims, actuarial reserves, and reserve requirements. Actuarial valuation techniques will be applied to estimate life insurance reserves under baseline and stressed mortality assumptions. Comparative and sensitivity analyses will be used to determine the extent to which adverse mortality changes affect estimated reserve requirements. A quantitative research approach will be adopted for the study. Relevant mortality and life insurance data, including age-specific mortality rates, policyholder ages, policy durations, benefit amounts, premium payments, and historical claims experience, will be considered. Descriptive statistics, mortality analysis, actuarial present value calculations, reserve valuation techniques, scenario analysis, comparative analysis, and sensitivity analysis will be used to examine the effect of mortality stress assumptions on life insurance reserve requirements. The study is expected to show that mortality stress assumptions can increase life insurance reserve requirements where stressed scenarios involve higher mortality rates and earlier expected benefit payments. The magnitude of the increase may depend on the severity of the mortality stress, policyholder age, policy duration, benefit structure, premium arrangements, and interest rate assumptions. Different mortality stress scenarios may therefore produce varying levels of reserve requirements. The study is expected to provide useful information for actuaries, life insurance companies, underwriters, risk managers, financial managers, and regulators. The findings may support reserve adequacy assessment, mortality risk management, capital planning, liability valuation, stress testing, and financial reporting. The study may also assist insurers in understanding the potential financial effects of adverse mortality experience on their reserve positions. The study concludes that mortality stress assumptions are important for assessing life insurance reserve requirements under adverse mortality conditions. It is therefore recommended that life insurance companies regularly conduct mortality stress testing, review mortality assumptions using reliable experience data, and incorporate appropriate adverse scenarios into reserve valuation and risk management practices.

Keywords: Mortality stress assumptions, life insurance reserves, reserve requirements, mortality rates, survival probabilities, mortality stress testing, actuarial reserves, life insurance valuation, expected claims, policyholder age, policy duration, benefit payments, mortality risk, actuarial analysis, reserve adequacy.