The impact of the determinants of mortality on life insurance and annuities

Extended risk classification has become an important issue recently in life insurance and annuity markets. Various risk factors have been explored and identified by past research. Using those risk factors, one can construct various risk classes. This enables insurers to provide more equitable life insurance and annuity benefits for individuals in different risk classes and to manage mortality/longevity risk more efficiently. The challenge of modeling mortality using various risk factors is to reflect complicated mortality dynamics in a model while maintaining statistical significance. This paper discusses the development of a mortality model that reflects the impact of various risk factors on mortality. Longitudinal survey data from the Canadian National Population Health Survey was used to determine the significant risk factors and quantify their effect on mortality. The model is used to illustrate how the various risk factors influence actuarial present values of life insurance and annuity benefits.