Society Of Actuaries Annual Meeting

Society of Actuaries Annual Meeting Disability and Group Life Experience Studies: What Have We Learned? Results of IDEC Study Robert Beal Consulting Actuary, Milliman, Inc

SOA Study Parameters • • • • • •

Study Period: 1990-1999 Approximately 80%+ of industry experience represented Results measured relative to 85 CIDA Incidence and Terminations studied separately. Most results measured in terms of indemnity. What’s new? – – – – –

Data from all 12 contributors Analysis by contract type: A&S, OE, DBO Analysis by occupation Termination experience by diagnosis Total Disability vs. Total & Residual

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Major Lessons From the SOA DI Study 1. Significant improvement trend in claim incidence over the 10 years. 2. Blue/grey occ classes have had much more favorable experience relative to 85 CIDA than the white collar/professional occ classes. 3. Substantial claim incidence improvements in business issued 1996+. 4. Wide disparity of incidence results by occupation, particularly in Occ Class 1.

Major Lessons From the SOA DI Study 5. Excellent incidence from executives/managers, accountants, engineers and teachers. 6. Poor incidence from physicians, dentists, nurses, insurance agents, stockbrokers, chiropractors, podiatrists. 7. Medical occs have had improving incidence only in the last few years. 8. Lifetime benefits have major impact on claim incidence.

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Major Lessons From the SOA DI Study 9. CA has uniformly worse experience – though positive signs in 1996+ issue years. 10. FL has poor experience in white collar – EP >=90+. 11. Multi-life does not always have lower incidence than single life. 12. Claim termination experience has been more difficult to improve.

Major Lessons From the SOA DI Study 13. Longer BP’s decrease claim termination rates. 14. COLA decreases claim termination rates. 15. Significant differences in claim terminations by diagnoses. 16. Residual benefits product somewhat lower claim terminations.

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Incidence Experience by Contract Type Overall Claim Incidence Results - % 85 CIDA 1990 - 1999 A&S

102%

OE

63%

DBO

119%

Claim Incidence Trends A&S Experience % 85 CIDA by Calendar Year 130% 120% 110% 100%

Occ CI 1 Occ CI 2-4

90% 80% 70% 60% 1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

50%

Key Reasons for Improving Incidence Trend: • Tighter underwriting & contracts • Favorable economy

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Incidence Trends by Year of Issue and Policy Year A&S - % 85 CIDA – Occ Class 1 160% 140% 120% 100% 80% 60% 40% 20% 0% 11+ Year s

6-10 Year s

Year 5

Year 4

Year 3

Year 2

Year 1

Prior to 1990 1990-92 1993-95 1996 & Later ALL

Observations: • Prior to 1990 issues incidence is higher than more recent years • 1996 & later still looks exceptional • Significant increase after year 2 (contestable period) • General decreasing trend after year 5

Claim Incidence Trends by Year of Issue and Policy Year A&S - % 85 CIDA – Occ Classes 2-4 100% 80%

Prior to 1990 1990-92 1993-95 1996 & Later ALL

60% 40% 20%

11+ Year s

6-10 Year s

Year 5

Year 4

Year 3

Year 2

Year 1

0%

Observations: • Differences aren’t as significant among issue year groups • Relatively small differences by policy year • Similar decreasing trend after year 5

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Incidence Trends by Key Occupations Medical Occupations in Class 1 – Incidence by Year Percent of 85 CIDA

200% 190% 180%

Medical Occs Phys/Surg

170% 160% 150%

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

140%

Observations: • 1993-94 increase in incidence • Recently returning to 1990-92 level

Claim Incidence Trends by Key Occupations Non-Medical Occupations in Class 1 Incidence by Year Percent of 85 CIDA

140% 120% 100% 80%

All Non-Med Occs Exec/Mngrs

60% 40% 20% 1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

0%

Observation: • Consistent incidence improvement since 1990

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Impact of Lifetime Benefits on Claim Incidence Average Incidence – 1990-99 Percentage of 85 CIDA 250% 200% 150%

No Lifetime Lifetime

100% 50% 0% Non-Med Occs

Med Occs

Geographical Differences In Claim Incidence Occ Class 1 – Percent of 85 CIDA EP Under 90 Days Issue Year

CA

FL

Other

Prior to 1990

129%

106%

92%

1990-92

127%

91%

83%

1993-95

133%

84%

97%

1996 & Later

133%

57%

91%

EP 90 Days & Over Issue Year

CA

FL

Other

Prior to 1990

198%

212%

140%

1990-92

182%

160%

122%

1993-95

145%

154%

101%

1996 & Later

84%

91%

67%

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Incidence Multi-life vs. Single-life Business Issued 1990 & Later Percent of 85 CIDA Multi-life

Single-life

Multi/Single

Elimination Periods Under 90 Days No Lifetime Lifetime Total

81% 75% 80%

77% 97% 80%

105% 77% 100%

Elimination Periods 90 Days and Higher No Lifetime Lifetime Total

86% 146% 99%

105% 163% 116%

82% 89% 85%

Observation: • Multi-life incidence is not always lower than single life • Multi-life best when EP >=90+, No Lifetime

Claim Termination Trends by Calendar Year of Incurral 120% 100% 80% 60% 40% 20% 0% 11+ Year s

Year 6-10

Year 4-5

Year 3

Year 2

All Pre-1990 1990-92 1993-95 1996 & Later Year 1

% 85 CIDA

A&S Claims – 1990-99

Claim Duration

Reasons for no significant termination improvements: • More difficult claims • Lower incidence might mean avg claims with longer duration

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Termination Experience by Gender 160% 140% 120% 100% 80% 60% 40% 20% 0% 11+ Year s

Year 6-10

Year 4-5

Year 3

Year 2

Male Female

Year 1

% 85 CIDA

A&S Claims – 1990-99 Percent 85 CIDA

Claim Duration

Observation: • Female termination experience sharply better than 85 CIDA after 2 years.

Claim Termination Experience by Benefit Period 200% 180% 160% 140% 120% 100% 80% 60% 40% Year 11+

-10 Year 6

-5 Year 4

Year 3

Year 2

Short BP To 65-70 Lifetime

Year 1

% 85 CIDA

Average Termination Experience (1990-99)

Claim Duration

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Termination Trends Ultimate Claim Durations Claim Duration 11+ by Attained Age Percent 85 CIDA Attained Age

By Count

By Indemnity

Number of Terminations

35-39

425%

382%

38

40-44

187%

129%

88

45-49

184%

133%

219

50-54

130%

108%

269

55-59

108%

86%

290

60-64

75%

59%

268

65-69

65%

43%

64

70+

68%

58%

34

All Ages

110%

86%

1,274

Observations: • Long term termination rates converging to around 60% of 85 CIDA • Big impact on valuation of lifetime claims

Claim Termination Experience By Diagnoses (Part 1) Benefit Periods = To Age 65-70 or Lifetime

% 85 CIDA

120% 100%

All Diagnoses Back Musculoskeletal Other Injury

80% 60% 40% Year 11+

-10 Year 6

-5 Year 4

Year 3

Year 2

Year 1

20%

Claim Duration

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Claim Termination Experience By Diagnoses (Part 2) 320% 270% 220% 170% 120% 70% 20% Year 11+

-10 Year 6

-5 Year 4

Year 3

Year 2

All Diagnoses Cardiovascular Cancer Immunodef

Year 1

% 85 CIDA

Benefit Periods = To Age 65-70 or Lifetime

Claim Duration

Claim Termination Experience By Diagnoses (Part 3) 140% 120% 100% 80% 60% 40% 20% 0% Year 11+

-10 Year 6

-5 Year 4

Year 3

Year 2

All Diagnoses Mental Nervous Alcohol & Drugs

Year 1

% 85 CIDA

Benefit Periods = To Age 65-70 or Lifetime

Claim Duration

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Society of Actuaries New York City Annual Meeting October 26 - 28 Session 132 OF Disability and Group Life Experience Studies: What have we learned? LTD Experience Committee – Recent Analysis Update

LTD Experience Committee

Participating Companies

AIG/American General American United Life Insurance Co. Anthem Life Insurance Company Assurant CIGNA Group Insurance CNA Insurance Co Florida Combined Life Genworth Guardian Life Insurance Co. Hartford Life Insurance Co Jefferson Pilot Financial

Lafayette Life Liberty Mutual MetLife Ins. Co. Mutual of Omaha Insurance Co. Principal Financial Group Prudential Financial Reliance Standard Life Ins. Co. Safeco Insurance Co. Standard Insurance Co. States West UnumProvident Corp. 2

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee

Experience Committee Members Edd Bailey - Assurant Warren Cohen - Relaince Standard Tom Corcoran - Tillinghast Peter Doucette - Hartford Pat Fay - MassMutual Deb Fredricks - MetLife Steve Garfield - Standard

Paul Hitchcox - ULR Rick Leavitt - Smith Group Allen Livingood - UnumProvident Jack Luff - SOA Roger Martin - UnumProvident, Chairman Chuck Meintel - JHA Eric Poirier - UnumProvident Ray Siwek - Prudential

• Special thanks to Todd Fuhs and Steve Atkins as prior committee members • Independent Vendor: Solucient – Perry Beals, Julia Havey

3

LTD Experience Committee

Committee Focus – Paid claim termination study with separate analysis of recoveries, mortality, benefit maximums, and settlements. Timeline • Initial data request sent out summer of 2003. Initial data analysis, mapping and validation during the winter and spring of 2004. Resubmission for several companies in Spring of 2004. • Present initial review – 2004 SOA annual meeting. • Distribute detailed results of initial review to participating companies - Fall 2004. • Develop Experience Report and Experience table – 2005. • Consider valuation table implications – 2006.

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee

Profile of Initial Review • 19 companies participating. • More than 1.7 million claims submitted with more than 1.0 million currently in experience study. • Not all data submitted by each company was in sufficient detail to be included in this initial review – most notable exclusion was by calendar year. • 25 million months of claim exposure over 10+ calendar years. • Dampening factors will be applied to reduce the influence of those companies supplying the largest exposures. • Initial variables reviewed include age, gender, elimination period, duration, diagnosis of claim, definition of disability, and gross benefit amount. • Analysis of raw recovery and death rates along with actual to expected ratios relative to Table95A (t95a).

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LTD Experience Committee Recovery Rate - Company Distribution 100.00% Min

25%-ile

Median

75%-ile

Max

Termination Rate

10.00%

1.00%

0.10%

96 10 8 12 0 13 2 14 4 15 6 16 8 18 0 19 2 20 4 21 6 22 8 24 0+

16 71 13 2 -1 19 8 -2 25 4 -3 31 0 -3 37 6 -4 43 2 -4 49 8 -5 55 4 -6 61 0 -6 67 6 -7 73 2 -7 79 8 -8 4

0.01%

Claim Duration

6

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee Mix comparison to Table95a • Current study is about 5 times the size of t95a study. • The mix of claims by EP is skewed more toward longer EP. • Current table is about 1% more female. • Current table is also skewed toward younger age mix & the age shift holds true for both genders. • t95a exposure is from 1986 – 1996 with 80% from 1990 – 1996. Current table has at least 15% more exposure at each overlapping calendar year and up to 6 times more in 1996. Overall, in overlapping CY’s, the current table has twice the exposure. Age Mix Comparison

EP Mix 75%

22%

% of table

60% 16%

t95a

t04s

58% 47%

40%

45%

34%

30%

10%

t04s

15%

T95a

4% <30

30-34

35-39

40-44

45-49

50-54

55-59

60+

7% 13%

0% < 75

90

180

7

LTD Experience Committee Recovery Rate - EP 180 5.0%

Actual Recovery

Termination Rate

4.0%

Expected Recovery - t95a

3.0%

2.0%

1.0%

0.0%

6

18

30

42 54 Monthly Claim Duration

66

78

8

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee Death Rate

1.4%

1.2%

Actual Death Expected Death - t95a

Termination Rate

1.0%

0.8%

0.6%

0.4%

0.2%

0.0%

4

16

28

40

52

64

76

Monthly Claim Duration

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LTD Experience Committee Industry Termination Summary

200%

160%

150% % t95a

110% 114% 108% 100%

141%

131%

141%

114% 102%

103%

96% 73%

102%

82% 79% 79% 79% 77%

85% 88% 87% 83%

96%

97%

84%

50% 1-3 m o 4-6 mo 7-9 m o 10-12 mo

A/E Recovery

Yr 2

A/E Death

Yr 3

Yr 4

Yr 5-7 Yr 8-10 Yr 1114

'Combined' A/E

Yr 15+

All

Claim Duration

10

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee

Claim Termination Trends by EP 90

200%

% t95a

A/E Recovery 'Combined' A/E

150%

112%

138% 114%

120%

106% 107% 105%

106% 103%

78%

81%

117%

109%

94%

100% 88%

A/E Death

96%

92%

82%

95%

90%

96%

103%

87%

50% 4-6 mo 7-9 mo 10-12 mo

Yr 2

Yr 3

Yr 4

Yr 5-7

Yr 810

Yr 11- Yr 15+ 14

All

Claim Duration

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LTD Experience Committee

Claim Termination Trends by EP 180 200% A/E Recovery 'Combined' A/E

149%

133% 133% 123%

% t95a

150%

182%

A/E Death

123%

157%

130%

127% 117%

108%

100%

97%

95% 50%

65%

73%

78%

4-6 mo 7-9 mo 10-12 mo

Yr 2

84%

81%

78%

Yr 3

Yr 4

82%

Yr 5-7 Yr 810

Claim Duration

80%

Yr 11- Yr 15+ 14

107%

81%

All

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee

Male Claim Termination by Duration

196%

200% 'Combined' A/E

A/E Death

A/E Recovery

158%

175%

% t95a

116% 115% 121%

125%

50%

116%

95%

100% 75%

154%

151%

150%

109%

95% 96%

89%

63% 77%

66% 72% 73%

1-3 mo

4-6 mo

7-9 mo

74%

10-12 Yr 2 mo

Yr 3

79%

78%

77%

77%

76%

Yr 4

Year Yr 8- Yr 11- Yr 15+ 5-7 10 14

Claim Duration

96%

All

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LTD Experience Committee

200%

Female Claim Termination by Duration 'Combined' A/E

A/E Death

A/E Recovery

% t95a

175% 150%

131% 128% 104%

125% 100%

92%

110%

107% 96%

129%

112% 109%

100%

121% 88%

87%

75%

119%

100% 114% 101%

86%

98.4%

94%

96%

94%

82%

76%

50% 1-3 mo

4-6 mo

7-9 mo

10-12 mo

Yr 2

Yr 3

Yr 4

Claim Duration

Yr 5-7 Yr 8- Yr 11- Yr 15+ 10 14

All

14

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee Claim Terminations by Diagnosis 150%

400%

361%

300% 104%

264%

100%

200% 75%

% t95a - Death

% t95a - Recover

125%

100%

50%

89%

25%

0%

01

06

11

02

03

04

05

07

08

09

10

12

U

95-oth

Category

A/E Death

A/E Recovery

13

Diagnosis Category Description Maternity or Pregnancy/Childbirth Mental Nervous Aids/HIV Reproductive/Urinary Disease

25.1% 3.6% 3.4%

3 4 5

Digestive Injury/Poisioning Neoplasms

12.8% 17.4% 3.0%

7

Emergent Disabling Conditions

90.2%

% 0.9% 7.0% 1.9% 1.6%

Cat # 1 6 11 2

2.0% 9.4% 7.2% 4.8%

%

Description

Cat #

Muscoloskeletal/Connective Tissue Other Respiratory Nervous System & Sense Organ, Infectious/Parasitic 12 Circulatory 13 Unknown U All categories except 1, 6, & 11 are 95-oth mapped to t95a all-oth diagnosis cat 8 9 10

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LTD Experience Committee Recovery Rates by Calendar Year & Duration 2.5%

8%

6% 5%

1.5%

4%

1.0%

3% 2%

0.5%

Term ination Rate Y r 1

Term ination Rate - Y rs > 1

7%

2.0%

1%

0.0%

0% 90-92

93-95

Calendar Year

1996

1997

1998

1999 Yr 2

2000 Yr 3

2001 Yr 4

2002 All

Yr 1

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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LTD Experience Committee

Death Rates by Calendar Year & Duration

Termination Rate

1.00%

0.75%

0.50%

0.25% 90-92

93-95 Yr 1

1996 Yr 2

1997 Yr 3

1998

1999

Yr 4

All

2000

2001

2002

Calendar Year

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Session 132 Disability and Group Life Experience Studies: What Have We Learned? Group Life Experience Committee Update Susan R. Sames Tillinghast October 27, 2004

©Towers Perrin © 2004 Towers Perrin

Group Life Experience Committee Members Sue Sames, Chair

Tillinghast

Jack Luff

SOA

Jay Barriss

MassMutual

John Bettano

Prudential

Charlie DeWeese

DeWeese Consulting

Marissa Limjoco

MetLife

Marty Loughlin

MJL Associates

Rocco Mariano

Prudential

Gary Piccolo

UnumProvident

Kari Powell

Guardian

John Schwegel

Fort Dearborn

Chris Svedin

Beneficial Life

Reg Yoder

Principal

Special thanks to Karen Edgerton and Ray Biondi as prior members of the Committee Independent Vendor: Solucient 2

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Group Life Experience Committee has been working on two studies simultaneously „ Mortality Study „ Incidence study to support pricing (and possible update to IRS

Table I rates) „ Measures death, waiver and accidental death and dismemberment (“AD&D”) claims vs. insurance exposure for group life plans „ Waiver Reserve Study; a.k.a, Update to Krieger „ Claim termination study to support valuation (and pricing) „ Measures deaths and recoveries vs. exposed group life waiver

claims

3

Timeline for both experience studies „ 2002 „ Design study and issue call for data „ 2003 „ Receive and review submissions „ 2004: „ Audit data

—Some down time while IDI and LTD were worked on „ Next Steps „ Resolve remaining data issues (2004) „ Distribute detailed results of initial review to participating

companies (through early 2005) „ Release study results (early to mid 2005) „ Consider waiver valuation table implications (late 2005 - 2006) 4

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Mortality Study is at data audit stage „ Identifying and resolving data issues „ Complex structure due to linking multiple files; e.g., group data,

individual exposure, self-administered exposure, and claims for basic, optional, and accidental death and dismemberment „ Nearly 20 companies submitted data „ Key issues include: „ Few companies submitted self-administered data „ Many companies had difficulty providing waiver provision data „ Relatively little data on AD&D „ Dampening factors will be applied to largest contributor

5

Data Structure for Mortality Study „ Lives and volume information was collected for „ Claims (death, waiver, AD&D) and „ Exposure (individual versus self-administered) „ …across the following parameters: „ gender „ age „ waiver provision (e.g., lifetime, no waiver) „ type of coverage (e.g., basic, supplemental, optional) „ group size „ group effective date „ SIC code 6

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Sample pivot table for mortality study „ The mortality study will have the following views for various

combinations of those parameters: REPORT LAYOUT Exposure

Claims

Deaths Rate

A/E

Claims

Waiver Rate

A/E

Central Age 17 22 27 32 37 42 47 52 57 62 Subtotal 17-62 67 72 77 82 87 92 Subtotal 67 and Above Total

7

Waiver Study is also at data audit stage „ Waiver study was less complex, only one file per participating

company „ 23 companies submitted data „ Two separate databases following Krieger’s format: „ 1. Select period claim durations up through ten years

—Age at disability and length of disability „ 2. Ultimate period —Claim durations beyond ten years by attained age „ Key issues include: „ Truncating exposure period appropriately, e.g., company may

have submitted exposure that covers all 10 years but really has claims and recoveries for only the past five years. „ Addressing impact of systems changes and clean-up efforts 8

SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Data Structure for Waiver Study „ Lives and volume information was collected for each claim „ …for the following parameters: „ gender „ age at disability „ duration of disability „ attained age „ termination reason, e.g., death, recovery, expiration of benefits

9

Sample pivot table format for select period REPORT LAYOUT By Age at Disablement <20

20-24

25-29

30-34

35-39

Rate of Exposure

Recovery

Death

40-44

45-49

50-54

55-59

Expected (Krieger) Rate of Expiry

Total

Recovery

Death

Total

60-64

65-69

70-74

75 +

Actual/Expected Recovery

Death

Length of Disability

2 3 4 5 6 7 8 9 10

8 9 11 12 8 9 11 12 Annual

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?

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Sample pivot table format for ultimate period REPORT LAYOUT Rate of Exposure

Recovery

Death

Expected (Krieger) Rate of Expiry

Total

Recovery

Death

Total

Actual/Expected Recovery

Death

Central Age 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92

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What have we learned? „ Our initial strategy was to allow for more flexibility in

the structure of the submission to increase participation „ Having a tighter structure would have made the linking much easier „ Data audit process has been time consuming „ Increasingly difficult for companies to commit

resources; however, the industry is very interested in the results.

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SOA 2004 New York Annual Meeting - 132OF, Disability and Group Life Experience Studies: What Have We Learned?