www.the-actuary.org.uk
The choice of morbidity table is a key
starting point. In the previous survey,
76% of offices used reinsurer rates for CI.
CIBT93 was introduced in 2000 and is now
used by several offices but many offices are
using reinsurer data. Some large offices and
reinsurers are using their own tables.
For IP, either multi-state models or an
inception/annuity approach are now
favoured, whereas in the previous
survey, Manchester Unity tables were
more commonly used.
Where CI business is material,
experience investigations for mortality
and morbidity should cover a
sufficiently long period -- ideally five
years or longer -- to allow trends in
experience to emerge. Where there
is sufficient data, an analysis by the
major critical illness groups should be
considered. It may also be worth considering
Individual Capital Assessment scenarios for
heart attack and cancer rates separately.
For IP business, morbidity assumptions
were based on an average of 3.5 years'
experience. This seems a relatively short
period for an assumption where experience
tends to vary through the economic cycle.
Valuation morbidity margins for both
CI and IP were 20% above best estimate on
average, although they seemed very low for
some offices, and the accompanying low
morbidity deterioration rates assumed are
concerning. Taken together, offices should
ensure that there is a sufficient level of
prudence in the morbidity assumptions.
For IP, it was curious to note that many
offices have identical morbidity assumptions
for business written on guaranteed rates
compared to reviewable rates. One would
expect guaranteed rate business to have higher
margins given the additional long-term risk.
Methods for determining the size
and direction of lapse and interest rate
margins following the reinsurance directive
relaxation of the regulations (PS06/14)
need monitoring -- no consensus has
developed yet, perhaps because the survey
was conducted only a few months after the
regulations were implemented.
Do you have a healthy TEAM?
Sheila Anstead, Joanne Alder and Chris Coote assess the results of a recent health and care survey
on reserving practices for critical illness, income protection and private medical insurance
Joanne Alder is a
principal at Milliman
Healthcare Reserving
32 October 2008
Figure 1: Additional reserves
Percentageofrespondents
�The PMI survey elicited
a range of responses from
direct writers and reinsurers
on their reserving practices.
In general, the methods
cited for reserving short-term
health business tend to be
relatively unsophisticated �
Sheila Anstead is the
valuation actuary at
SCOR Global Life UK
Chris Coote is a
senior reporting
actuary at Norwich
Union Healthcare
A
s year-end preparation gets
underway, reserving actuaries
are checking to see if their team
is in good shape. The students
make regular visits to the gym but what
about the Tables, Experience Analysis and
Margins (TEAM), which are the essential
building blocks of a sound reserving basis?
The Health and Care Reserving Working
Party has just published its survey results
for reserving practices in critical illness
(CI), income protection (IP) and private
medical insurance (PMI) business, relating
to the 2006 year-end. Details of the
survey and reports on the survey results
have been published on the Profession's
website at www.actuaries.org.uk/health_care/
reserving_survey.pdf. So, how does your
TEAM measure up?
Critical illness and income protection
This is believed to be the first detailed
inter-office survey by the Institute into
CI and IP reserving practices for more
than 10 years. It shows surprisingly little
consensus around valuation assumptions
in a number of key areas.

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