Lapse rate table insurance

We investigate determinants of lapse rates in the Chinese life insurance industry using firm-province level data from to We conduct a panel study, exploring significant regional differences and dramatic changes in demographic conditions during the urbanisation process in China. First, we find that the unemployment rate is positively related to lapse rates, and the driving force is migrant population rather than local urban residents. This provides evidence for the emergency fund hypothesis from a new perspective. Third, our findings are also consistent with the interest rate hypothesis. We extend the literature by decomposing life insurance products into three types and find that interest rates are positively negatively associated with lapse rates of investment-type protection-type products.

Life insurance lapse behaviour: evidence from China

Lapse rates play an important role in the profitability of a guaranteed level premium term insurance portfolio. A new study from Transamerica Reinsurance shows that the downward trend in early duration term lapse rates that the industry has been experiencing since the turn of the millennium is continuing unabated.

Our early duration experience for our block of reinsured level premium term supports this trend with an overall annual lapse rate of 5. Dissecting Our Experience. Our study covers exposure periods and and focuses on , , , and year guaranteed level premium term plans. Additional filters on the data include:. Lapse Rates by Level Premium Plan. Chart 1 contrasts the lapse rates for the two exposure periods for each of the level premium plans.

The year plan has historically exhibited higher lapses compared to the other plans, and recent experience continues to validate this relationship. Note that each plan shows a marked decrease in early duration lapses from to , with only the year perhaps indicating a modest slowdown. The most recent study period implies, however, that while very early duration rates policy years one and two remain close to this level, they quickly drop to around 4. Lapse Rates by Issue Age Group.

The decrease in lapse rates from to occurred consistently across nearly all issue age ranges. It is also interesting to note in Chart 3 that the pattern of higher lapses at the youngest and oldest issue ages remains intact. This makes some intuitive sense. In both age groups, the perceived cost of term insurance is high relative to net income and the perceived need for term insurance is low, which results in higher lapses.

Lapse Rates by Smoking Status. Chart 4 presents face amount lapses by smoking status. The two-to-one relationship between early duration rates for smokers and nonsmokers continues a trend that has been observed for many years. Additional analysis by policy year shows that the ratio of smoker to nonsmoker lapse rates starts out at about percent in duration one and linearly decreases to percent by duration seven and remains level until duration nine the self-imposed last duration of the study.

Lapse Rates by Gender. During the current decade, term lapse rates have been almost the same for both females and males. As Chart 5 indicates, this relationship continues even as overall rates decrease.

The LIMRA experience validated the early duration equivalence for both and year term plans. Lapse Rates by Policy Size. Chart 6 compares lapse rates by original policy size not of the size of the reinsurance cession. This difference is not due to a skewing of issue ages, as all three size groups have an average issue age of around Nor is it due solely to large differences in the percentage of smokers by policy size, as less than 10 percent of the policies within each group are smokers.

One possible explanation for this difference is the general socio-economic position of policyholders purchasing lower face amount term insurance. Getting the lapse rate assumption correct on a portfolio of term insurance is one significant key to successfully modeling financial performance.

As most pricing actuaries know, lower-than-expected lapse rates can actually have a negative impact on the profitability of an inforce block. For this reason, the continuing downward trend may be a little disconcerting to those who had priced their term products during an era of higher lapse rates.

It looks like your browser does not have JavaScript enabled. Please turn on JavaScript and try again. Feedback Share Print. Dissecting Our Experience Our study covers exposure periods and and focuses on , , , and year guaranteed level premium term plans. Lapse Rates by Level Premium Plan Chart 1 contrasts the lapse rates for the two exposure periods for each of the level premium plans. Lapse Rates by Smoking Status Chart 4 presents face amount lapses by smoking status.

Lapse Rates by Gender During the current decade, term lapse rates have been almost the same for both females and males. Lapse Rates by Policy Size Chart 6 compares lapse rates by original policy size not of the size of the reinsurance cession. Summary Getting the lapse rate assumption correct on a portfolio of term insurance is one significant key to successfully modeling financial performance. Publication PDF Hyperlink. Related Articles. Stochastic Modeling Is on the Rise - Part 2.

Watch Your Contestable Step! Implications of the End of Level Premium Period.

the surrender rate drives the lapse rate trajectory in life insurance companies: indeed this trajectory basically results from policyholders'. Lapse rates show significant variation by duration as indicated in chart 1 and table 5. As expected, lapse rates increase dramatically around the.

Lapse rates play an important role in the profitability of a guaranteed level premium term insurance portfolio. A new study from Transamerica Reinsurance shows that the downward trend in early duration term lapse rates that the industry has been experiencing since the turn of the millennium is continuing unabated. Our early duration experience for our block of reinsured level premium term supports this trend with an overall annual lapse rate of 5. Dissecting Our Experience.

A lapse ratio, or expiration ratio, is a measure of the number of policies issued by an insurance company that are not renewed compared to the number of policies that were active at the beginning of that same period. The ratio serves as an important indicator in the insurance industry because it reveals how efficient a company is at retaining its customers and earnings.