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American Insurance Union (1926)
Part
of the American Term Life Insurance History Project
Term Life Insurance
Should the American Men Mortality Table Be Made
Permissive as a Legal Valuation Standard?
By William M. Corcoran, Actuary, Connecticut Insurance Dept,
Since 1871, when the National Convention of Insurance
Commissioners was first started, many important subjects have
received its careful consideration. Any one who will take the
time to study the index of proceedings will be impressed
with this fact, and also with the fact that the Convention has as
a rule followed closely the development of insurance in the
United States. Since 1871 the business of the life insurance
companies of this country has grown beyond all expectation.
Due consideration has been given to this development in most
of its phases, but it seems to me that the matter of the practical
applicability of mortality standards to this business has not re-
cently been given sufficient consideration. It seems to me, there-
fore, that the subject assigned is both important and timely.
There are many reasons, undoubtedly, why the practical applic-
ability of the American Men Mortality Table as a legal standard
should be discussed by the Convention, but two reasons appear
to be particularly important.
In the first place, it was at the specific request of the
National Convention of Insurance Commissioners that the
American Men Mortality Table was prepared by the Actuarial
Society of America in co-operation with the American Insti-
tute of Actuaries. The table was published in 1918. Since then
the published table, although it has been in print for over six
years, has been given but slight consideration by the Convention.
It would therefore appear to be not only desirable at this time,
but necessary and even obligatory, for us to give careful con-
sideration to this new table, and to discuss its practical applic-
ability to the purpose for which it was requested and the de-
sirability of its adoption as a recognized standard of mortality
in this country.
In the second place, it seems to me to be quite desirable to
show that the current experience of life insurance companies is
departing farther and farther from the mortality table generally
prescribed as a legal valuation standard, and to suggest that we
now have a table which reflects much more closely the present-
day mortality rates.
These two important reasons make it particularly desirable.
to take up the subject for discussion at this time.
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^1 Existing Valuation Laws
^B An analysis of the valuation laws of the various States re-
^1 veals a diversity probably much greater than would be sus-
^1 pected. In connection with the investigation of this subject, a
^1 summary of the various valuation laws was drawn up. Inas-
much as this might prove useful for reference it has been in-
eluded as an appendix to this paper.
H There are six States which apparently have no valuation
standards. In most of the States a minimum reserve basis is
fixed by law. Three States still prescribe the Actuaries' 4 Per
Cent Table as the minimum. The remaining thirty-nine States
have adopted the American Experience Table, with rates vary-
ing from 3% per cent to 4^ per cent. Several States require
J -different bases for policies issued in different years. A very
common minimum basis the Actuaries 4 Per Cent Table for busi-
ness prior to 1900, and the American 3^ Per Cent Table for sub-
. sequent business. This basis complies with the laws of all
.States, and is therefore the minimum standard used by the
larger companies at the present time. So general is the use of
the American Experience Table that it is probably safe to say
that there is not a single American life insurance company
which does not use it for the valuation of its current ordinary
^business for annual statement purposes.
The American Experience Table
The American Experience Table of Mortality was computed
by Sheppard Homans about 1860. Very little definite informa-
tion as to its compilation was ever given out by its author. It
was based upon statistics deduced from the experience of the
Mutual Life Insurance Company of New York for a period of
fifteen years from the commencement of that company in 1843.
The table starts at age 10 and ends between ages 95 and 96.
The experience was inadequate at the very young and very old
ages, and the table was therefore arbitrarily adjusted where
necessary. At the meeting of the Actuarial Society of America
in 1889, Mr. Homans declared that the table now called "The
American Experience Table" was not intended to be, nor did he
ever claim it to be, an accurate interpretation of the experience
of the Mutual Life.
The table was first recognized on May 6, 1868, as a legal
valuation standard in an act passed by the Legislature of the
State of New York. Therefore, we may emphasize the fact
that the American Experience Table of Mortality is based on
the arbitrarily adjusted experience '-rf one company covering the
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years 1843 to 1860; and further, that in 1925—sixty-five years
later—this table of mortality so adjusted is the basis recognized
by the statutes of most States for valuation purposes. It is sur-
prising indeed that no concerted effort has been made for the
adoption of a new standard of mortality for valuation purposes.
Present-Day Mortality
In 1914 the Committee on Rates of Mortality and Interest
of the National Convention of Insurance Commissioners ren-
dered a report, which was adopted by the convention, and in that
report there was given the ratio of actual to expected mortality
for eighteen representative American life insurance companies
for the period 1904-1908, inclusive, and 1909-1913, inclusive.
On the basis of the information shown by the ratios, the com-
mittee believed that the compilation of a new mortality table was
desirable.
As a matter of interest, the table included in this 1914 re-
port has been given below. In setting forth the figures, I have,
however, extended the table so as to cover the periods 1914-1918,
inclusive, 1919-1923, inclusive, and in addition the year 1924.
Ratios of Actual to Expected Mortality
5-Tear 5-Year 5-Year 5-Year
Average Average Average Average
1904-08 1909-13 1914-18 1919-23 1924
Aetna ........................... 67.5% 66.2% 78.8% 62.1% 63.9%
Connecticut Mutual.-. 77.7 73.9 68.5 56.6 46.4
Equitable, New York- 82.0 81.6 79.9 60.0 54.1
Germania (Guardian). 76.1 74.6 76.4 55.3 49.6
Home ——— ————— 73.5 67.1 72.3 56.8 62.4
Manhattan .................. 76.8 83.5 90.7 70.8 73.3
Massachusetts Mutual. 71.1 62.7 68.2 52.9 50.0
Mutual Benefit-.-.-..-- 71.1 63.4 63.9 52.0 55.5
New England Mutual... 66.0 59.6 68.4 51.0 52.7
New York.-..........——. 76.1 76.0 76.5 63.2 55.8
Northwestern Mutual. 62.0 56.4, 62.4 51.9 47.5
Pacific Mutual--——. 62.3 60.7 69.7 52.8 43.3
Penn Mutual..———.— 65.8 72.5 77.7 62.6 593
Phoenix .—————. 66.3 67.7 68.9 54.5 59.4
Provident (Mutual).... 55.3 55.3 55.7 49.3 48.6
Travelers —————. 77.2 62.7 66.3 52.1 48.9
Union Central.—......... 61.5 57.6 64.7 56.1 50 5
United States-...——. 93.] 87.4 80.7 80.3 85.5
Average .—.....—. 71.2 68.2 71.6 57.8 55.9
This table has been reproduced and extended not for the
purpose of comparing companies, but to show the trend of mor-