Actuarial Assumptions: Mortality Improvement and Projection Scales

Mortality Improvement Factors

Mortality rates have declined over time due to medical advances and improved living conditions. Projection scales model this trend by applying improvement factors to base mortality rates. If q_x(0) is the base rate and r_x is the annual improvement rate at age x, then the projected rate t years later is q_x(t) = q_x(0) * (1 minus r_x)^t. One-dimensional scales apply a single improvement rate per age. Two-dimensional scales allow improvement rates to vary by both age and calendar year, capturing the observation that improvement rates themselves change over time.

Impact on Valuations

Mortality improvement increases life expectancy, which raises annuity values and pension liabilities but decreases life insurance costs. Scale AA and its successors (MP-2014 through MP-2021) are published by the Society of Actuaries for pension and insurance valuations. Generational mortality tables incorporate improvement scales to project rates for each birth cohort. Exam LTAM tests your understanding of how to apply improvement factors to base mortality tables, the impact on insurance and annuity APVs, and the sensitivity of valuations to improvement assumptions.