Chennai: The Actuarial Society of India (ASI) has cautioned private life insurers against using the Life Insurance Corporation of India's (LIC) annuitant mortality table without suitable modifications as it suffers from deficiencies like:

• The table makes no allowance for future mortality experience
• It is based on aggregate male and female experience and
• It is blended in with an out-of-date UK table at ages where there was insufficient experience on which to base an estimate.

As a result the mortality rates the LIC's table are two or three times the corresponding rates in more modern annuitant mortality tables in other countries. Mortality tables are used by life insurers to base their premium rates for various products.

According to the ASI, the appointed actuaries of life insurers who sell annuity products should be familiar with the recent reports of the Continuous Mortality Investigation Bureau in the UK, and with the development of the new annuitant mortality table recently published for use in Germany, known as DAV 2004 R.

In its guidance note ASI has said that good amount of research has taken place in recent years in other countries to investigate and understand the key features of annuitant mortality and in particular to highlight the development of annuitant mortality over time. In general the rate of improvement of annuitant mortality has taken demographers and actuarial professionals by surprise, in some cases despite the existence of regular mortality investigations.

According to the note, the impact of these changes has been significant, leading to major reserve strain on annuity products and contributing in at least one very high profile case to the downfall of a well established insurance company.

With life expectancy going up even in India, is LIC undercharging for its annuity products, asks an appointed actuary of a private life insurer. It should be noted that not many private life insurers have launched annuity products here.

Reacting to ASI's warning, LIC's chief actuary G N Agarwal says, "Our annuitant mortality table is the first mortality table of pensioners or annuitant lives in India. Prior to this, insurers / actuaries had been using the British annuitants' table with suitable modifications. We feel, the use of the Indian table with suitable modifications is better than using a British table with modifications."

He adds, "So far as warning from ASI to the actuaries for use of present annuitant mortality table is concerned, it is actually an advice prompted by the recent reports on mortality investigations in the UK and Germany. The study revealed considerable improvement in the annuitant mortality over time."

Denying that the LIC was undercharging premium, Agarwal says, "All mortality tables give mortality rates based on past experience. There is always a gap between publishing the table and the period for which the experience has been used to base the rates. The gap is generally two to three years. LIC's latest annuitant mortality table is LIC A (96-98) published in 2000, based on LIC's mortality experience during the period 1996-98 under its pensioners' policies."

According to him, "No insurer / actuary uses the mortality rates in its original form under its assurance and annuity products. The rates are used after appropriate modifications projecting the rates in the future. LIC also has derived its annuity premium rates after suitable modification of the table."