Report: Lapse Experience Under Lapse-Supported Policies …

Canadian Institute of Actuaries • Institut Canadien des Actuaires

REPORT

LAPSE EXPERIENCE UNDERLAPSE-SUPPORTED POLICIES

REPORT OF THE COMMITTEE ON EXPECTED EXPERIENCEINDIVIDUAL INSURANCE SECTION

OCTOBER 1999© 1999 Canadian Institute of Actuaries

Ce rapport est disponible en français

Lapse Study October 1999

TABLE OF CONTENTS

INTRODUCTION................................................................................................................................. 3

COMPOSITE EXPERIENCE............................................................................................................... 5

EXPERIENCE BY CALENDAR YEAR ............................................................................................. 7

EXPERIENCE BY SEX ....................................................................................................................... 8

EXPERIENCE BY SMOKING STATUS ............................................................................................ 9

EXPERIENCE BY POLICY SIZE ..................................................................................................... 10

EXPERIENCE BY ISSUE AGE......................................................................................................... 11

EXPERIENCE BY PREMIUM FREQUENCY ................................................................................. 12

OTHER ISSUES ................................................................................................................................. 13

APPENDIX A – DETAILED LAPSE EXPERIENCE ....................................................................... 14

APPENDIX B – METHODOLOGY................................................................................................... 22


3

LAPSE EXPERIENCE UNDER LAPSE-SUPPORTED POLICIES

INTRODUCTION

This is the fourth report by the Individual Insurance Section of the Committee on Expected Experience on thepertinent available lapse experience under lapse-supported policies. The first report was prepared in July 1993,the second report was prepared in October 1994, and the most recent report was prepared in December 1996.The amount of net income of a company’s lapse-supported policies is sensitive to their ultimate lapse rates.The timing of that net income is sensitive to the ultimate lapse rate assumptions which the company’sappointed actuary makes in valuing its policy liabilities.

The original standards for those assumptions are found in Valuation Technique Paper No. 1 (VTP 1) whichCouncil adopted in 1985 when virtually no experience data were available. Subsequently, the first twoindustry studies prompted the Committee on Life Insurance Financial Reporting (CLIFR) to issue amemorandum suggesting that, in setting the ultimate lapse rate assumption, actuaries reflect industryexperience, which was lower than the 3% ultimate rate suggested in VTP 1. In the meantime, the thirdindustry study was published, and it reinforced the lower lapse rates indicated by the two preceding studies.

With each study, there was a larger exposure base, which included later and later policy durations. Withthe last study being in December 1996, a new study would include almost three more years of experiencedata, and would therefore be of professional interest.

The reported experience is that from issue of the policies to their anniversaries in 1998, and, in some cases,1999. It includes data predominantly for policy years one to fifteen.

The reported experience is for policies:

Whose lapse experience is not distorted by premium rate changes. Policies which include acompany right to adjust premiums are included in the study only if the option to adjustpremiums has never been exercised.

Whose lapse experience is not materially distorted by nonforfeiture values. Withnonmaterial exceptions, the policies have no nonforfeiture benefits during the first 20 policyyears. The latest reported policy year experience for any company with nonforfeiture valuesis at least five years prior to the existence of any nonforfeiture values. For example, a 20-pay plan will be included in the study only if no such policies have yet reached the fifteenthpolicy year of exposure.

Whose lapse experience is not materially distorted by paid-up features. For example, somecompanies offer term-to-100 plans without material nonforfeiture values which are paid-upat age 65. The existence of this “cliff” would tend to result in very low lapse rates leadingup to the paid-up date. Such a plan would only be included in the study if the paid-up datewas more than10 years away for all exposure periods.


4

Appendix A of this report sets forth the details of the exposures and lapse rates. Appendix B gives a moredetailed description of the methodology for the study.

We requested contributions of all available data from major writers of term-to-age-100 and term-to-age-75policies. The following 21 companies contributed data:

Assurance vie Desjardins (including Imperial Life) NN FinancialCanada Life (including New York Life) Royal & Sun Alliance (including Gerling Global)Colonia Life* Seaboard Life*Commercial Union Life Standard Life (including Sovereign Life)Equitable Life Sun LifeFinancial Life* La SurvivanceGreat-West Life Toronto Mutual LifeHartford Life Transamerica Life*Industrial-Alliance (including North West Life) Wawanesa LifeMaritime Life Westbury Canadian LifeNational Life

* Indicates that the company was unable to contribute data to this study, but did contribute data to the 1996study. For those companies, the 1996 study data was used, and incorporated into this study.

Here is a comparison of the results in this report to those in the prior report and the initial report:

Lapse Rates by Amount of Sum Assured

Policy Year October 1999 December 1996 October 1994 July 1993

1 8.0% 7.9% 8.5% 8.7%2 7.3% 7.2% 8.6% 9.0%3 6.8% 7.0% 8.2% 8.7%4 5.2% 5.7% 6.1% 6.6%5 4.1% 4.4% 4.4% 4.8%6 3.2% 3.4% 3.6% 4.4%7 2.6% 2.5% 2.6% 2.8%8 2.4% 2.3% 2.0% 1.9%9 1.7% 1.7% 1.8% 1.8%

10 1.6% 1.5% n/a n/a11 1.3% 1.8% n/a n/a12 1.2% 1.8% n/a n/a13 0.7% 1.1% n/a n/a14 0.9% 1.6% n/a n/a15 0.8% n/a n/a n/a

**n/a indicates fewer than 1,000 policies exposed.


5

The exposure is greater, and hence the results are more credible (particularly at later durations), in this report.The number of policies exposed is as follows:

Policy Year October 1999 December 1996 October 1994 July 1993

1 322,909 245,788 240,169 121,9402 300,553 215,490 183,595 102,3603 276,015 176,127 134,120 85,2094 248,668 141,577 102,126 59,3395 226,977 118,269 70,465 37,2426 182,320 96,886 42,360 23,0737 132,298 68,451 23,338 12,0988 98,645 38,720 10,444 3,7749 76,907 22,332 3,123 1,093

10 53,636 12,870 880 6611 30,393 7,632 153 1812 18,476 5,589 27 913 10,483 3,410 12 n/a14 4,283 1,892 n/a n/a15 1,719 896 n/a n/a

COMPOSITE EXPERIENCE. Table 1 and Chart 1 set forth composite experience. Sections which followset forth separate experience by calendar year, sex, smoking status, sum assured, issue age and premiumfrequency.

Comment: Lapse rates for the first 10 policy durations are similar to those from the December 1996 study.Lapse rates tend to grade to close to 1% around duration 14 (even slightly lower by amount of sum assured).

Comment: The number of companies which contributed post-duration 10 exposure to this study is significantlyhigher than any previous study.


6

Table 1 – Composite Lapse Rates

By Number of Policies By Amount of Sum Assured

PolicyYear

NumberExposed

Lapse Rate AmountExposed

($000,000)

Lapse Rate

1 322,909 10.1% 29,891 8.0%

2 300,553 8.3% 28,419 7.3%

3 276,015 7.4% 25,996 6.8%

4 248,668 5.7% 23,265 5.2%

5 226,977 4.5% 21,073 4.1%

6 182,320 3.6% 16,600 3.2%

7 132,298 2.9% 11,739 2.6%

8 98,645 2.6% 8,242 2.4%

9 76,907 1.9% 6,235 1.7%

10 53,636 1.7% 4,408 1.6%

11 30,393 1.6% 2,527 1.3%

12 18,476 1.5% 1,471 1.2%

13 10,483 1.0% 829 0.7%

14 4,283 1.1% 338 0.9%

15 1,719 1.4% 131 0.8%

Chart 1 - Composite Lapse Rates

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

By Number of Policies

By Sum Assured


7

EXPERIENCE BY CALENDAR YEAR. Table 2 and Chart 2 set forth composite experience by calendaryear for the five most recent complete calendar years of experience.

Comment: There is some deviation in calendar year experience for the first few policy durations, but lapse ratestend to converge at later durations.

Table 2 – Composite Lapse Rates by Calendar Year

By Number of Policies

PolicyYear 1998 1997 1996 1995 1994

1 11.7% 13.0% 12.9% 6.1% 6.3%2 9.8% 10.8% 8.7% 5.1% 4.4%3 8.2% 9.1% 6.6% 3.8% 4.8%4 6.3% 6.2% 4.7% 3.0% 5.2%5 4.7% 4.4% 4.0% 3.7% 3.8%6 3.5% 4.3% 3.6% 2.6% 2.9%7 3.0% 3.6% 2.5% 2.1% 2.8%8 3.0% 2.7% 2.1% 1.9% 3.0%9 1.9% 1.9% 1.6% 1.5% 2.3%

10 1.7% 1.8% 1.6% 1.8% 2.0%11 1.4% 1.9% 1.5% 1.7% 1.9%12 1.3% 1.6% 1.2% 1.7% 2.0%13 1.0% 0.4% n/a 1.2% n/a


Chart 2 – Composite Lapse Rates by Calendar Year

0%

2%

4%

6%

8%

10%

12%

14%

1 2 3 4 5 6 7 8 9 10 11 12 13

Policy Year

19981997199619951994


8

EXPERIENCE BY SEX. Table 3 and Chart 3 set forth the results for males, females, joint first (1st)-to-die,and joint second (2nd)-to-die policies separately.

Comment: There is no significant difference between male and female experience. Joint 1st-to-die appears tohave slightly higher lapse rates than single lives, though there appears to be convergence in later durations.Joint 2nd-to-die appears to have significantly lower lapse rates. These observations are consistent with theDecember 1996 study.

Table 3 – Lapse Rates by Sex

By Number of PoliciesPolicyYear Male Female Joint 1st Joint 2nd

1 10.2% 10.1% 11.8% 3.5%2 8.4% 8.1% 10.9% 3.4%3 7.5% 7.3% 10.5% 2.7%4 5.8% 5.7% 7.8% 1.4%5 4.4% 4.5% 6.4% 1.9%6 3.6% 3.6% 4.8% n/a7 3.0% 2.9% 2.9% n/a8 2.7% 2.6% 2.7% n/a9 1.9% 1.8% 2.7% n/a

10 1.7% 1.7% n/a n/a11 1.6% 1.6% n/a n/a12 1.4% 1.5% n/a n/a13 1.0% 1.1% n/a n/a14 1.1% 1.2% n/a n/a15 1.3% n/a n/a n/a


Chart 3 - Lapse Rates by Sex

0%2%

4%6%

8%10%

12%14%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Male

Female

Joint 1st

Joint 2nd


9

EXPERIENCE BY SMOKING STATUS. Table 4 and Chart 4 set forth the results for smokers and non-smokers separately, and compare them to the composite experience.

Comment: Smoker experience is significantly higher than non-smoker experience, which is consistent with theDecember 1996 study.

Table 4 – Lapse Rates by Smoking Status

By Number of PoliciesPolicyYear

Non-Smoker Composite Smoker

1 7.6% 10.1% 15.8%2 6.9% 8.3% 11.7%3 6.4% 7.4% 10.2%4 5.0% 5.7% 7.6%5 3.9% 4.5% 6.0%6 3.2% 3.6% 4.8%7 2.6% 2.9% 3.9%8 2.3% 2.6% 3.5%9 1.6% 1.9% 2.7%

10 1.6% 1.7% 2.2%11 1.5% 1.6% 2.3%12 1.3% 1.5% 2.2%13 0.9% 1.0% 1.6%14 0.9% 1.1% n/a15 1.5% 1.4% n/a


Chart 4 - Lapse Rates by Smoking Status

0%2%4%6%8%

10%12%14%16%18%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Non-Smoker

Composite

Smoker


10

EXPERIENCE BY POLICY SIZE. Table 5 and Chart 5 set forth the results by size of the policy.

Comment: Lapse experience tends to decrease with the size of the policy. This observation is consistent withthe December 1996 study.

Comment: The average size is lower than the December 1996 study for earlier durations, and higher than theDecember 1996 study for later durations. This relationship is a result of a different mix of companies whichcontributed data.

Table 5 – Lapse Rates by Policy Size


Below$100,000

Exactly$100,000

Above$100,000

Composite Average Size($)

1 11.1% 9.3% 7.0% 10.1% 92,5662 8.7% 8.0% 6.7% 8.3% 94,5543 7.7% 7.5% 6.4% 7.4% 94,1834 5.8% 6.1% 4.8% 5.7% 93,5585 4.6% 4.7% 3.8% 4.5% 92,8426 3.8% 3.6% 3.0% 3.6% 91,0517 3.0% 3.0% 2.5% 2.9% 88,7338 2.8% 2.4% 2.2% 2.6% 83,5519 1.9% 1.9% 1.4% 1.9% 81,075

10 1.8% 1.6% 1.7% 1.7% 82,18311 1.8% 1.4% 1.4% 1.6% 83,13212 1.6% 1.2% 1.0% 1.5% 79,64313 1.2% 0.8% n/a 1.0% 79,10014 1.1% n/a n/a 1.1% 78,85915 1.7% n/a n/a 1.4% 76,098

**n/a indicates fewer than 1,000 policies exposed

Chart 5 - Lapse Rates by Policy Size

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Below $100,000

Exactly $100,000

Above $100,000

Composite


11

EXPERIENCE BY ISSUE AGE. Table 6 and Chart 6 set forth the results for selected issue age groupings.

Comment: Lapse rates tend to decrease with age. This observation is consistent with the December 1996study.

Table 6 – Lapse Rates by Issue Age


25-34 35-44 45-54 55-64

1 11.8% 9.6% 7.8% 5.6%

2 9.9% 7.8% 6.1% 4.2%3 9.2% 7.2% 5.0% 3.2%4 7.4% 5.1% 4.0% 2.4%5 5.6% 4.1% 3.1% 1.9%6 4.3% 3.4% 2.7% 1.6%7 3.5% 2.6% 2.0% 1.3%8 2.9% 2.2% 1.8% 1.0%9 2.0% 1.6% 1.1% 0.8%

10 1.8% 1.5% 1.5% 0.8%11 1.8% 1.4% 1.1% 1.0%12 1.5% 1.2% 1.6% 0.9%13 1.1% 0.8% 1.0% 0.8%14 1.3% n/a n/a n/a


Chart 6 - Lapse Rates by Issue Age

0%

2%

4%

6%

8%

10%

12%

14%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Policy Year

25-34

35-44

45-54

55-64


12

EXPERIENCE BY PREMIUM FREQUENCY. Table 7 and Chart 7 set forth the results for annual andmonthly premium frequencies, and compare them to the composite experience.

Comment: Monthly premium policies tend to have lower lapse rates than non-monthly policies (which areprimarily annual). This could be due to a higher proportion of PAC payments for monthly premiums.

Table 7 – Lapse Rates by Premium Frequency


Non-Monthly Composite Monthly

1 10.3% 10.1% 9.8%

2 8.6% 8.3% 7.9%3 8.1% 7.4% 6.7%4 6.4% 5.7% 5.1%5 5.1% 4.5% 3.9%6 4.2% 3.6% 3.1%7 3.4% 2.9% 2.5%8 3.1% 2.6% 2.1%9 2.2% 1.9% 1.5%

10 2.0% 1.7% 1.3%11 2.2% 1.6% 1.1%12 2.2% 1.5% 0.8%13 1.4% 1.0% 0.8%14 1.7% 1.1% 0.7%

**n/a indicates fewer than 1,000 policies exposed

Chart 7 - Lapse Rates by Premium Frequency

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Policy Year

Non-Monthly

Composite

Monthly


13

OTHER ISSUES

UNIVERSAL LIFE. There has been much desire expressed for a lapse experience study for level cost-of-insurance charges for Universal Life policies. These coverages were excluded from this study, as well as itspredecessor studies. While there are many complicating factors to such a study, the Expected ExperienceCommittee hopes to perform such a study in the near future.


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APPENDIX A − DETAILED LAPSE EXPERIENCE

ANNUAL LAPSE RATES BY NUMBER OF POLICIES – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

TOTAL COMPANY 0.101 0.083 0.074 0.057 0.045 0.036 0.029 0.026 0.019 0.017 0.016 0.015 0.01 0.011 0.014

MALE 0.102 0.084 0.075 0.058 0.044 0.036 0.03 0.027 0.019 0.017 0.016 0.014 0.01 0.011 0.013

FEMALE 0.101 0.081 0.073 0.057 0.045 0.036 0.029 0.026 0.018 0.017 0.016 0.015 0.011 0.012 0.016

JOINT 0.076 0.069 0.071 0.062 0.057 0.053 0.03 0.009 0 0 0 0 0 0 0

JOINT 1ST 0.118 0.109 0.105 0.078 0.064 0.048 0.029 0.027 0.027 0.018 0.012 0.012 0.011 0 0

JOINT 2ND 0.035 0.034 0.027 0.014 0.019 0.014 0.005 0.012 0.011 0 0 0 0 0 0

SMOKER 0.158 0.117 0.102 0.076 0.06 0.048 0.039 0.035 0.027 0.022 0.023 0.022 0.016 0.02 0.013

NON-SMOKER 0.076 0.068 0.064 0.05 0.039 0.032 0.026 0.023 0.016 0.016 0.015 0.013 0.009 0.009 0.015

AGGREGATE 1 1 0 0 0 0 0 1 1 1 1 1 1 1 1

COMBINED 0.185 0.128 0.075 0.027 0.101 0.076 0.032 0.041 0 0.25 0 0 0.5 0 0

UNKNOWN 0.154 0.127 0.102 0.082 0.052 0.041 0.038 0.038 0.023 0.013 0.007 0.127 0 0 0

OTHER SMK 0.144 0.212 0.2 0.116 0.315 1 1 1 1 1 1 1 1 1 1

<100 0.111 0.087 0.077 0.058 0.046 0.038 0.03 0.028 0.019 0.018 0.018 0.016 0.012 0.011 0.017

100 0.093 0.08 0.075 0.061 0.047 0.036 0.03 0.024 0.019 0.016 0.014 0.012 0.008 0.012 0.009

>100 0.07 0.067 0.064 0.048 0.038 0.03 0.025 0.022 0.014 0.017 0.014 0.01 0.006 0.009 0.006

AGE 0-14 0.129 0.104 0.093 0.073 0.054 0.041 0.038 0.037 0.031 0.023 0.025 0.029 0 0 0

AGE 15-24 0.159 0.125 0.111 0.088 0.07 0.063 0.051 0.052 0.032 0.031 0.032 0.026 0.023 0.035 0.015

AGE 25-34 0.118 0.099 0.092 0.074 0.056 0.043 0.035 0.029 0.02 0.018 0.018 0.015 0.011 0.013 0.013

AGE 35-44 0.096 0.078 0.072 0.051 0.041 0.034 0.026 0.022 0.016 0.015 0.014 0.012 0.008 0.011 0.011

AGE 45-54 0.078 0.061 0.05 0.04 0.031 0.027 0.02 0.018 0.011 0.015 0.011 0.016 0.01 0.009 0.022

AGE 55-64 0.056 0.042 0.032 0.024 0.019 0.016 0.013 0.01 0.008 0.008 0.01 0.009 0.008 0.004 0.011

AGE 65-74 0.044 0.034 0.025 0.014 0.013 0.008 0.007 0.007 0.007 0.007 0.004 0.006 0 0 0.028

AGE 75-84 0.047 0.052 0.019 0.011 0.012 0.007 0.015 0 0.083 0 0 0 0 1 1

AGE 85-100 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1

MONTHLY 0.098 0.079 0.067 0.051 0.039 0.031 0.025 0.021 0.015 0.013 0.011 0.008 0.008 0.007 0.015

NON-MONTHLY 0.103 0.086 0.081 0.064 0.051 0.042 0.034 0.031 0.022 0.02 0.022 0.022 0.014 0.017 0.013


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ANNUAL LAPSE RATES BY NUMBER OF POLICIES – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

1982 0.154 0.124 0.095 0.146 0.086 0.094 0.017 0.055 0.019 0.016 0.025 0.02 0.012 0.009 0

1983 0.11 0.066 0.037 0.081 0.061 0.042 0.039 0.03 0.024 0.022 0.019 0.017 0.012 0.01 0.008

1984 0.038 0.012 0.073 0.095 0.051 0.034 0.03 0.027 0.027 0.02 0.017 0.011 0.004 0.013 0.005

1985 0.164 0.146 0.119 0.084 0.065 0.054 0.041 0.045 0.023 0.018 0.016 0.016 0.009 0.011 1

1986 0.165 0.133 0.104 0.081 0.067 0.047 0.046 0.031 0.015 0.016 0.019 0.013 0.008 1 1

1987 0.112 0.089 0.088 0.071 0.053 0.045 0.029 0.019 0.016 0.018 0.014 0.009 1 1 1

1988 0.087 0.081 0.086 0.066 0.05 0.03 0.021 0.02 0.019 0.017 0.009 1 1 1 1

1989 0.098 0.084 0.081 0.06 0.04 0.026 0.023 0.027 0.019 0.013 1 1 1 1 1

1990 0.12 0.089 0.087 0.056 0.037 0.034 0.037 0.03 0.019 1 1 1 1 1 1

1991 0.102 0.083 0.057 0.03 0.037 0.044 0.03 0.025 1 1 1 1 1 1 1

1992 0.09 0.054 0.038 0.046 0.044 0.036 0.025 1 1 1 1 1 1 1 1

1993 0.073 0.051 0.063 0.062 0.047 0.032 1 1 1 1 1 1 1 1 1

1994 0.061 0.08 0.092 0.063 0.039 1 1 1 1 1 1 1 1 1 1

1995 0.107 0.109 0.082 0.043 1 1 1 1 1 1 1 1 1 1 1

1996 0.131 0.097 0.079 1 1 1 1 1 1 1 1 1 1 1 1

1997 0.116 0.072 1 1 1 1 1 1 1 1 1 1 1 1 1

1998 0.096 1 1 1 1 1 1 1 1 1 1 1 1 1 1

CALYR 1992 0.091 0.076 0.073 0.061 0.048 0.045 0.039 0.02 0.021 0.018 0.025 0.031 0.014 0 0

CALYR 1993 0.087 0.08 0.085 0.059 0.05 0.045 0.046 0.045 0.027 0.022 0.025 0.018 0.028 0.027 0

CALYR 1994 0.063 0.044 0.048 0.052 0.038 0.029 0.028 0.03 0.023 0.02 0.019 0.02 0.012 0.007 0.014

CALYR 1995 0.061 0.051 0.038 0.03 0.037 0.026 0.021 0.019 0.015 0.018 0.017 0.017 0.012 0.013 0.017

CALYR 1996 0.129 0.087 0.066 0.047 0.04 0.036 0.025 0.021 0.016 0.016 0.015 0.012 0.009 0 0

CALYR 1997 0.13 0.108 0.091 0.062 0.044 0.043 0.036 0.027 0.019 0.018 0.019 0.016 0.004 0.01 0

CALYR 1998 0.117 0.098 0.082 0.063 0.047 0.035 0.03 0.03 0.019 0.017 0.014 0.013 0.01 0.013 0.008


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ANNUAL LAPSE RATES BY SUM ASSURED – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

TOTAL COMPANY 0.08 0.073 0.068 0.052 0.041 0.032 0.026 0.024 0.017 0.016 0.013 0.012 0.007 0.009 0.008

MALE 0.079 0.073 0.067 0.052 0.038 0.032 0.026 0.024 0.018 0.016 0.013 0.011 0.007 0.009 0.009

FEMALE 0.09 0.077 0.072 0.054 0.045 0.035 0.027 0.024 0.017 0.018 0.015 0.014 0.008 0.013 0.011

JOINT 0.043 0.054 0.058 0.05 0.064 0.031 0.014 0.001 0 0 0 0 0 0 0

JOINT 1ST 0.114 0.101 0.095 0.071 0.057 0.032 0.021 0.034 0.019 0.017 0.01 0.011 0.012 0 0

JOINT 2ND 0.02 0.037 0.034 0.017 0.017 0.013 0.006 0.007 0.006 0 0 0 0 0 0

SMOKER 0.152 0.118 0.109 0.078 0.062 0.049 0.04 0.036 0.027 0.022 0.021 0.02 0.011 0.023 0.009

NON-SMOKER 0.064 0.063 0.059 0.047 0.037 0.029 0.023 0.022 0.015 0.015 0.012 0.01 0.006 0.007 0.008

AGGREGATE 1 1 0 0 0 0 0 1 1 1 1 1 1 1 1

COMBINED 0.149 0.115 0.06 0.026 0.079 0.06 0.025 0.036 0 0.024 0 0 0.072 0 0

UNKNOWN 0.061 0.078 0.088 0.068 0.047 0.039 0.034 0.034 0.024 0.023 0.139 0.342 0 0 0

OTHER SMK 0.129 0.233 0.246 0.108 0.253 1 1 1 1 1 1 1 1 1 1

<100 0.113 0.091 0.082 0.062 0.049 0.04 0.03 0.028 0.02 0.017 0.017 0.015 0.011 0.013 0.019

100 0.093 0.08 0.075 0.061 0.047 0.036 0.03 0.024 0.019 0.016 0.014 0.012 0.008 0.012 0.009

>100 0.056 0.059 0.057 0.041 0.034 0.026 0.02 0.021 0.014 0.016 0.01 0.008 0.004 0.005 0.002

AGE 0-14 0.098 0.086 0.085 0.066 0.048 0.039 0.033 0.031 0.032 0.024 0.034 0.06 0 0 0

AGE 15-24 0.15 0.118 0.106 0.081 0.064 0.057 0.045 0.045 0.028 0.025 0.027 0.018 0.016 0.033 0.024

AGE 25-34 0.1 0.088 0.084 0.067 0.05 0.039 0.031 0.026 0.018 0.019 0.015 0.014 0.009 0.013 0.01

AGE 35-44 0.074 0.071 0.064 0.047 0.037 0.033 0.023 0.02 0.016 0.013 0.011 0.009 0.005 0.009 0.003

AGE 45-54 0.058 0.054 0.05 0.033 0.028 0.022 0.016 0.019 0.016 0.012 0.009 0.006 0.003 0.004 0.006

AGE 55-64 0.046 0.038 0.038 0.031 0.023 0.013 0.019 0.019 0.008 0.016 0.007 0.014 0.005 0.002 0.021

AGE 65-74 0.041 0.039 0.025 0.018 0.013 0.007 0.015 0.007 0.005 0.003 0.001 0.004 0 0 0.003

AGE 75-84 0.04 0.038 0.01 0.009 0.004 0.002 0.003 0 0.023 0 0 0 0 1 1

AGE 85-100 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1

MONTHLY 0.089 0.08 0.07 0.051 0.04 0.032 0.023 0.021 0.014 0.014 0.009 0.007 0.005 0.006 0.008

NON-MONTHLY 0.072 0.066 0.066 0.053 0.043 0.033 0.028 0.027 0.02 0.018 0.017 0.018 0.01 0.012 0.008


17

ANNUAL LAPSE RATES BY SUM ASSURED – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

1982 0.216 0.198 0.016 0.032 0.037 0.028 0.001 0.022 0.003 0.013 0.015 0.015 0.007 0.007 0

1983 0.093 0.035 0.019 0.058 0.047 0.025 0.031 0.019 0.024 0.019 0.016 0.016 0.007 0.009 0.004

1984 0.04 0.006 0.036 0.046 0.02 0.02 0.012 0.028 0.048 0.014 0.012 0.009 0.004 0.006 0.005

1985 0.146 0.135 0.102 0.075 0.056 0.043 0.036 0.043 0.018 0.016 0.016 0.013 0.006 0.011 1

1986 0.144 0.124 0.093 0.077 0.058 0.05 0.044 0.033 0.015 0.013 0.014 0.01 0.009 1 1

1987 0.096 0.075 0.076 0.057 0.046 0.05 0.027 0.018 0.014 0.019 0.013 0.009 1 1 1

1988 0.068 0.066 0.079 0.06 0.044 0.027 0.021 0.02 0.017 0.017 0.006 1 1 1 1

1989 0.079 0.082 0.08 0.058 0.044 0.025 0.02 0.024 0.016 0.013 1 1 1 1 1

1990 0.094 0.087 0.073 0.055 0.035 0.03 0.033 0.024 0.015 1 1 1 1 1 1

1991 0.082 0.075 0.061 0.032 0.036 0.035 0.025 0.026 1 1 1 1 1 1 1

1992 0.067 0.054 0.037 0.04 0.037 0.031 0.022 1 1 1 1 1 1 1 1

1993 0.056 0.042 0.058 0.053 0.044 0.024 1 1 1 1 1 1 1 1 1

1994 0.053 0.072 0.081 0.057 0.032 1 1 1 1 1 1 1 1 1 1

1995 0.094 0.103 0.083 0.033 1 1 1 1 1 1 1 1 1 1 1

1996 0.114 0.091 0.072 1 1 1 1 1 1 1 1 1 1 1 1

1997 0.098 0.064 1 1 1 1 1 1 1 1 1 1 1 1 1

1998 0.083 1 1 1 1 1 1 1 1 1 1 1 1 1 1

CALYR 1992 0.076 0.077 0.072 0.057 0.043 0.052 0.035 0.025 0.024 0.017 0.046 0.068 0.01 0 0

CALYR 1993 0.065 0.073 0.073 0.058 0.044 0.05 0.044 0.043 0.048 0.019 0.015 0.022 0.035 0.052 0

CALYR 1994 0.051 0.048 0.055 0.053 0.043 0.026 0.027 0.031 0.018 0.014 0.016 0.015 0.011 0.019 0.008

CALYR 1995 0.053 0.042 0.037 0.032 0.035 0.025 0.021 0.018 0.015 0.016 0.012 0.016 0.007 0.015 0.028

CALYR 1996 0.113 0.082 0.06 0.04 0.035 0.032 0.021 0.02 0.013 0.013 0.014 0.006 0.005 0 0

CALYR 1997 0.113 0.102 0.081 0.052 0.037 0.034 0.032 0.024 0.017 0.019 0.014 0.013 0.004 0.009 0

CALYR 1998 0.102 0.092 0.082 0.057 0.044 0.031 0.025 0.024 0.016 0.017 0.013 0.01 0.006 0.006 0.004


18

NUMBER OF POLICIES EXPOSED AT BEGINNING OF POLICY YEAR – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

TOTAL COMPANY 322,909 300,553 276,015 248,668 226,977 182,320 132,298 98,645 76,907 53,636 30,393 18,476 10,483 4,283 1,719

MALE 158,438 148,128 136,864 124,819 116,073 95,617 71,022 53,335 41,713 29,698 17,614 11,141 6,623 2,935 1,213

FEMALE 147,799 136,216 124,644 111,964 101,808 80,910 58,003 43,342 33,785 22,998 12,139 6,887 3,574 1,293 493

JOINT 8,356 8,953 8,270 6,553 4,320 2,128 669 107 23 7 7 7 6 5 1

JOINT 1ST 5,919 5,023 4,327 3,776 3,523 2,898 2,237 1,694 1,291 874 601 417 266 42 4

JOINT 2ND 2,191 2,066 1,829 1,513 1,235 756 364 167 95 59 32 24 14 8 8

SMOKER 93,229 79,998 70,826 62,844 56,385 44,742 31,987 23,603 18,132 11,965 6,050 3,409 2,004 936 465

NON-SMOKER 225,794 215,710 199,606 180,149 164,448 132,923 97,300 72,625 57,439 41,216 24,199 15,040 8,461 3,331 1,238

AGGREGATE 0 0 1 5 2 1 1 0 0 0 0 0 0 0 0

COMBINED 788 833 951 1,069 1,045 750 499 269 39 4 3 3 2 1 1

UNKNOWN 2,547 3,614 4,452 4,508 5,084 3,904 2,511 2,148 1,297 451 141 24 16 15 15

OTHER SMK 551 398 179 93 13 0 0 0 0 0 0 0 0 0 0

<100 194,479 176,196 160,177 145,673 135,585 111,449 82,213 63,271 49,848 33,963 19,343 12,142 7,050 3,080 1,211

100 83,317 81,265 76,931 68,589 59,950 46,595 33,193 23,968 18,877 14,091 7,956 4,651 2,464 766 342

>100 45,113 43,092 38,907 34,406 31,442 24,276 16,892 11,406 8,182 5,582 3,094 1,683 969 437 166

AGE 0-14 16,843 15,644 14,972 13,743 12,761 10,092 6,589 4,501 2,799 1,018 231 33 10 5 2

AGE 15-24 33,684 29,777 26,301 22,512 19,174 14,995 11,058 8,690 6,836 4,782 2,646 1,614 883 289 136

AGE 25-34 90,355 86,114 81,781 75,120 68,968 57,056 44,426 36,419 30,115 21,988 12,513 7,346 4,016 1,495 603

AGE 35-44 70,947 67,133 63,077 58,264 54,510 44,719 33,614 26,040 20,768 14,598 8,118 4,617 2,408 947 374

AGE 45-54 43,640 40,139 36,301 32,854 30,836 24,644 16,691 11,097 8,367 5,648 3,068 1,964 1,226 640 278

AGE 55-64 32,967 29,479 25,579 22,609 21,435 17,579 12,182 7,516 5,376 3,929 2,707 2,135 1,457 750 277

AGE 65-74 15,587 13,762 11,565 9,934 8,694 6,551 3,967 2,196 1,199 730 468 318 196 102 36

AGE 75-84 1,312 1,155 856 615 470 287 126 41 13 3 2 1 1 0 0

AGE 85-100 3 2 1 0 0 0 0 0 0 0 0 0 0 0 0

MONTHLY 169,129 151,854 136,215 122,048 109,626 89,471 66,331 47,143 34,899 23,573 15,159 10,170 5,968 2,358 919

NON-MONTHLY 153,780 148,699 139,800 126,620 117,351 92,849 65,967 51,502 42,008 30,063 15,234 8,306 4,515 1,925 800


19

NUMBER OF POLICIES EXPOSED AT BEGINNING OF POLICY YEAR – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

1982 91 77 73 82 70 64 58 55 52 50 1,339 1,296 1,231 558 9

1983 181 164 817 805 739 693 661 635 614 2,146 2,078 2,016 1,231 695 617

1984 101 633 773 716 647 614 595 575 2,220 2,141 2,074 1,431 1,122 1,025 195

1985 2,787 6,666 5,693 5,014 4,581 4,285 4,053 4,940 4,530 4,500 3,979 4,371 4,157 664 0

1986 12,281 10,342 8,960 8,019 7,402 6,897 7,748 6,933 6,826 6,084 6,456 6,197 1,426 0 0

1987 17,064 15,297 14,195 12,989 12,058 15,588 14,646 14,870 11,413 12,595 11,411 2,250 0 0 0

1988 25,240 23,337 21,501 19,630 24,115 22,649 23,816 18,305 23,277 21,688 3,027 0 0 0 0

1989 22,899 20,722 18,956 25,921 24,398 26,630 20,567 27,097 24,972 4,404 0 0 0 0 0

1990 11,970 10,531 19,949 18,748 21,745 15,276 22,675 21,894 2,976 0 0 0 0 0 0

1991 11,699 17,219 16,870 25,495 20,996 31,711 31,452 3,313 0 0 0 0 0 0 0

1992 30,042 28,650 42,036 33,188 54,813 51,445 6,001 0 0 0 0 0 0 0 0

1993 37,710 49,732 38,875 53,121 48,954 6,440 0 0 0 0 0 0 0 0 0

1994 41,779 34,952 45,405 40,481 6,437 0 0 0 0 0 0 0 0 0 0

1995 30,316 41,960 36,727 4,436 0 0 0 0 0 0 0 0 0 0 0

1996 40,735 34,742 5,158 0 0 0 0 0 0 0 0 0 0 0 0

1997 33,124 5,495 0 0 0 0 0 0 0 0 0 0 0 0 0

1998 4,850 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CALYR 1992 18,983 21,619 28,012 25,722 16,411 8,132 5,143 2,276 2,204 1,374 919 457 74 2 2

CALYR 1993 32,100 18,812 20,789 26,250 24,115 15,588 7,748 4,940 2,220 2,146 1,339 895 440 73 2

CALYR 1994 54,364 44,901 27,239 23,451 28,199 24,921 16,163 7,450 4,633 2,141 2,078 1,297 870 418 71

CALYR 1995 41,881 49,926 42,109 25,570 21,820 26,748 23,967 14,870 6,826 4,500 2,074 2,034 1,232 845 409

CALYR 1996 48,249 49,822 56,979 57,667 33,115 23,570 27,848 23,820 12,824 6,578 4,443 1,141 705 9 2

CALYR 1997 42,165 43,281 47,294 54,675 57,162 35,072 24,828 27,548 23,522 12,658 6,463 4,371 1,122 695 9

CALYR 1998 35,346 36,728 39,388 42,866 52,171 53,527 33,479 23,711 26,335 22,704 11,537 6,331 4,247 1,096 617


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AMOUNT EXPOSED ($000) AT BEGINNING OF POLICY YEAR – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

TOTAL COMPANY 29,890,518 28,418,518 25,995,884 23,264,759 21,073,081 16,600,411 11,739,144 8,241,853 6,235,235 4,407,959 2,526,645 1,471,483 829,201 337,752 130,813

MALE 17,118,252 16,348,062 15,028,164 13,691,305 12,702,571 10,302,957 7,438,293 5,226,802 3,956,687 2,853,748 1,692,629 1,006,725 592,652 258,911 95,785

FEMALE 10,170,935 9,487,578 8,640,275 7,576,075 6,747,571 5,203,771 3,652,311 2,641,681 2,025,497 1,396,327 747,450 407,300 197,814 59,878 19,999

JOINT 1,258,813 1,339,737 1,185,898 923,484 643,881 334,943 143,238 36,544 5,684 2,975 2,975 2,975 2,875 1,875 150

JOINT 1ST 526,343 449,918 410,557 414,498 419,192 362,785 255,678 173,019 121,447 68,767 44,298 27,991 18,269 2,324 114

JOINT 2ND 766,782 750,019 714,313 641,969 557,501 393,800 248,575 163,808 125,919 86,142 39,292 26,492 17,592 14,765 14,765

SMOKER 5,484,176 4,841,186 4,302,697 3,763,286 3,341,794 2,552,605 1,748,370 1,269,006 964,120 663,113 346,540 187,947 100,277 39,298 13,933

NON-SMOKER 24,141,959 23,319,538 21,472,141 19,321,490 17,573,072 13,939,012 9,919,422 6,919,002 5,242,412 3,735,964 2,175,487 1,281,044 727,435 297,119 115,545

AGGREGATE 0 0 16 345 150 100 100 0 0 0 0 0 0 0 0

COMBINED 30,210 33,078 38,523 42,643 38,758 28,209 18,627 9,622 2,032 1,032 1,007 1,007 970 900 900

UNKNOWN 146,444 156,604 156,868 123,583 116,909 80,486 52,625 44,223 26,670 7,850 3,610 1,485 520 435 435

OTHER SMK 87,728 68,112 25,639 13,412 2,398 0 0 0 0 0 0 0 0 0 0

<100 7,041,545 6,437,513 5,868,591 5,317,440 4,897,891 4,073,485 3,106,298 2,497,222 1,995,715 1,377,966 790,152 468,476 249,745 96,040 33,406

100 8,331,700 8,126,500 7,693,100 6,858,900 5,995,000 4,659,500 3,319,300 2,396,800 1,887,700 1,409,100 795,600 465,100 246,400 76,600 34,200

>100 14,517,273 13,854,505 12,434,193 11,088,419 10,180,190 7,867,426 5,313,546 3,347,831 2,351,820 1,620,893 940,892 537,906 333,057 165,113 63,207

AGE 0-14 572,596 532,133 488,884 412,924 337,495 258,617 160,742 104,054 66,647 24,358 6,095 1,570 545 195 45

AGE 15-24 2,319,439 2,089,141 1,874,312 1,611,265 1,364,063 1,053,307 769,627 606,860 488,041 357,042 199,996 119,987 63,782 15,506 6,267

AGE 25-34 8,800,639 8,475,352 8,023,037 7,414,592 6,856,861 5,571,721 4,155,042 3,228,925 2,603,453 1,891,101 1,059,360 601,569 324,006 110,867 47,206

AGE 35-44 7,524,204 7,201,822 6,681,279 6,135,995 5,716,250 4,557,768 3,246,047 2,328,043 1,750,083 1,229,206 687,347 372,784 194,881 77,048 31,110

AGE 45-54 4,233,950 3,950,500 3,499,886 3,076,333 2,848,997 2,245,948 1,519,359 924,036 615,531 409,431 257,051 156,445 95,465 53,179 16,360

AGE 55-64 2,716,171 2,550,460 2,236,550 1,890,977 1,712,240 1,371,294 958,354 522,697 373,546 277,520 186,137 133,254 91,114 47,676 13,148

AGE 65-74 1,024,171 931,247 780,000 652,971 553,616 409,899 260,511 147,258 83,613 61,270 44,072 28,310 20,566 14,317 1,648

AGE 75-84 76,693 66,682 46,789 33,139 24,188 17,542 9,274 1,099 445 146 21 105 105 0 0

AGE 85-100 202 200 50 0 0 0 0 0 0 0 0 0 0 0 0

MONTHLY 14,789,308 13,726,265 12,300,456 10,969,085 9,929,099 7,988,905 5,805,144 4,029,873 2,920,254 1,995,111 1,284,408 814,318 467,232 174,008 66,803

NON-MONTHLY 15,101,210 14,692,253 13,695,428 12,295,675 11,143,982 8,611,506 5,934,000 4,211,981 3,314,980 2,412,848 1,242,237 657,165 361,969 163,744 64,010


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AMOUNT EXPOSED ($000) AT BEGINNING OF POLICY YEAR – ALL COMPANIES COMBINED

Policy Year

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- -------

1982 7,130 5,590 13,384 13,855 13,405 12,905 12,550 12,110 11,843 11,759 43,153 42,329 39,930 23,466 9,036

1983 13,249 12,684 90,475 95,647 90,029 85,574 82,964 80,389 78,584 120,560 117,648 115,084 84,889 76,509 72,016

1984 47,219 91,274 155,557 149,197 142,147 139,277 136,317 134,367 206,102 195,307 190,368 157,943 142,499 134,359 28,108

1985 318,729 685,695 592,715 527,364 486,750 459,720 440,078 468,553 412,052 407,972 381,766 397,072 385,184 70,228 0

1986 1,154,610 1,004,718 879,388 797,535 741,118 697,608 718,576 634,404 605,824 552,076 560,205 545,387 143,556 0 0

1987 1,724,070 1,591,183 1,501,367 1,388,549 1,307,612 1,586,707 1,480,450 1,450,078 1,074,535 991,072 940,237 189,259 0 0 0

1988 2,880,339 2,723,282 2,545,680 2,341,215 2,731,406 2,591,913 2,601,443 1,793,604 1,722,308 1,669,008 291,147 0 0 0 0

1989 2,636,063 2,437,855 2,235,754 3,010,005 2,826,319 2,838,358 2,000,563 1,878,599 1,816,556 458,127 0 0 0 0 0

1990 1,486,820 1,345,847 2,361,032 2,196,891 2,295,168 1,478,055 1,390,630 1,454,660 305,388 0 0 0 0 0 0

1991 1,535,562 2,089,990 2,042,419 2,450,110 1,893,511 2,249,002 2,318,166 332,786 0 0 0 0 0 0 0

1992 3,591,567 3,528,721 4,234,786 2,912,086 3,937,449 3,793,309 555,094 0 0 0 0 0 0 0 0

1993 4,479,772 5,247,945 3,778,030 4,182,116 3,953,220 665,524 0 0 0 0 0 0 0 0 0

1994 3,769,593 3,029,993 3,091,173 2,863,748 653,083 0 0 0 0 0 0 0 0 0 0

1995 2,033,144 2,355,311 2,117,371 334,573 0 0 0 0 0 0 0 0 0 0 0

1996 2,103,276 1,875,457 354,110 0 0 0 0 0 0 0 0 0 0 0 0

1997 1,773,123 389,688 0 0 0 0 0 0 0 0 0 0 0 0 0

1998 332,520 0 0 0 0 0 0 0 0 0 0 0 0 0 0

CALYR 1992 2,265,382 2,560,744 3,248,866 2,899,360 1,660,572 759,038 485,711 212,599 124,843 44,252 24,494 11,096 1,459 10 60

CALYR 1993 3,879,784 2,279,846 2,393,043 3,021,482 2,731,406 1,586,707 718,576 468,553 206,102 120,560 43,153 23,316 10,301 1,444 10

CALYR 1994 5,709,244 4,583,178 2,637,410 2,459,468 3,004,175 2,708,574 1,586,948 689,674 418,412 195,307 117,648 42,379 22,721 9,726 1,369

CALYR 1995 3,779,940 5,271,568 4,240,425 2,453,951 2,300,634 2,843,313 2,615,718 1,450,078 605,824 407,972 190,368 116,252 39,980 21,915 9,459

CALYR 1996 2,656,773 3,370,292 4,452,212 4,108,427 2,336,417 1,438,706 1,921,222 1,760,702 1,006,258 568,624 403,001 149,651 78,409 9,036 100

CALYR 1997 2,191,071 2,435,643 3,235,132 4,274,384 4,083,311 2,494,678 1,587,244 1,926,385 1,748,419 999,054 560,805 397,072 142,499 76,509 9,036

CALYR 1998 1,853,530 1,950,252 2,233,400 2,962,023 4,090,292 3,881,393 2,399,955 1,517,416 1,865,507 1,708,379 945,382 550,542 390,649 138,154 72,016


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APPENDIX B − METHODOLOGY

Definition of Active Exposure Base. Companies usually allow a grace period of at least 30 days beforelapsing a policy for which the premium has not been paid. There is also frequently a lag before the policystatus is changed from in-force to lapsed. For this reason, the in-force date for a given policy history file wasmodified to be 60 days prior to the actual in-force date.

We have only included experience up to the most recent policy anniversary on or before the modified in-forcedate. For annual policies, lapses usually occur at the end of the completed policy year, and so it would bewrong to include any partial year’s experience between the latest anniversary date and the modified in-forcedate. Although it would not be improper to exclude partial year’s experience for nonannual policies, it wasexcluded similar to annual policies so as to not give additional weight to nonannual policies.

Calculation of Lapse Rates. Lapse rates were determined monthly by sex, smoking status, size policy size,issue age, premium frequency, calendar year, plan code, and for total company. Joint policies were excludedwhen calculating lapse rates by smoking status and issue age.

In performing the lapse study, we created two vectors for each of the criteria described in the precedingparagraph − one vector for exposure and one vector for lapses. The vectors contained 180 elements, one foreach policy month from issue to the present.

We put a “1” for exposure if a policy was in force as at the beginning of the month and the policy wasexposed for the whole month.

We put a “1” for lapse if a policy was in force at the beginning of the month and lapsed at the end ofthat month. For example, an annual policy which lapses at the end of year 1 will have 12 consecutive“1’s” for in-force and a “1” in month 12 for lapse.

For policies coded as death, in-force exposure is included for each complete policy month up to the date ofdeath, subject to the modified in-force date/most recent anniversary limitation described above.

Example 1: A company provides data as at 95/12/31. Two policies were issued on 90/6/15; the first policyremains active, and the second policy lapsed on 93/6/15. The policies would contribute as follows:

1st Policy 1 2 3 4 ... 34 35 36 37 38 ... 57 58 59 60

Inforce 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Lapse 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2nd Policy 1 2 3 4 ... 34 35 36

Inforce 1 1 1 1 1 1 1 1

Lapse 0 0 0 0 0 0 0 1

Example 2: A company provides data as at 95/12/31. A policy was issued on 94/11/15 and remains active atthe in-force date. This policy would not contribute any experience to the lapse study since there is no completepolicy year completed on or before the modified in-force date of 95/11/1.


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The lapse rate for any policy year is figured from the data for the 12 months as follows:

1 - (1-w1) x (1-w2) x ... x (1-w12)

If we start the year with 100 policies and one policy lapses every month, the lapse rate for the year should be12%. Under our approach, the lapse rate will be:

The study was based on both number of policies and face amount.

Policy Status Codes Included. Only those policies whose current status are either “Active,” “Death,”“Expired,” “Lapsed,” “Surrendered” (with no cash value) or “On Waiver” are included in the study; all otherstatus codes are excluded entirely. For example, “Converted”, “Not taken” or “Paid up” policies are notincluded in the study.

Handling of Purged Data. Any months of active exposure prior to the purge date of a file are zeroed out inthe in-force vector. Lapses prior to the purge date will by definition be excluded from the file. In most cases,the contributing company will inform us if the data was purged, and if so, when it was purged. In addition, welook at lapse rates by issue year as a test to identify situations where the file had been purged and thecontributor was unaware.

Example 3: A company which last purged its data at 92/12/31 provides data as at 95/12/31. This means thatterminations prior to 92/12/31 have been deleted but the policies in force have been kept. A policy was issued91/7/15 and lapsed on 94/7/15. The contribution to in-force before 92/12/31, (i.e., the first 17 months) isignored as follows:

1 2 3 ... 15 16 17 18 19 20 ... 34 35 36

Inforce 0 0 0 0 0 0 0 1 1 1 1 1 1 1

Lapse 0 0 0 0 0 0 0 0 0 0 0 0 0 1

1 (99

100)(

98

99)...(

88

89) = 12%−

Report: Lapse Experience Under Lapse-Supported Policies …

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