19

given moment these do give a snapshot of the mortality conditions of the entire population.

1.2%

1.0%

0.8%

0.6%
%

0.4%

0.2%

0.0%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45

Age

Figure 1.5.: Hungarian males probabilities of death up to age 45 in 1998

12.0%

10.0%

8.0%

6.0%
%

4.0%

2.0%

0.0%
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70

Kor

1949-es magyar frfi qx-ek 1998-as magyar frfi qx-ek

Figure 1.6.: 1998 and 1949 probabilities of death of Hungarian males up to age 70

JZSEF BANYR: LIFE INSURANCE

 20

It can be seen from the figure that in Hungary, the infant death rate decreased from 10% to
a value of about 1% in fifty years following 1949,8 but the mortality rates of those above age
40 are worse now than they were 50 years ago. It can also be seen that, disregarding infant
mortality, the qx curve is monotonically increasing with age, and this growth is at an
increasing rate (exponential in nature!).
Several other indicators can be derived from the qx. Its complement, the probability of
survival:
px = 1 - qx = probability of survival = the probability of someone surviving to age x+1,
given that they survived to age x
It can be seen quite easily that the product of the px-s gives the probability of someone
surviving t more years given that they lived to age x, so:
tpx = px * px+1 ** px+t-1 = the probability of someone surviving to age x+t, given that
they survived to age x
It is obvious that:
1px = px
It is customary in statistics to mark the highest shown age level9 with the symbol. This
level differs from country to country (in the United States there are mortality tables that show
ages up to 117!). In Hungary it is usually set at age 100, although we know about the
existence of one or two Hungarian citizens above the age of 100, but the number of such
individuals is very small and their appearance is highly variable. If we sum the tpx-s over t
from 1 to (-x), (and we correct the sum by 0.5)10 the sum is given a new meaning: the life
expectancy at age x.
1px + 2px+1 + 3px+2 ++ -xpx + 0,5 = ex = life expectancy at age x
For x=0 this gives an especially significant statistic the life expectancy at birth. This can
be seen for a few countries below for the year 1999. The table clearly shows the significant
difference between the life expectancy of women and men, which can be found in every
country, and is especially high in Hungary.
Table 1.1.: Life expectancy at birth for some countries in 1999
Country Fema Male
le
Australia 81.8 76.2
Austria 80.9 75.1
Belgium 80.8 74.4
Canada 81.7 76.3
Czech Republic 78.1 71.4
Denmark 79 74.2
Finland 81 73.8
France 82.5 75
Germany 80.7 74.7
Greece 80.6 75.5

8
The values of infant mortality in Hungary (for both genders) per 1000 live births:
Year 1960 1970 1980 1990 2000
Infant deaths/1000 live births 47.6 35.9 23.2 14.8 9.1
The statistics of KSH were quoted in: Npszabadsg, 2000. July 25.: Lassabban fogy a npessg
9
So not the highest observed age, but the age at which there are still a statistically significant number of
people.
10
The correction marks the half year average lifespan beyond age x+t of those who died at age x+t.

JZSEF BANYR: LIFE INSURANCE

 21

Country Fema Male

le
Hungary 75.1 66.3
Iceland 81.4 77.5
Ireland 79.1 73.9
Italy 81.6 75.3
Japan 84 77.1
Korea 79.2 71.7
Luxembourg 81.2 74.7
Mexico 77.3 72.8
Netherlands 80.5 75.3
New Zealand 80.8 75.7
Norway 81.1 75.6
Poland 77.5 68.8
Portugal 79.1 72
Slovakia 77 69
Spain 82.4 74.9
Sweden 81.9 77
Switzerland 82.5 76.8
Turkey 70.7 66.1
United Kingdom 79.8 75
United States 79.4 73.9

All these statistics (mortality and survival probabilities, life expectancy) are published
organized by age in the so-called mortality table by the Hungarian Central Statistical Office.
The mortality table includes a very useful technical row, the number of survivors. This row
of numbers, that is created from the cleaned probabilities of mortality, can be regarded as a
basic indicator, which shows how many people out of a starting population (usually 100,000
people) will be alive at age x if the current mortality rates of each age group apply to them at
every age. The symbol of the values of the number of survivors, or the life table is lx, and
so based on the above description , l0 = 100,000.
Almost all the statistics necessary in life insurance can be constructed very simply from the
life table. In the following, this constructed chain of values will be used in the majority of the
calculations (see in more detail in chapter 1.4.!).
According to what was previously said, the mortality table does not apply to a single
generation, but rather it is a snapshot of several generations living simultaneously. This is
also true for the life table, even though it very strongly suggests that its statistics pertain to a
single generation, as if they followed life paths of 100,000 infants born at the same time until
they reach age 100.
Naturally, this statistic could also be constructed, but this would require data from 100
years, and would not truly reflect very flexibly the current mortality trends of a time. For the
purposes of analysis, it is still best to construct the mortality table of a generation, the so-
called generational mortality table. This can be done most easily by taking the statistics of
those born in the same year from all the different years of the survey. Since the Hungarian
mens mortality tables are available starting with 1949, we can take from every years table
the mortality rates of those born in 1949 (so from the 1949 survey that of the 0 year olds,
from the 1950 the one year olds, ... from the 1998 the 49 year olds), and thus construct for
1998 the generational mortality table of the 49 year olds (which by definition can only be
ascertained up to age 49 in 1998).

JZSEF BANYR: LIFE INSURANCE

22

12,0%

10,0%

8,0%

6,0%
%

4,0%

2,0%

0,0%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

age

49-es genercis qx-ek 98-as "norml" qx-ek

Figure 1.7.: 1949 generational and 1998 Hungarian mens mortality rates

1,6%

1,4%

1,2%

1,0%
%

0,8%

0,6%

0,4%

0,2%

0,0%
10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

42

44

46

48
4

Age

49-es genercis qx-ek 98-as qx-ek

Figure 1.8.: 1949 generational and 1998 normal mortality rates from age 4

JZSEF BANYR: LIFE INSURANCE

 23

120000

100000
Number of lives

80000

60000

40000

20000

0
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Age

49-es genercis lx 98-as lx-ek

Figure 1.9.: 1949 Hungarian mens generational lx-s

One can see right away from the above figures that infant mortality has drastically, and
child mortality has significantly decreased since 49, but those of the young and middle-aged
have not since the statistics of this group are shown as the statistics of the middle-aged in
the 1998 data. It is also apparent that the curve of the 1998 mortality rates is much
smoother, since the raw data was previously smoothed out using statistical tools.
It should also be noted that mortality tables can be made not only for the entire population,
but segments of it as well, as some of these segments have very different mortality
characteristics. For example, we would surely have different life expectancies among:
The VIII. and XII. districts of Budapest
In Gyr-Moson-Sopron and Szabolcs-Szatmr-Bereg counties
Those working in the finance sector and miners
The divorced, married, widowed and singles
Smokers and non-smokers
Those who finished only elementary school and those with university degrees
Etc.
So we can differentiate among the groups of a population based on place of residence,
education level, occupation, income level, marital status, habits, etc. At the same time, these
are not such permanent characteristics as is gender (since the place of residence, marital
status, etc. may change frequently, while gender cannot11). From time to time complete
analyses are reported based on these characteristics.
Insurers also create their own mortality tables based on their specific points of view and
usually, their own data. It is especially common in the Anglo-Saxon countries to differentiate
between smoking and non-smoking insured, whose rates are calculated from separate
mortality tables.

11
Nowadays one must be careful about this statement as well. It is possible that the time is near when surveys
will have a category for original gender instead of simply gender.

JZSEF BANYR: LIFE INSURANCE

 24

Even more common is the use of so-called selection tables. This is where they observe
how the mortality profiles of those purchasing different insurance compare to each other12.
For example, they can differentiate between the selection tables of purchasers of annuity or
term insurance, since people with lower life expectancies would rather buy term insurance,
than the average, and vice versa, those with high life expectancies would rather purchase
annuities. The selection tables show this difference very clearly. (Unfortunately, in Hungary
insurance companies have not collected sufficient data for these, though some calculate
mortality based on their own data). In table 1.2. we can see what percentage of the
calculations based on population mortality tables is comprised of annuity mortality rates in
the USA. As we can see, there is a significant difference between the different phases of the
life cycle.

Table 1.2.: U.S. annuity qx-s compared to the population mortality tables (1990-1996)
Age Male Female Age Male Female Age Male Female
0 23% 22%
1 123% 117% 41 35% 48% 81 60% 70%
2 101% 93% 42 38% 48% 82 60% 71%
3 99% 92% 43 41% 49% 83 61% 72%
4 111% 98% 44 44% 49% 84 62% 73%
5 110% 89% 45 46% 49% 85 63% 74%
6 107% 78% 46 49% 49% 86 64% 76%
7 106% 70% 47 50% 49% 87 64% 77%
8 132% 76% 48 52% 49% 88 65% 78%
9 163% 84% 49 52% 49% 89 66% 79%
10 195% 95% 50 52% 49% 90 66% 80%
11 198% 99% 51 52% 48% 91 67% 81%
12 156% 92% 52 52% 48% 92 67% 81%
13 107% 77% 53 52% 49% 93 68% 81%
14 75% 63% 54 51% 49% 94 68% 80%
15 57% 54% 55 51% 49% 95 69% 79%
16 47% 48% 56 50% 49% 96 69% 79%
17 41% 46% 57 49% 49% 97 70% 78%
18 38% 47% 58 48% 48% 98 70% 78%
19 37% 50% 59 47% 48% 99 72% 78%
20 36% 53% 60 46% 48% 100 73% 78%
21 35% 55% 61 45% 48% 101 75% 78%
22 35% 58% 62 45% 48% 102 77% 79%
23 36% 60% 63 44% 49% 103 79% 81%
24 37% 61% 64 44% 50% 104 82% 83%
25 39% 62% 65 44% 50% 105 85% 85%
26 40% 63% 66 45% 51% 106 89% 88%
27 41% 63% 67 46% 51% 107 93% 92%
28 40% 62% 68 47% 51% 108 98% 96%
29 39% 61% 69 49% 52% 109 103% 101%
30 37% 59% 70 50% 53% 110 108% 106%
31 35% 57% 71 52% 53% 111 114% 111%
32 34% 56% 72 53% 55% 112 120% 117%
33 32% 54% 73 54% 56% 113 127% 125%

12
In a broader sense, the selection table can pertain to any kind of selection, for example, the differentiation
between smokers and non-smokers as well!

JZSEF BANYR: LIFE INSURANCE