Underlying Mortality Assumption

What Does Underlying Mortality Assumption Mean?

An underlying mortality assumption is a projected estimate of the number of deaths expected to occur among insurance policyholders over a specific period. Insurance companies use these predictions to estimate their future obligations and plan accordingly. These assumptions are derived from mortality tables.

Insuranceopedia Explains Underlying Mortality Assumption

Actuaries calculate underlying mortality assumptions with great precision to avoid significant imbalances in the insurance company’s balance sheet. Errors in these calculations can lead to financial risks. For instance, if an actuary underestimates the underlying mortality assumption, the company might face a surge in death benefit payouts while simultaneously losing premium income. This scenario could strain the company’s financial stability. To mitigate such risks, insurance and pension regulators enforce strict guidelines for calculating underlying mortality assumptions.