Mortality calculations for the insurance and pensions industry

Research plan
CHAPTER ONE

INTRODUCTION

This chapter discussed the background of the study, statement of the problem, objectives of the study, significance of the study, scope of the study and the organization of the study.

1.1 Background to the study

Over the years the social and economic well-being of Ghanaian women as mothers, self-employers and office workers has transformed throughout the centuries. The social roles of women in Ghana have varied throughout history and the overall impact of women in Ghanaian society has been significant. The life for women in Ghana varies by generation, location and culture.

Women in pre-modern Ghanaian society were seen as bearers of children, retailers of fish and farmers. Within the traditional era, the childbearing ability of women was explained as the means by which ancestors lineages were allowed to be reborn.

Rates of female-headed households are on the increase in Ghana. The number of female-headed households who are either widowed, divorced or unemployed has also increased. Contrary to worldwide findings that female poverty is correlated with higher rates of female-headed households, findings from the Ghana Living Standard Survey indicate that female-headed households may not actually experience higher poverty than male-headed households.

The proportion of the female elderly population is 56% as compared with 44% of the male elderly population, an indication of higher life expectancy of the female population. A higher proportion of the elderly population (54%) resides in the rural areas whilst 47% of the females and 44% of the males are resident in the urban areas. Almost three quarters of the female elderly compared to less than half of the males are illiterate. Also about three quarters of the female elderly compared to less than half the males have no formal education. There are disparities in educational attainment which also exist between the elderly in the rural and urban areas. The resistance to female education stemmed from the conviction that women would be supported by their husbands. The proportion of the elderly males who are economically active is slightly more than that of the females.

During pre-modern Ghanaian society, in rural areas where non-commercial agricultural production was the main economic activity, women worked on the farm. The coastal women also sold fish caught by men. The financial benefits that these women accrued went int0 upkeep of the household. Starting the mid-19970s to the early 1980s, however, urban market women, especially those who specialized in trading manufactured goods, gained reputations for manipulating market conditions and were accused of exacerbating the country’s already difficult economic situation. Today, women make up 43.1% of economically active population in Ghana, the majority working in the informal sector and in the food crop farming. About 91% of women in the informal sector experience gender segregation and typically work for low wages. Within the informal sector, women usually work in personal services.

Most working Ghanaian women are self-employed due to the low level of education. Only few working women are employed in the public and private sectors contribute to SSNIT pension scheme. With that only a hand full of female have well paid job and are in managerial position. This has effect on the number of females who go on retirement every particular year. A growing challenge for many nations is population ageing. As birth rates drop and life expectancy increases and ever-larger portion of the population is elderly. This leaves fewer workers for each retired person. A retirement plan is an arrangement to provide workers with an income during pension when they no longer earn a steady income from employment.

Pension is an arrangement by which an employer and an employee pay money into a fund that is invested to provide the employee with benefit retirement plan that provides monthly income by companies or governments. According to SSNIT, to qualify for full pension one must be at least 60 years and must have contributed for a minimum of 180 months in aggregate. The basis of calculation of pension depends on age, average best three year salary and earned pension right (ie number of months one has contributed to the scheme). The pension is paid to the employee from the beginning of the retirement until death.

Looking at the number of year’s one work before retiring, one is expected to be fully established to be able to rest after hardworking years and enjoyed the benefits. However, due to socioeconomic challenges and poor working conditions pensioners rather become stressed out due to high demands since the pension cannot cater for their basic amenities. At pension people still have lots of responsibilities to take care of. All these exposed pensioners to some form of mortality risk. How long these pensioners live is clearly a crucial factor in the ultimate cost of providing pensions. There are two elements to assessing life expectancy; first, and most important the current level of mortality and secondly the possible future path of mortality rates.

According to World Bank the mortality rate for female adult (per 1,000 female adults) in Ghana was measured at 233.49 in 2013. The adult mortality rate is the probability of dying between the ages of 15 and 60; that is the probability of a 15 year old dying before reaching age 60 is subject to current age-specific mortality between those ages.

Over most human existence, mortality has shown a decreasing pattern (Berin, Stolnitz and Tenebein 1999; Friendland 1998, pg 49). Sharp improvements have been experienced in particular over this century (Charlton 1997; Goss, Wade and Bell 1998). An improvement scales assume that age-specific death rates fall by a fixed percentage per year and this percentage is very often estimated by trending past observations, coupled with some “professional judgment”. These improvements pose a challenge for pricing and reserving in life insurance and the management of public pension (North American Actuarial Journal Vo. 11, 2007). For public policy, as well as the management of financial institutions, it is important to forecast future mortality rates. It is important to be able to accurately measure changes in mortality over time since the policyholders’ benefits depend on survival.

Mortality rate used to be very high during which was not due to genetics but rather epidemics, malnutrition, wars etc. Now, due to improved health facilities and medical procedures, innovations and technological improvement, life expectancy is increasing and research indicates it will increase further in the near future. A continuous mortality investigation will gives estimates and projections of mortality rates and forecast using actuarial models. Actuaries need the mortality rate to perform actuarial calculations. The prediction of future mortality rates is a problem of fundamental importance for the insurance and pension industry.

1.2: PROBLEM OF THE STUDY

Most Ghanaian women working in the informal sector indulge in petty trading, farming and other miner jobs to support livelihood since their salary is insufficient due to low level of education. The stress from lots of hard work tends weakened them at the old age. And at their old age when they cannot do any work livelihood becomes difficult. The pressure from the family and the environment posed exposed them to mortality risk.Women who are working have only 14% in the managerial position with most of them in the lower position and they contribute to the pension scheme. When they retire at old age they depend on the pension money for livelihood. The pension scheme which is to take care of the needs of the old age by paying income when they out of work worsen their condition. This is because the monies received could not meet their basic amenities. Other socioeconomic factors that confront old age at retirement could also lead to untimely death since they cannot afford any support .

According to WHO reports the life expectancy of women is higher than that of men. Life expectancy is increasing due to improvement in socioeconomic development this leads to reduction in mortality. These improvements pose a challenge for pricing and reserving in life insurance and the management of public pension (North American Actuarial Journal Vo. 11, 2007). This poses two financial challenges to the scheme; firstly women will live longer in retirement so they will collect benefits for a longer period of time and secondly some women will become more likely to reach the age where they cannot collect benefits at all.

There has not been much study in the area of investigating into pension mortality. Unlike the maternal mortality where there are a lot of work and articles of .

1.3: OBJECTIVES OF THE STUDY

The researcher seeks to answer the problems using the following objectives:

1. to model the cohort of death using Zero Inflated Negative Binomial (zinb) regression model

2. to model the cohort of death using Negative Binomial regression model

3. to compare which of the two models best fit the data of the study

1.4: Significant of the study

Actuaries need the mortality rate to perform actuarial calculations. The prediction of future mortality rates is a problem of fundamental importance for the insurance and pension industry. That is why the Institute of Actuaries, UK has a committee (Continuous Mortality Investigation — CMI) in place to investigate mortality continuously and make projections. It will aid insurance companies in premium pricing and pension plans.

The SSNIT pension fund calculates pension benefits on the basis of age, best three year salary and number of years worked. The scheme pays benefits to pensioner until death. This research will inform fund managers to be able to calculate their reserves to take care of the policyholders, through observed mortality experience policy makers will be informed about pensioner welfare. This will also aid the government in implementing appropriate welfare programmes for the aged.

This research will also add to literature as there is little relevant literature in this area of

1.5: Limitation of the Study

1. Accuracy of data cannot be guaranteed as data used are solely secondary data

2. Reported death at older ages are scanty

3.` Some individuals present unrealistic date of birth

4. the graduation only produce results as reliable as the original data. This principle is known as “garbage in, garbage out”.

1.6: Organization of The Study

The study is partition into five chapters. Chapter one is the introduction discussed the background of the study, statement of the problem, objective of the study, scope of the study and organization of the study.

The chapter two of the study reviews related works to the study. It also reviews some theories and actuarial models.

Chapter three of this study enumerate the methodology used to achieved the objectives and analysis of the findings. The chapter discussed the research design, source of data, target group, sampling procedure and sample size, data collection instruments and procedure. It also discussed the graduation of the crude rates using the Zero Inflated Poisson. The use of the logistic regression model to predict or estimate the mortality using the ages.

The fourth chapter outlined the data analysis and findings.

Finally the chapter find elaborate on the discussions of the findings. It also drawn conclusion from the discussions and suggested recommendations.

Source: Essay UK - http://ntechno.pro/essays/finance/mortality-calculations-for-the-insurance-and-pensions-industry/


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