The 2017 CSO
Snapshot Article
Are your company and products ready for the new standard mortality table?
With less than two years left until the phase-in period of the 2017 Commissioners Standard Ordinary Table (2017 CSO) ends, now is the time to implement.
Mortality tables showing statistical probability of life expectancy across different ages, genders, and other influential life categories have been around for hundreds of years and have been influential in the life insurance industry. The Commissioners Standard Ordinary Mortality Table (CSO table), beginning with the first table released in 1941, was developed by actuarial organizations primarily to set a standard for life insurance reserve calculations; and it has a significant impact on how life insurance products are designed and priced.
Mortality rates are dynamic by nature but have been more so in recent years in response to medical advancements, technology, improving lifestyle trends, and more; therefore, updating the CSO table periodically has become essential. Today, the industry has access to more data than ever before, providing the information needed to develop an updated mortality table and accurate picture on which insurance companies nationwide can base their product decisions.
In December 2015, the National Association of Insurance Commissioners (NAIC) adopted the 2017 Commissioners Standard Ordinary Table (2017 CSO). Effective January 1, 2020, the 2017 CSO will replace the 2001 CSO table.
How Is the 2017 CSO Different From the 2001 CSO?
The 2017 CSO is a significant improvement over the 2001 CSO when it comes to the amount of underlying data available and the segmentation of tables.
- More than double the number of companies provided experience data for the 2017 CSO than for the 2001 CSO (51 to 21).
- More data is available on smoker/non-smoker basis, as well as on business issued at older ages, substandard business, and business issued using a preferred underwriting basis.
- The exposure by amount of insurance for the 2017 CSO was more than five times that of the 2001 CSO ($30.7 trillion to $5.7 trillion).
All in all, the 2017 CSO provides both a more extensive and more refined snapshot of mortality than ever before.
| Data Underlying the 2017 CSO and Prior CSO Tables | |||
| 1980 CSO | 2001 CSO | 2017 CSO | |
| # Companies' experience included | 19 | 21 | 51 |
| # Companies covered | 10 | 17 | 36 |
| Amount of data in underlying study | |||
| Exposure by amount | $0.77 trillion | $5.7 trillion | $30.7 trillion |
| Exposure by count | Not provided | 175 million | 266 million |
| Actual # Claims | Not provided | 1.25 million | 2.5 million |
| Table 1 Source: Bahna-Nolan, Mary. Are You Ready for 2017 CSO? June 2016. Figure 1 Significantly more data underlies 2017 CSO. http://www.scorgloballifeamericas.com/en-us/knowledgecenter/2017cso retrieved June 14, 2018 | |||
What Is the 2017 CSO Timeline?
Development of the 2017 CSO table was a major undertaking due in large part to coordinating with the implementation of Principles Based Reserving (PBR) nationwide, which is a major change in how companies develop statutory reserves.
According to the Center for Insurance Policy and Research, “As of Oct. 31, 2017, 47 states representing 85.9% of premium have enacted legislation…” by revising Standard Valuation Law and Standard Nonforfeiture Law for Life Insurance to include PBR. Since PBR changed how companies developed statutory reserves, these broader industry movements necessitated some coordination with the efforts to update the CSO table.
In 2015, the NAIC officially adopted the 2017 CSO to replace the 2001 table after a three-year phase-in period, ending on January 1, 2020. During the three-year phase-in period, companies can continue to use the 2001 CSO or implement the 2017 CSO, but once the three-year phase-in period is over, life insurance companies will be required to use only the 2017 CSO table for new business purposes.
| Calendar Year | CSO Tables | ||
| 2004 and prior | 1980 CSO tables | ||
| 2005-2008 | 1980 or 2001 CSO tables | ||
| 2009-2016 | 2001 CSO tables mandatory | ||
| 2017-2019 | 2001 or 2017 CSO tables | ||
| 2020 and beyond | 2017 CSO tables mandatory | ||
| Table 2 Source: Pierce, Mandy. IRI Issues Guidance on Life Insurance Company Transition to 2017 CSO Mortality Tables. December 2016 https://www.johnsonlambert.com/post/irs-issues-guidance-life-insurance-company-transition-2017-cso-mortality-tables/ retrieved June 14, 2018 | |||
What Will the 2017 CSO Affect?
The 2017 CSO table will have significant impacts in the following areas:
- Statutory reserving for new business life insurance products issued using the 2017 CSO
- The development of Guideline Premiums, Cash Value Accumulation Test (CVAT) factors, and 7-Pay Premiums used in testing compliance with IRC Sections 7702 and 7702A
- The development of new life insurance products
- Tax and surplus planning
- Maximum COI rates that can be used with interest-sensitive products
- Net Single Premium (NSP) factors used with whole life products
The industry is seeing a diversity of urgency among insurance carriers implementing the 2017 CSO. Some insurers have already implemented the 2017 CSO, updating existing products and creating new products, while some insurers are just starting to evaluate the impacts the new table will have on their product offerings and illustrations. Life insurance companies that wait until the last moment to start their implementation will be at a competitive disadvantage, scrambling to meet the 2020 deadline.
At Insurance Technologies, we hold extensive product, illustration and actuarial expertise, along with experience in the implementation and testing of the 2017 CSO given that some of our existing clients have already begun issuing new business under the 2017 CSO. We advise insurers not to wait until the end of 2019 and to start their implementation process as soon as possible so they are prepared. Consider using Insurance Technologies to provide valuable assistance and guidance in the implementation of the new 2017 CSO tables.
By Bill Aguayo, SVP, Actuarial Services, Insurance Technologies