Section 01
The Core Definition
An experience study is a structured comparison of actual insurance outcomes against the assumptions used at product launch — conducted over a defined observation period of typically 3 to 5 years to detect drift and validate assumptions.
"Pricing that drifts too far from actual experience erodes underwriting margins; reserving assumptions that lag behind real-world trends can mask deterioration until it surfaces as a sudden earnings hit."
— InsuranceBrain.com, 2024 · Global Actuarial Practice ReferenceExperience studies cover five core assumption types across life, health, and general insurance: mortality rates, lapse rates, expense levels, morbidity incidence, and investment returns — compared against assumed values used in pricing, reserving, and embedded value.
SOA Experience Studies Operating Manual · IAA Actuarial Standards · InsuranceBrain.com (2024)
Section 02
What Gets Studied?
Four core assumption types are reviewed in life & health insurance experience studies worldwide — each with its own key metric and direct link to actuarial outputs.
Mortality
Key Metric: A/E vs. Table
Compares actual deaths to expected rates from CMI (UK), SOA (US), or TMI (Indonesia) tables to assess whether pricing assumptions remain adequate.
Lapse
Key Metric: Discontinuance Rate
Tracks how many policyholders exit each policy year, directly affecting reserve adequacy, profit emergence, and long-term business projections.
Expense
Key Metric: Unit Cost
Measures actual administration cost per policy against budgeted unit expenses to control operational efficiency and validate IFRS 17 cash flow assumptions.
Morbidity
Key Metric: Claim Incidence
Monitors frequency of health claims versus expected incidence rates to validate assumptions underlying medical, critical illness, and disability products.
Global Standard: These four assumption types are the primary focus across all major insurance markets — UK, US, Australia, Singapore, Indonesia, and beyond.
Section 03
The 5-Phase Process
The SOA Experience Studies Operating Manual defines a standard 5-phase workflow — used across life and health insurers worldwide, from the US and UK to Asia-Pacific markets.
1
Define Scope
Set observation period (3–5 years) and determine credibility threshold before data extraction begins.
2
Extract & Validate
Pull policy and claims data from core systems; verify completeness, consistency, and data quality.
3
Calculate Actuals
Compute actual experience metrics per assumption type: mortality, lapse, expense, morbidity.
4
A/E Analysis
Compare actual vs. expected results; apply credibility weighting to stabilize volatile data.
5
Update & Sign-Off
Revise assumptions, document findings, and obtain actuarial sign-off for regulatory use.
SOA Experience Studies Operating Manual · 5-Phase Workflow · Global Standard
Section 04
The A/E Ratio
A/E Ratio Formula — SOA Standard
A/E Ratio = (Actual Experience ÷ Expected) × 100%
Acceptable range: 90%–110% · Full credibility requires ~1,082 claims (90% confidence, ±5% margin)
A/E > 110%
Review Needed
Experience is worse than assumed. e.g., Mortality at 120% means actual deaths exceeded the assumed rate by 20%.
A/E = 100%
Perfect Match
Actual experience aligns exactly with the pricing or reserving assumption — no revision required.
A/E < 90%
Potential Release
Experience is better than assumed. e.g., Lapse at 75% means policies are persisting longer than expected.
Source: SOA Experience Study Calculations (soa.org) · Credibility theory: ~1,082 claims for full credibility
Section 05
Where Results Feed Into
Experience study outputs drive all key business functions — from reserving and pricing to ALM and reinsurance review.
Valuation
Premium reserves adequacy and embedded value calculations rely on current best-estimate assumptions.
Premium & Pricing
Premium sufficiency review ensures rates remain adequate against actual experience emerging.
Product Development
New product design and feature calibration informed by observed policyholder behavior trends.
Business Planning
Financial projections and capital planning anchored to updated mortality, lapse, and expense assumptions.
Asset-Liability Mgmt
ALM strategies aligned to liability duration and cash flow profiles derived from experience data.
Reinsurance Review
Treaty terms and risk transfer optimization reviewed against actual claims and lapse experience.
IFRS 17 Impact: Under IFRS 17, assumption changes driven by experience analysis flow directly into P&L or the Contractual Service Margin (CSM) — making study quality a first-order financial reporting concern.
Section 06
The Regulatory Mandate
Regulators worldwide require insurers to conduct regular experience studies — at least annually across all major frameworks.
IFRS 17 · Global · Jan 2023
Current Best Estimate Assumptions
Current estimates must reflect up-to-date best estimate assumptions. Experience variances flow directly into P&L or adjust the CSM.
PSAK 117 · Indonesia · Jan 2025
Indonesia's Full IFRS 17 Adoption
Indonesia's full adoption of IFRS 17. Current estimates must use up-to-date assumptions — making experience studies a financial reporting requirement.
OJK POJK 8/2024 · Jun 2024
Product Performance Monitoring
Requires pemantauan kinerja produk and periodic product review. Insurers must systematically track and analyze actual vs. expected experience.
Solvency II · EU · ORSA
Annual Assumption Review
Own Risk and Solvency Assessment (ORSA) requires annual assumption review as part of the internal risk management framework.
Governance: Clear accountability chain required — Preparer → Reviewer → Approver · At least annually across all frameworks
Section 07
Best Estimate vs. Prudent Assumption
"Asumsi terbaik ditetapkan berdasarkan data dan analisa yang cukup — bukan yang paling menguntungkan, bukan yang paling konservatif."
— Ira Dewi Elfini, Nityasa Niscita (Dec 2024) · The best estimate is set based on sufficient data and analysis — not the most favorable, not the most conservative.IFRS 17 requires explicit separation of best estimate from risk margin — moving away from implicit prudence. The best estimate is data-driven with no implicit margins; the Risk Adjustment is a separate, explicitly stated margin compensating for non-financial risk uncertainty.
IFRS 17 · Solvency II · Modern actuarial standards — all require explicit separation of best estimate from risk margin
Section 08
6 Principles for a Credible Study
Principle 01
Holistic Business Scope
Consider all business processes — reserving, pricing, premium setting, business planning, ALM, and reinsurance — so assumption changes are balanced across every actuarial function.
Principle 02
Annual Review Minimum
Conduct a formal review at least once per year. Review more frequently when material deviations from expected experience emerge during the cycle.
Principle 03
3–5 Year Observation Window
Use a 3 to 5 year observation period for statistical stability. Too short produces volatile results; too long may mask recent emerging trends.
Principle 04
Materiality Thresholds
Apply dual materiality criteria: sufficient data volume for statistical significance, and a defined financial impact tolerance. Both thresholds must be crossed.
Principle 05
Best Estimate Basis
Base assumptions on sufficient data combined with actuarial judgment. Where data is limited, apply credibility weighting and expert overlay — raw numbers alone do not constitute a best estimate.
Principle 06
Regulatory Compliance
Follow applicable regulations and professional actuarial standards — OJK requirements in Indonesia, IFRS 17 / PSAK 117, Solvency II in the EU, and IAA guidelines globally.
Source: Nityasa Niscita — Ira Dewi Elfini (Dec 2024) · SOA Experience Studies Operating Manual · IAA Actuarial Standards
Free Excel Worked Example
Simplified A/E ratio calculation with sample mortality data — includes step-by-step formulas, exposed-to-risk calculation, and credibility weighting. Ready to use and adapt for your own studies.
Download Excel File
Episode 1 — Key Takeaways
Experience study is the actuarial feedback loop — a structured comparison of actual vs. expected outcomes, conducted over 3–5 years to detect assumption drift and validate pricing/reserving assumptions.
Four core assumption types — Mortality (A/E vs. table), Lapse (discontinuance rate), Expense (unit cost), and Morbidity (claim incidence) — each feeding directly into actuarial outputs.
A/E Ratio is the core metric — Acceptable range: 90%–110%. Above 110% triggers review; below 90% signals potential release. Full credibility requires ~1,082 claims.
Regulatory mandate is clear — IFRS 17, PSAK 117, OJK POJK 8/2024, and Solvency II all require regular experience studies. Under PSAK 117, results flow directly into P&L or CSM.
Best estimate ≠ prudent assumption — IFRS 17 requires explicit separation. The best estimate is unbiased and data-driven; the Risk Adjustment is a separate, transparent margin.