An underlying mortality assumption refers to a predicted figure for the number of deaths that will occur over a certain time for insurance policy holders. Insurance companies use these predictions in order to help them estimte what their obligations will be, and how best to prepare for them. Underlying mortality assumptions are calculated using mortality tables.
Actuaries calculate underlying mortality assumptions as accurately as possible to try to prevent large imbalances in their balance sheets. If they make mistakes, there could be financial hazards for the insurance company. For example, if an actuary underestimates the underlying mortality assumption, then the insurance company could have to pay a large number of death benefits at once, while concurrently losing many premiums. This could cause trouble for the business. Insurance and pension regulators have guidelines that must be followed for calculating underlying mortality assumptions.
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