COMPARISON OF LEE-CARTER’S CLASSIC AND GENERAL MODEL FOR FORECASTING MORTALITY RATE IN INDONESIA

Abstract

Assurance Company needs to know the mortality rate of a country to decide the value of the premium which has to be paid by the company. To do that, an assurance company requires a mathematical model which is able to represent problems in forecasting mortality rate. One of modelwhich have been acknowledged by the actuary community in forecasting mortality rate is Lee-Carter model. This research forecasts the mortality rate in Indonesia by using Classical Lee-Carter Modelas the basic model of Lee-Carter. Besidesthat, this research also usedGeneralized Lee-Carter model, which is an extension of the basic Lee-Carter model. The parameters in both models will be estimated by using Least Square method and the Newton Raphson method. The result of parameter estimation will be substituted into the model to obtain the estimated mortality rate and the result will be compared. Then, the parameter which depends on the year will be used in mortality forecasting by using the neural network. The final result of this research is a table of mortality rate in Indonesia for the next 3-years period.