The risk management of longevity is still in its infancy and there are a number of aspects that could improve this:
- Creation of an industry-standard definition of all the risks behaviours underlying longevity risk.
- Development of a method to benchmark the output of different risk models used by individual companies using this standard definition.
- Identification of new ways to reduce risk using this standard definition to identify the intrinsic and avoidable risks.
- Consideration of the differing longevity risk exposures of different kinds of beneficiaries
The MRSC has published for consultation an IFoA Longevity Risk Framework that is intended to address the first bullet.
The consultation period is open until 31/3/21 and we would welcome any comments or suggestions relating to the proposed framework or the document more generally. Please send any comments to research@actuaries.org.uk.
Summary of Framework
The proposed framework has been designed to achieve the following qualities:
- The taxonomy should be applicable to both “economic” and “one year” assessments of risk
- It should differentiate between the systemic population risk (to which all providers are exposed albeit to in different extents) and the specific portfolio risk (to which individual providers may have materially different exposures)
- It should be applicable to all forms of longevity exposure and longevity risk management approaches
It contains 10 risk components split between those affecting the general population and those that would affect the specific portfolio. The risk components are described in the table below.
|
|
Risk Component |
Definition |
Example |
|
Population Risks |
Event Risk |
Risk of future longevity events occurring at times or with effects not consistent with the assumptions |
Reduction in smoker propensity since the 1970s |
|
Population Modelling Risk |
Risk that modelling choices or interpretations made regarding the reference population are incorrect (or change) without the data or information changing |
Recognition of the cohort effect |
|
|
Population Mis-estimation Risk |
The risk that the reference population assumption mis-estimate the correct level of the population mortality rates |
Overestimation of mortality improvement in the late 00s (realised following the 2011 census) |
|
|
Population Volatility Risk |
Risk of short-term deviations in reference population mortality improvements from the underlying level of mortality improvement owing to systemic effects |
Poor performance of 2015 flu vaccine |
|
|
Portfolio Risks |
Heterogeneity Risk |
The risk that lives with materially different longevity profiles are considered homogenous within a classification group |
Lack of behavioural or mental well-being information when determining assumptions |
|
Classification Risk |
The risk that lives are misallocated to a classification group within the mortality basis and utilise assumptions that are not appropriate |
Inaccuracy of assumed impairment level based upon individual medical information |
|
|
Basis Risk |
The risk that the assumptions derived are not relevant to the lives in the portfolio (including geared impact on the portfolio exposure to future longevity events) |
Uncertainty in relevance of the slowdown in population mortality improvements since 2011 |
|
|
Portfolio Modelling Risk |
Risk that modelling choices or interpretations made regarding the portfolio are incorrect (or change) without the data or information changing |
Uncertainty in the shape and duration of anti-selection effects |
|
|
Portfolio Mis-estimation Risk |
The risk that portfolio adjustment assumptions derived from external evidence and/or empirical experience mis-estimate the correct level of the assumption |
Limited credibility of experience at older ages |
|
|
Portfolio Volatility Risk |
The risk that even if the classification and the assumptions are correct the specific mortality and morbidity events that occur cause the pattern of future cashflows to change |
The number of actual deaths that occur over a period may differ from the expected number of deaths though random variation |
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Events calendar
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Behavioural Science Series with Keith Grint - Wicked Problems, Clumsy Solutions and Leading Change
19 April 2021
Wicked Problems, Clumsy Solutions and Leading Change -
Dr Catherine Donnelly will present the basics of the structures for pooling longevity risks and summarise recent research results in this area in addition to outlinging future research around this topic. This is work under a research programme funded by the IFoA's Actuarial Research Centre, called 'Minimizing longevity and investment risk while optimising future pension plans'. -
Professional Skills Training Webinar - 21 April 2021
21 April 2021
Climate-Related Risk - This free to view webinar on Climate-Related Risk is the first in a series focusing on some of the ‘Hotspots’ identified in the JFAR Risk Perspective bringing the Risk Perspective to life with practical illustrations and insights from subject experts from the IFoA and other Regulators -
Recent decades have seen institutions, such as employers and financial services, give people more choice and flexibility, but these freedoms have come with more responsibilities. Individuals are now responsible for managing more of their own financial risks, from ensuring they put enough money into their pension to securing affordable protection to be financially resilient.
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Actuarial Innovation in the COVID-19 era
This event is online.26 April 2021 - 7 May 2021
Join us for this brand new IFoA webinar weries comprising of a fortnight of webinars, panel sessions and a hackathon, that showcase the range of ways in which the actuarial profession has added value, in the public interest, to the understanding and management of the current and future pandemics through insight and learning. -
This event is now temporarily closed on Monday 26 April, but the session will be repeated on Tuesday 27 April, 09.00-10.30. Please click here to register your place.
Actuaries have a lot to offer biodiversity management over the next decade as the world develops more depth to its response to this global challenge. This sessional offers an opportunity to learn about this emergent risk, to contribute to our thinking as a profession and help us develop the next steps forward.
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Europe Town Hall
28 April 2021
IFoA Immediate Past President John Taylor would like to invite you to the Institute and Faculty of Actuaries’ (IFoA) virtual Europe Town Hall, hosted by John Taylor with IFoA Council Members Alan Rae, Jennifer Hartley, Maribel Vasquez Flores and IFoA Chief Executive, Stephen Mann.
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Mis-estimation risk is a key element of demographic risk, and past work has focused on mis-estimation risk on a run-off basis. However, this does not meet the requirements of regulatory regimes like Solvency II, which demands that capital requirements are set through the prism of a finite horizon like one year. This paper presents a value-at-risk approach to mis-estimation risk suitable for Solvency II work -
Finance & Investment Virtual Conference 2021
Available to watch globally in May.10-12 May 2021
This year's Finance and Investment Virtual Conference takes on the timely theme of ‘resilience’, something we have all learnt a lot more about in the last year! Our diverse range of talks will explore the theme of resilience in a variety of ways including in building robust investment portfolios, in the incorporation of ESG factors, in govern -
Wearables in insurance: a win-win opportunity
14 May 2021
This talk will explore the potential benefits that wearable tech can bring to health & protection insurers and their customers. The traditional approach of integrating wearables into insurance has largely focused on measuring steps and using rewards-based incentive programs to encourage more activity. -
Join us for this talk with Professor Sir Adrian Smith as part of the 'Dr Patrick Poon Presidential Speaker Series'. Professor Smith joined The Alan Turing Institute as Institute Director and Chief Executive in September 2018. In November 2020, he became President of the Royal Society, in addition to his leadership of the Turing. He is also a member of the government's AI Council, which helps boost AI growth in the UK and promote its adoption and ethical use in businesses and organisations across the country. He received a knighthood in the 2011 New Year Honours list. -
CILA 2021
Available to watch globally in May.19-21 May 2021
We continue to live in a world of global uncertainty. Survival depends on our ability to simultaneously navigate through the diverse root-causes, ranging from: the consequences of Climate Change; on-going financial consequences of the COVID pandemic; or self-imposed changes in regulatory requirements and accounting standards. -
Pensions Conference 2021
Online webinar series16-22 June 2021
Welcome to the programme for our 2nd Virtual Pensions Conference. This year's conference features 11 webinars offering members and non-members the opportunity to get up to date content from leading experts in the pension industry. There will also be opportunity to ask questions and contribute to the discussion.
Wicked Problems, Clumsy Solutions and Leading Change
Dr Catherine Donnelly will present the basics of the structures for pooling longevity risks and summarise recent research results in this area in addition to outlinging future research around this topic. This is work under a research programme funded by the IFoA's Actuarial Research Centre, called '
Climate-Related Risk - This free to view webinar on Climate-Related Risk is the first in a series focusing on some of the ‘Hotspots’ identified in the 
Join us for this brand new IFoA webinar weries comprising of a fortnight of webinars, panel sessions and a 
Mis-estimation risk is a key element of demographic risk, and past work has focused on mis-estimation risk on a run-off basis. However, this does not meet the requirements of regulatory regimes like Solvency II, which demands that capital requirements are set through the prism of a finite horizon like one year. This paper presents a value-at-risk approach to mis-estimation risk suitable for Solvency II work
This talk will explore the potential benefits that wearable tech can bring to health & protection insurers and their customers. The traditional approach of integrating wearables into insurance has largely focused on measuring steps and using rewards-based incentive programs to encourage more activity.
Join us for this talk with Professor Sir Adrian Smith as part of the 'Dr Patrick Poon Presidential Speaker Series'. Professor Smith joined The Alan Turing Institute as Institute Director and Chief Executive in September 2018. In November 2020, he became President of the Royal Society, in addition to his leadership of the Turing. He is also a member of the government's AI Council, which helps boost AI growth in the UK and promote its adoption and ethical use in businesses and organisations across the country. He received a knighthood in the 2011 New Year Honours list.
Welcome to the programme for our 2nd Virtual Pensions Conference. This year's conference features 11 webinars offering members and non-members the opportunity to get up to date content from leading experts in the pension industry. There will also be opportunity to ask questions and contribute to the discussion.