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 an IFoA Longevity Risk Framework that is intended to address the first bullet.
Summary of Framework
The 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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TPR Climate Change Guidance Consultation
17 August 2021
Louise Pryor, IFoA President, will chair this free-to-view session, in which Alex Darsley, TPR, Actuarial Regulatory Policy, will be discussing the regulator’s Climate Change Guidance Consultation, which is seeking views on new guidance designed to help trustees meet tougher standards of governance in relation to climate change ri -
September 2021 - Exam Preparation Techniques Webinar
23 August 2021.
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This session will examine the megatrends and themes driving the Future of Work across the Financial Services industry, and how Covid-19 has accelerated new future work priorities with a particular focus on hybrid work and leadership mindset and capabilities. -
Internal audit is often the Cinderella of the audit world. It’s a regulatory requirement for insurance companies to have an internal audit function, so why not make it as useful as possible? This session will look at how to link an internal audit plan to the risk register, and how that helps audit committees and boards to spot problems and fix them. -
Climate change is one of the greatest risks facing our world today. Addressing it will require multi-faceted solutions. Through this panel session, we will explore the different levers that can be used to meet net-zero targets including climate science and data, government engagement, and mobilising green finance.
Louise Pryor, IFoA President, will chair this free-to-view session, in which Alex Darsley, TPR, Actuarial Regulatory Policy, will be discussing the regulator’s 
This session will examine the megatrends and themes driving the Future of Work across the Financial Services industry, and how Covid-19 has accelerated new future work priorities with a particular focus on hybrid work and leadership mindset and capabilities.
Internal audit is often the Cinderella of the audit world. It’s a regulatory requirement for insurance companies to have an internal audit function, so why not make it as useful as possible? This session will look at how to link an internal audit plan to the risk register, and how that helps audit committees and boards to spot problems and fix them.
Climate change is one of the greatest risks facing our world today. Addressing it will require multi-faceted solutions. Through this panel session, we will explore the different levers that can be used to meet net-zero targets including climate science and data, government engagement, and mobilising green finance.