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Longevity Risk Framework

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

  • The Growth Mindset for Actuaries

    13 October 2021 - 8 December 2021

    Fully booked.

    This practical course is aimed at actuaries at any stage of their career who want to develop their own growth mindset and apply it to their work setting and personal or professional lifelong learning. The content of the course builds on the lecture given by Dr Helen Wright on Growth Mindset as part of the President’s 2021 Lecture series, and will be delivered over a period of 2 months, from mid-October to early December.

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    The role of actuaries within the health sector varies considerably from one country to another, due to differences in the local evolution of health systems and the funding models for health services. 

  • Spaces available

    This paper outlines key frameworks for reserving validation and techniques employed. Many companies lack an embedded reserve validation framework and validation is viewed as piecemeal and unstructured.  The paper outlines a case study demonstrating how successful machine learning techniques will become and then goes on to discuss implications.  The paper explores common validation approaches and their role in enhancing governance and confidence.

  • Spaces available

    Content will be aimed at all actuaries looking to understand the issues surrounding mental health in insurance and in particular those looking to ensure products and processes widen access for, and are most useful to, those experiencing periods of poor mental health.
     

  • Spaces available

    The IFoA Policy Briefing 'Can we help consumers avoid running out of money in retirement' examined the benefits of blending a lifetime annuity with income drawdown. Panellists, including providers and advisers, will look at the market practicalities of taking the actuarial theory through into the core advice propositions used by IFAs and Fund Managers. They will share a number of practical issues such as investment consequences before and after retirement and the level of annuity that is appropriate and answer questions from the audience.

  • Speech from the Governor of the Bank of England, Andrew Bailey

    Lincoln's Inn The Treasury Office, London WC2A 3TL
    1 December 2021

    The IFoA is pleased to be hosting the Governor of the Bank of England, Andrew Bailey, to deliver a speech on delivering policyholder protection in insurance regulation.

    The speech will be presented to an in-person audience, and simultaneously live-streamed, at 14.00 on Wednesday 1st December.

  • The Many Faces of Bias

    2 December 2021

    Spaces available

    This webinar looks at the many types of biases, both conscious and unconscious and the impacts they can have in the workplace.  Raising our own awareness and understanding of the issues can help us avoid the pitfalls of unconscious bias in particular.  We’ve all heard the phrase ‘office banter’ but are we sure that’s how those on the receiving end perceive it and is it ok to go along with it?

  • Spaces available

    Actuaries need to take action now - but how?  With a focus on climate change, this session will provide informed insight to enable you to improve your knowledge and understanding of the issues involved, demonstrate how it will impact advice to your clients, and highlight prospective opportunities for actuaries within pensions and wider fields.

  • Spaces available

    Pension scams have become more prevalent as a result of the pandemic, and Trustees have increased responsibilities to protect members, which means that actuaries need to be in a position to provide advice in this area. Our specialist panel will include a professional trustee, an IFA and head administrator, two of whom are members of PASA.

  • Spaces available

    The covid-19 pandemic creates a challenge for actuaries analysing experience data that includes mortality shocks.  To address this we present a methodology for modelling portfolio mortality data that offers local flexibility in the time dimension.  The approach permits the identification of seasonal variation, mortality shocks and late-reported deaths.  The methodology also allows actuaries to measure portfolio-specific mortality improvements.  Results are given for a mature annuity portfolio in the UK

  • Spaces available

    In this webinar, the authors of the 2021 Brian Hey prize winning paper present a new deep learning model called the LocalGLMnet. While deep learning models lead to very competitive regression models, often outperforming classical statistical models such as generalized linear models, the disadvantage is that deep learning solutions are difficult to interpret and explain, and variable selection is not easily possible.

  • Spaces available

    The dominant underwriting approach is a mix between rule-based engines and traditional underwriting. Applications are first assessed by automated rule-based engines which typically are capable of processing only simple applications. The remaining applications are reviewed by underwriters or referred to the reinsurers. This research aims to construct predictive machine learning models for complicated applications that cannot be processed by rule-based engines.

  • Spaces available

    With the Pension Schemes Act 2021 requiring a long term strategy from Trustees and sponsors, choosing a pensions endgame strategy has become even more critical. However, it is important that the endgame options available are adequately assessed before choosing one. With an ever-increasing array of creative and innovative options available, this decision may not be straightforward.