You are here

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 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

Filter or search events

Start date
E.g., 18/04/2021
End date
E.g., 18/04/2021

Events calendar

  • Spaces available

    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

  • Spaces available

    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.

  • Actuarial Innovation in the COVID-19 era

    This event is online. 
    26 April 2021 - 7 May 2021
    Spaces available

    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.

  • Spaces available

    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.

  • Europe Town Hall

    28 April 2021

    Spaces available

    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.

  • Spaces available

    Sessional Meeting - Free to viewMis-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
    Spaces available

    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

  • Spaces available

    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.

  • Spaces available

    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
    Spaces available

    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 series
    16-22 June 2021
    Spaces available

    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.