Actuarial Profession produces new mortality model to project increases in life expectancy

The assumptions on future rates of mortality are important in valuing the liabilities of pension schemes and life insurance companies.

The Profession’s Continuous Mortality Investigation (CMI) chairman Gordon Sharp said: “The Actuarial Profession became concerned last year by the continued widespread use of a single set of projections (the Interim Cohort Projections; the collective term for the Short Cohort, Medium Cohort & Long Cohort Projections), which have inevitably become increasingly out-of-date. While many actuaries now make adjustments to these projections when providing actuarial advice in this area, the projections do not reflect recent mortality experience and may therefore no longer be a sound platform on which to build further adjustments. In addition, it is difficult for regulators and others to judge the reasonability of different assumptions.

“This tool will equip actuaries better to demonstrate the impact of mortality assumptions in the same “scenario testing” way as is now commonly done with financial assumptions. This launch gives actuaries the tools to make that leap.”

The Interim Cohort projections, published by the CMI in 2002, assumed an eventual fall in the rates of mortality improvement from the high levels experienced up to 1999 (the latest data at the time of their publication). However, continued high rates of mortality improvement mean that the Short and Medium Interim Cohort projections in particular now imply a rapid tail-off in rates of improvement in future mortality from today’s levels, and show a very different pattern from the most recent data published by the CMI and ONS. This has previously led the Profession to suggest that actuaries, and others using mortality projections, should consider a range of scenarios when giving advice and taking decisions in this area, rather than considering a single projection of future mortality.

The CMI therefore established a working party to develop a projection model which:

• reflects the latest experience on trends in mortality;
• is relatively straightforward to understand and describe;
• allows users the flexibility to modify projections tailored to their own views and purpose; and
• can be regularly updated over time to reflect emerging experience.

Working party chairman Richard Willets (pictured above) said: “In the very short-term, the best guide to the likely pace of change in mortality rates is the most recently-observed experience. In the long-term, the forces driving mortality change may be very different from those currently influencing patterns of improvement. Therefore, the long-term rate is better informed by ‘expert opinion’ and/or analysis of long-term patterns of change and the causes driving them.”

In addition to publishing the model, the working party also plans to publish the initial results of its research into recent experience of life expectancy in the future.

Mr Willets said: “The research is certainly as important as the model. We hope it will help inform choices of parameter values and help those using the model.”

The model and the research are being published for consultation, with discussion meetings scheduled for London and Edinburgh. The consultation period runs to 31st August 2009.

The model and related papers are available at https://www.actuaries.org.uk/learn-and-develop/continuous-mortality-investigation  

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Enquiries: Tel. Fleur Morrison on 020 7632 1453 or email fleur.morrison@actuaries.org.uk

Notes to Editors

1. Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
2. Members of the Profession have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyds.
3. The Profession is governed jointly by the Faculty of Actuaries in Edinburgh and the Institute of Actuaries in London. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of the Profession in society.
4. The Profession is available to provide expert comment to the media on a range of actuarial-related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.