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Spotlight on: mortality trends

Chapter three of the 2020 de-risking report

Pensions Corporate Consulting|Pensions Risk Solutions
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By Cobus Daneel and Jamie Jones | January 20, 2020

Cobus Daneel and Jamie Jones are members of Willis Towers Watson’s team of thought leaders on mortality and longevity. In this article they consider recent trends in longevity and how this impacts on schemes looking to hedge longevity risk.

Decades of annual improvements in longevity have stalled in recent years, with few or no improvements in mortality rates since 2011. Many schemes have seen this reflected in their funding valuations, with liabilities reducing as longevity expectations are updated to reflect recent experience. Indeed, a scheme which carried out a valuation in 2019 using the latest improvement model available, the CMI_2018 model, would have seen life expectancies at age 65 falling by around a year compared to their previous triennial valuation, which likely would have been based on the CMI_2015 model. All else being equal, this may have reduced liabilities by about 4% – 5%.

However, mortality experience in 2019 bucked this trend, which will result in life expectancies increasing by two to three months with the release of the CMI’s next improvement model – the first increase for around six years (see Figure 6). Is this just a one-off year for mortality improvements, or is it the start of a return to the growth of life expectancies overall?

Figure 6. Cohort life expectancies for males and females from the CMI Mortality Projections Model

Source: Willis Towers Watson, December 2019

What caused the slowdown?

Many explanations have been given for the downturn in improvements this decade. Many are quick to point to austerity measures implemented since the 2008 financial crisis or to particularly cold winters (who can forget the ‘Beast from the East’)? However, to better understand the changes, it is useful to investigate mortality at its source: the cause of death (see
Figure 7 ).

From 2001 to 2010 mortality rates saw dramatic reductions due to improvements in treatment and prevention of respiratory, cancer and particularly circulatory diseases, allowing people to live longer. However, in this decade we have seen both a slowdown in these improvements and an increase in the number of deaths from nervous diseases such as Alzheimer’s and dementia, leading to little improvement overall. The increase in nervous diseases is also an emerging key driver of future mortality rates. Ultimately future longevity will be driven by our ability to treat and prevent the most common diseases that kill us all.

Figure 7. Age-standardised mortality rates by main cause of death – males and females in England and Wales
Figure 7. Age-standardised mortality rates by main cause of death – males and females in England and Wales

Source: ONS 2018 deaths registration publication – Table 7 (age-standardised death rates by underlying cause and sex – standardised to the European Standard Population)

Growing disparity in life expectancies

Analysis by the Office of National Statistics (ONS) identifies that the gap in average life expectancy by income has increased in recent years. While there are various theories as to why this is the case, the reality is that most defined benefit (DB) pension scheme members enjoy higher-than-average income and consequently have experienced higher longevity improvements than the general population.

We will have to wait to see if the 2019 mortality experience is a one-off or the start of a new trend. However, the combination of reducing death rates and higher longevity improvements among DB pension scheme members is likely to lead insurance and reinsurance markets to reverse the recent trend of improving pricing. Unless there is evidence that these reduced death rates are a temporary phenomenon we anticipate prices increasing over the coming year.

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