Retirement and health broker and advisory Aon Hewitt, part of the insurance and reinsurance Aon plc group, said there’s been a sooner than expected reduction in mortality improvement rates resulting in adjustments to UK longevity insurance and reinsurance capacity pricing.
The carrier has urged pension schemes to review these emerging lower rates of UK mortality and said reinsurance pricing levels in the fourth quarter showed price reductions of up to 2 percent for schemes that had delayed deals.
This price reduction translates into a £20 million saving on a typical £1 billion deal.
Tim Gordon, partner and head of Longevity in Aon Hewitt’s Risk Settlement Group, said; “Over the past six years, male mortality rates improved by less than 1% per year compared with over 3% per year during the previous decade.
“This reduces projected future improvement, and potentially reduces liabilities by 3-4% compared with the view of only a couple of years ago.”
He added that the firm would take a measured approach in incorporating the latest mortality data into pricing schemes, but that the change is “significant as it indicates that the expected future reduction in mortality improvements has taken place earlier than expected.
“This has material implications for longevity swap and bulk annuity pricing – especially in today’s hyper low-discount rate environment.”
Martin Bird, senior partner and head of Risk Settlement at Aon Hewitt added the company had been working hard to address the price dislocation in the longevity market after concern amongst reinsurance firms over out-of-date pricing.
He said; “We are optimistic that – with mortality data now available right up to the end of 2016 – insurers and reinsurers will be able to update their pricing to be consistent with current improvement trends.”
As retirement and health re/insurers adjust their prices sooner than previously expected, in line with the slower pace of mortality improvement rates, they could be looking at improved prospects for the coming year as they profit from a greater demand for longevity swap and bulk annuities.