As it is a risk that cannot be easily diversified or perfectly hedged, governments and private financial institutions exposed to longevity risks should pay close attention to the recent slowdown in life expectancy improvements throughout advanced nations, according to Swiss Re.
In its latest Sigma report Swiss Re says that, while life expectancy has steadily improved internationally for well over a century, in recent years there are signs that the rate of mortality improvement in developed nations has slowed.
The report states that insurers and pension schemes need to form a view on the likely success and availability of public and private health interventions in order to influence behaviour and prevent disease and death.
Using overly conservative pricing to cover the range of future mortality outcomes will make products such as annuities and life insurance unnecessarily expensive, Swiss Re adds.
Furthermore, premature assumption adjustments regarding underlying mortality trends will almost inevitably stretch insurers’ balance sheets once the liabilities are ultimately re-rated to reflect revised life expectancy realities.
“We may be entering a new period where we see no improvements to life expectancy. Decision makers in insurance will need to be alert to how the uncertainty plays out in the coming years in regards to pricing, reserving decisions and policy”, said Paul Murray, Chief Pricing Officer, Life & Health Products Centre at Swiss Re.
Swiss Re believes that cause-of-death statistics indicate some of the recent slowdown might reflect the lack of additional progress in treating major illnesses such as cardiovascular diseases.
Worsening trends in circulatory-related disease have been a key influence on the slowdown. To the extent that these can be linked to behavioural factors, lifestyle choices regarding diet and physical exercise rather than smoking/alcohol consumption are the most obvious explanations.
Swiss Re concludes by underscoring the importance of targets in driving mortality rates.
“Differences in mortality between healthy sub-groups and the general population provide a lens through which to quantify potential, but as yet untapped, mortality gains”, explained Daniel Ryan, Head of Insurance Risk Research at Swiss Re Institute.
By defining such a sub-group (ie, target population) in terms of diet or blood pressure, Swiss Re says policies can be directed towards closing the gap in mortality experience between the general population and that of the target group.
Research on an anonymised patient database from the UK indicates that if current mortality among a target healthy group with no diagnosis of 30 major diseases were to be targeted across the wider population (and this was realised over 20 years), the rate of mortality improvement would broadly return to that observed over the past four decades.
