The UK mortality rate increased in 2017 overtaking 2015 as the worst year for deaths since 2003 and as UK life insurers’ models are updated to more accurately reflect current trends, more responsive models could result in greater reserve releases.
RBC Capital Market analysts noted that CMI 2016 substantially underestimated the deaths in 2016 by 4%: UK deaths were high compared to expectations and the trend of higher deaths has continued into 2017 and significantly increased in the final quarter of the year, following seasonal trends and signaling the potential need for a model change.
Higher deaths alone would reduce the rate of life expectancy improvement, which would be beneficial for insurers who had written annuities.
RBC Capital Markets explained that “while the number of deaths has increased in 2017 some of this is to be expected given people tend to live longer, which leads to the population increasing in both size and age over time.
“Age-standardised mortality rates (ASMRs) are a better measure of mortality than simply looking at the number of deaths, as they take into account the population size and age structure. We estimate change in ASMRs for 2017E to be around -0.3% (a 0.3% improvement).”
Importantly the 0.3% mortality improvement is considerably below that assumed by UK insurers in their annuity reserves.
Aviva, Just Group, L&G, Phoenix and Standard Life Aberdeen all disclose annual improvement rates of between 1% and 2% (for males).
RBC analysts expect the next mortality table will again be beneficial for annuity writers.
The next mortality table, CMI 2017, to be published in March 2018, is expected to show a continued trend of dropping life expectancy improvement, mortality improved at a slower rate than that assumed by insurers.
The key question, RBC analysts said, will be how this rate compares with that assumed by insurance companies in their reserves – should mortality rates in the UK continue to increase, life insurers may be able to release greater reserves as they update models to match trends.
