Mortality update

In our latest mortality update, we consider the release of the CMI 2023 mortality projection model in light of recent experience and the current economic outlook.

Isio has considered the recent release of the CMI 2023 mortality projection model in light of experience since the COVID-19 pandemic and the current economic outlook. We continue to model a consistent range of scenarios for mortality in the coming years, reflecting the factors we believe will drive mortality experience. In our view, the core parameters set out in the CMI 2023 model fail to fully allow for the most likely impact of these factors and, as acknowledged by the CMI, appear to be set in between the polarised views of users and to control model features, rather than based on the actual data coming from 2022 and 2023 experience.

Indeed, the CMI noted that the core parameters are not aligned with any user group’s views. This paper sets out a high-level view of the modelling we have undertaken and our views on potential future mortality experience in the UK, together with our approach to adjusting the core model to reflect those views.

Broadly, Isio considers that greater credibility could be placed on mortality experience from 2022 onwards and that on balance, in the long-term, mortality improvements are likely to be slower than projected by the core model. Our view is consistent with prior years and means that our central scenario for life expectancies and, consequently, best estimate liabilities is lower than the core CMI 2023 model is projecting.

Improvements in bulk annuity pricing seen over the last few years have resulted from several factors, including an evolving understanding of longevity. If this continues, we could see further falls in the price of insurance. However, companies and trustees managing their pension schemes will be interested in the CMI’s observation that (re)insurers supported stronger core parameters at the latest review (i.e. longer life expectancies) than pension consultancies like Isio.

If interpretations of future longevity begin to diverge meaningfully between sellers (insurers) and buyers (schemes and their advisers), gaining certainty over longevity through a scheme buy-out will start to appear more costly. Alongside various other developments in regulation and policy, this could be an interesting new ingredient in weighing up whether to buy out liabilities or run a scheme on into the future.