CMI's proposal to add 25% weight to death data could cut life expectancy assumptions, says LCP
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The Continuous Mortality Investigation, which produces mortality projection models to be used by insurers and pension funds, has proposed setting a weight of 25% for death data in 2022 for its next projection model, a move that could shorten life expectancy assumptions by six months, consultancy LCP has argued.
The CMI has set no weight on 2020 and 2021 data for previous mortality projections as a result of “exceptional” death experience following Covid-19 - a move largely welcomed by UK life insurers.
For its next version of mortality projection model, the CMI proposed to retain the same structure and core parameters as for CMI_2020 and CMI_2021, except for:
· updating the period of calibration data by one year as usual, to 1982-2022 for CMI_2022; and
· setting a weight of 25% for data in 2022.
The CMI said mortality in 2020 and early-2021 was volatile, making it difficult to assess the longer-term impact of the coronavirus pandemic on mortality. However, it added over the last 18 months, mortality has been less volatile than earlier in the pandemic.
“Mortality has been persistently higher than in 2019 for much of that period, with excess mortality being higher than Covid-19 mortality in recent months. This suggests that mortality in 2022 may be indicative of future mortality to some extent. Given that, we intend to make some allowance for the mortality experience of 2022 when calibrating CMI_2022.”
The CMI intends to increase the weight for subsequent years until it reaches 100% for data in or around 2025, but added: “We are not committing to future weights at this time, and we will review the weights each year.”
The CMI is consulting on its proposals until 28 February.
Chris Tavener, partner and head of life analytics at LCP, said if these proposals were adopted "then life expectancy assumptions at age 65 are likely to fall by around 6 months, equivalent to 2%, when adopting the new core model, all else being equal".
He added: “This is a larger fall in life expectancies compared to recent model updates, but we share the concern expressed by the CMI that higher death rates seen in the latter part of 2022, and continuing into January, may be indicative of future mortality."
How would re/insurers reflect this data in their pricing for pension risk transfers?
