UK/EUROPE/US - Risk Management Solutions has launched a medical-based approach to quantifying longevity risk that takes account of changing mortality phases.
The risk management solutions provider said its longevity model examined expected future waves of mortality improvement that depend on changing social patterns, healthcare expenditure, and the development of new medical treatments - as well as historical phases of change.
It said exploring how transitions occur between the different phases provides companies with a better assessment of longevity risk than conventional models that use forward projections of past statistical trends.
The model will initally be focused on the UK but expanded for the US and Continental European markets shortly.
RMS vice-president of emerging risk solutions Andrew Coburn explained: "Most existing probabilistic longevity models measure current mortality trends, but fail to adequately capture the medium and long-term dynamics of mortality change.
"Our model suggests that the level of mortality improvement we've seen in the last 30 years is likely to tail off in 15 to 25 years, which means the traditional methods that project forward current trends may be overestimating the longevity risk."
RMS said mortality improvement rates for UK adults across all ages have reached more than 2% a year - mainly driven by a decrease in the number of people smoking and the healthcare industry's effectiveness in reducing premature deaths, particularly from heart disease.
However, it said both of these trends have diminishing returns in improving mortality, as smoking rates have already dropped to low proportions and the decline in premature deaths related to cardiovascular disease treatments is slowing down.
Coburn said: "Mortality improvement is driven by multiple causes each playing out over different timeframes. Overestimating the extreme risk based on statistical extrapolations of recent variation may be leading insurers to hold too much capital that could be used elsewhere in the business."
He added: "The timeframe and magnitude of mortality improvement are restricted by what is medically possible and socially attainable, and it is by putting parameters around these uncertainties that we can draw a clearer picture of the risk."
RMS has identified three major drivers of future mortality change, which are the subject of significant investment by leading biotech companies.
It dubbed these the ‘Cancer Treatment Revolution'; the ‘Era of Regenerative Medicine', based on breakthroughs in stem cell therapy; and the ‘Retardation of Aging', driven by potential treatments to slow the process of cell degeneration.
RMS senior vice-president of emerging risk solutions Peter Ulrich explained: "There are numerous potential scenarios that could play out in the future to change the profile of mortality risk.
"Our model allows insurers to gain a deeper understanding of their unique risks, which depend on the characteristics of their portfolios, rather than simply applying an industry average."
According to the model, the most likely pattern for mortality improvement is that the current high rate will tail off in 15 to 25 years.
This will be followed by a moderate and sustained improvement from regenerative medicine, peaking in the middle of this century, before a major wave of improvement occurs over the second half of the century from advances in our understanding of the biology of ageing.
The model draws on a scientific knowledge-base of medical studies, including an extensive catalogue of mortality and medical data, a database that tracks over 3000 individual new drugs in development, population data, evidence of impact of historical epidemics, emerging patterns of infectious disease, as well as the mortality exposures in a number of pension portfolios.
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