EUROPE: Mortality assumption calculations need a radical overhaul to give schemes and capital markets a better understanding of the factors that affect them, a report argues.
The report by Swiss Re, A window into the future: Understanding and predicting longevity, published today, suggested current models - blended or stochastic - made insufficient use of information available and could not be easily adapted to reflect medical progress.
The report’s author, head of life and health research and development Daniel Ryan (pictured), said the key was to use commercial databases such as the General Practice Research Database to build a picture of how combinations of diseases have affected overall mortality.
He advocated combining this historical information with forward looking scenarios considering treatments in trial to give a series of different events which could be used to describe the reasons for predicted changes in mortality.
This meant when medical advances were realised, it could easily be explained whether they had already been factored in and, if they had not, projections could be updated.
“It’s putting a covering of a narrative over the numbers that are churned out by a particular model,” Ryan explained.
He conceded unforeseen checks to advances in treatment - such as health scares or the failure of promising treatments - could cause predictions to change but said this was addressed by calculating a range of long-term assumptions on a disease by-disease basis.
Ryan said this type of approach would have been better able to predict the dramatic improvements in longevity in the 90s.
“We still would have had to change our expectations, but it would have been over a more gradual period of time rather than the kind of step change we saw,” he explained.
Ryan added this approach could address the problem of limited market capacity for longevity swaps by opening up the field to new players.
“By providing greater information to the capital markets we can help them understand that, while longevity in the future is an unknown, it is inherently no more unknown than many of the other variables people have to consider when taking on future risk,” he said.
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