It is well documented that the UK saw very high numbers of deaths through 2020 and 2021, due to the direct impact of the COVID-19 pandemic. Mortality in England and Wales has continued at elevated levels. In fact, when compared to the last pre-pandemic year (2019), the numbers of deaths reported in England and Wales were 13.9 percent higher in 2020, 9.2 percent higher in 2021, and 6.2 percent higher in 2022. The first months of 2023 also saw higher than expected numbers of deaths reported. However, to date, the second half of this year has been closer to pre-pandemic levels.
The key reasons for greater than expected numbers of reported deaths over 2022 and 2023 are likely to be related to:
· UK healthcare - the NHS was under pressure. This was most severe at the end of 2022 (in December, over 50,000 people waited for more than 12 hours at A&E between the decision to admit them to a ward and their actual admission - before the pandemic, the number waiting this long was close to zero)
· Deaths directly involving COVID-19 - COVID-19 was mentioned as a main or contributory cause of death on around one death certificate in every 30 in 2023; this compares to more than one in 20 across 2022
· Deaths indirectly involving COVID-19 due to past infections - there is evidence that those who have had COVID-19 in the past are more at risk of many other diseases, in particular heart disease
· Seasonal flu - A large wave of flu which hit the UK and Europe at the end of last year and the beginning of this year
A general expectation of higher mortality rates compared to pre-pandemic projections has been recognised by the Continuous Mortality Investigation (CMI), a specialist company wholly owned by the Institute and Faculty of Actuaries.
In its latest model - CMI_2022 (published in September 2023, and calibrated using England and Wales population mortality data), an underlying assumption is that 2022's experience is at least partially indicative of a new trend of higher mortality rates, and as such, the CMI_2022 model makes partial allowance for 2022's mortality data. Adopting this model could mean pension scheme liabilities decreasing by over 2 percent, compared to pre-pandemic projections.
Looking ahead, the next version of the model (CMI_2023) will include 2023's mortality data. Based on what CMI have disclosed to date, a business-as-usual update would be likely to see greater weight being placed on 2023's data than 2022's - and a further reduction in projected liabilities. However, there are several issues for CMI to consider when producing the new model. In particular, it appears that there was a significantly longer delay than normal in registering deaths that occurred in December 2022. This means that 2022's mortality appears lighter than it would otherwise have done, and mortality at the start of 2023 appears heavier. If mortality experience from 2023 was given the same weight in the model as experience from 2022, this change in registration delay would only have a small impact, but if more weight is placed on 2023, then assigning the deaths to the ‘wrong' year could have a material effect on liabilities. CMI will need to consider whether and how to adjust for this.
What should we expect in the future?
It is important for pension schemes and the insurance industry to reach a view on the likely level of longevity improvements in the future, and in particular, whether and by how much expectations have changed from pre-pandemic levels. This will influence insurer pricing when schemes are ready to transact.
Overall, 2023, has seen views across the industry moving to build in higher levels of mortality than allowed for pre-pandemic, at least in the near-term. At this stage, it is not clear whether this consensus will shift towards CMI_2023 when it is released, and whether there will be any change in views on long-term improvements. For the time being, we are not seeing large changes in long-term views across the industry.
Given the continuing levels of uncertainty in future mortality, along with the recognition of higher mortality and lower improvements across the industry, bulk annuity transactions and longevity swaps remain effective forms of protection against longevity risk.
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This post is funded by Aon