Improved Understanding of Population and Mortality Data Benefits the UK and International Pensions and Insurance Sectors

Description of impact

The 2011 UK census revealed issues with the accuracy of the underlying population data that
were of considerable concern to the pensions and life insurance sectors. This led directly to the work of Cairns et al. (2016), who developed methods for identifying anomalies in national population and mortality data.
The work has impacted on institutions in the UK, US and France. Results of the research have enabled insurers to reduce prices for the transfer of pension liabilities, saving UK pension funds between GBP 330,000,000 and GBP 1,000,000,000. It has persuaded actuaries to revise the mortality tables that they use for pricing and reserving including changes in the methodology underpinning the UK actuaries’ Continuous Mortality Investigation (CMI) mortality projection tables.

Who is affected

UK, US and France

Narrative

Beneficiaries and Types of Impact
The results of this research are being used by or have had an impact on companies and institutions in the UK, US and France: Prudential Retirement in the US; the Continuous Mortality Investigation of the Institute and Faculty of Actuaries (CMI); actuarial consultancies advising insurers and pension funds; UK pension funds; insurers and reinsurers; the Office for National Statistics (ONS).
CBDK has impacted on: professional practice; published mortality tables; pricing of billions of pounds of longevity transactions, with a documented/verifiable pathway to impact in each case.

Pathway to impact
The authors’ original and longer report was completed in December 2013, and was followed by a series of presentations by Cairns and co-authors to key stakeholders to kickstart generation of impact from the research. Presentations included US practitioners (New York), the US Social Security Administration (Baltimore), United Nations Population Directorate (New York), members of the Continuous Mortality Investigation (London), mortality experts at the Office for National Statistics (Titchfield), actuaries’ Life Conference (Birmingham), and the International Mortality and Longevity Symposium (Birmingham).

Prudential Retirement
The impetus for CBDK originated from Prudential Retirement (led by Kessler) who were concerned about the accuracy of ONS population data. The results in CBDK gave Prudential the confidence to revise their mortality tables and reduce prices. Since publication of the paper, Prudential have used the results in all of their UK transactions. Kessler in her supporting letter states: “As a direct result of this study, my team revised [their] mortality tables … [and] have reduced the price charged by Prudential by nearly 1%”. She continues to note that Prudential have executed transactions worth GBP33,000,000,000 since 2016, resulting in savings to UK pension funds and insurers of approximately GBP330,000,000. “Moreover, we believe that the entire market has
taken these revised tables into account … [with] estimated savings … nearing £1 billion.”

Office for National Statistics
The ONS conducted a methodological review in 2016 of official high-age population estimates. One of the key drivers for the review was CBDK.

Continuous Mortality Investigation (CMI)
The CMI conducts mortality investigations on behalf of the UK actuarial profession and produces mortality tables and forecasts of mortality improvements that are extensively used by UK pension funds and insurers when they value their liabilities. Methods and results in CBDK have been used extensively in two key work streams (mortality projections and high-age mortality) of the CMI that are clearly documented in the CMI working paper (WP) series.

CMI Working Paper 91 (WP-91) and its successors concern the CMI’s approach to projecting mortality improvements. These require use of a table of historical mortality rates. The results of CBDK convinced the CMI that anomalies could have a material impact on mortality projections and so, inspired by CBDK, they developed a simplified method to adjust for anomalies. The CMI’s flagship projection tool itself gives users the choice of whether or not to use the adjusted or unadjusted population data, but use of the adjusted data is the default.
A further impact of CBDK on the work of the CMI is evidenced in WP-100 including references to “CBDK” diagnostics). This documents the CMI’s work to improvements in single age mortality rates at very high ages, and makes extensive use of the CBDK diagnostic tools 1, 2A and 2B. builds on the conclusions of CBDK that the ONS data have a small discontinuity at age 90, and developed their own methodology to correct this.
The CMI projections model, including its high age methodology are used extensively by life insurance and pensions actuaries in setting best estimate mortality improvement assumptions (e.g. see the USS 2018 Valuation, page 12). These assumptions impact on the valuation of trillions of pounds of insurance and pension liabilities. A decrease of only 0.1% per annum (quite common in recent years) to the mortality improvement rate in CMI_2018 will take tens of billions off these liabilities.

Milliman
Milliman is among the world's largest providers of actuarial services. Their supporting letter [5.7] (see also [5.8, page 2]) discusses the impact CBDK has had internally and how it has impacted on their clients.
• The work of CBDK “initiated more than four years of research in Milliman’s Paris Office”;
• Work with a major client, a multinational insurance company headquartered in France, led the client “to update its own mortality tables, …. leading to a change in [their] capital calculation modelling.”
• CBDK more generally has had a strong impact on consulting, including increased awareness of data quality issues, and, through CBDK-inspired adjustments to data, have had a significant impact on the calibration of stochastic mortality models: calibrations that have an impact on regulatory capital requirements for insurers.

The supporting letter also emphasizes the impact of CBDK on the Human Mortality Database (HMD) (a much-used source of mortality data by multinational insurers) which revised its exposures methodology in 2018.

Impact status	Achieved
Impact date	1 Jan 2014 → 31 Dec 2020
Category of impact	Economic
Impact level	International