Life Insurance Update: Recent CMI Data Indicates Slight Extensions in Average Human Lifespans
The Continuous Mortality Investigation (CMI) has unveiled its latest Mortality Projections Model, CMI_2024, which promises to significantly impact the UK's pension landscape. This new model introduces several significant updates, particularly in the context of pension schemes, aimed at providing a more accurate reflection of future mortality rates and life expectancy projections.
One of the key changes in the CMI_2024 model is the introduction of structural differentiation by age. This allows for different mortality trends at young, middle, and old ages, better reflecting recent observed experience than previous, more aggregate approaches.
Another significant update is the incorporation of pandemic and post-pandemic data. The model increases its weighting of higher mortality experienced during the COVID-19 pandemic and adapts its improvement factors to account for subsequent post-pandemic trends. In some periods, these trends have shown a faster-than-expected recovery in mortality improvements.
The impact of these changes on life expectancy projections is notable. Projections under CMI_2024 show an increase in life expectancy compared to the CMI_2023 model, especially for older members of pension schemes. This is a reversal from previous updates, which saw reductions in projected life expectancies as the pandemic's impact was more heavily weighted.
The shift from CMI_2021 to CMI_2024 previously led to reductions in projected life expectancy, with declines of up to 12 months for younger members and smaller decreases for older ones. However, the CMI_2024 model now reflects recent recovery trends, particularly in 2024, which saw the lowest all-age standardized mortality rates in England & Wales on record. This has led to an upward revision in projected life expectancies for pensioners, especially when using the "core" version of the model.
For UK pension schemes, these changes mean higher liability valuations, especially for older members, and potential operational adjustments as the industry adapts to the new projections. Transitioning to CMI_2024 may require schemes to reassess their actuarial assumptions and could lead to higher reported pension obligations.
However, for accounting periods ending in 2025, it is considered reasonable for auditors to allow continued use of CMI_2023 while companies evaluate the new model. The nuanced age-specific changes in mortality trends may also affect pricing and risk assessments in the pension risk transfer market, with different implications for schemes depending on their membership profile.
In conclusion, the CMI_2024 model marks a shift from downward to upward revisions in projected life expectancies, reflecting a return to pre-pandemic improvement rates and more granular, age-specific modeling. Trustees and sponsors should closely monitor these developments as they affect funding, accounting, and risk management strategies.
The CMI_2024 model's consideration of pandemic and post-pandemic data in its mortality projections could potentially have implications beyond the UK's pension landscape, as these trends might be analyzed in other domains such as health-and-wellness, science, or finance, where demographic shifts and life expectancy changes can significantly impact business strategies and policy decisions.
In light of the model's improvements in age-specific mortality trends, businesses involved in health-and-wellness or finance that cater to older populations could find opportunities for growth in the expanded life expectancies projected by CMI_2024. On the other hand, events like significant demographic changes or economic downturns could impact these trends, necessitating ongoing monitoring and adaptive strategies.
