13/7/2010
By Sophie Baker
A medical-based approach to calculating longevity risk has been developed by Risk Management Solutions (RSM).
The model, which takes changing mortality phases into account, examines expected future waves of mortality improvement that depend on changing social patterns, healthcare expenditure, and the development of new medical treatments. It also looks at historical phases of change.
RMS said that by looking at how transitions occur between the different phases gives companies a better assessment of longevity risk than the currently used conventional models, which use forward projections of past statistical trends.
Dr Andrew Coburn, vice president of RMS’ Emerging Risk Solutions business unit, said: “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 20 years, which means the traditional methods that project forward current trends may be overestimating the longevity risk.”
The UK’s improving longevity rates are down mainly to a decrease in the number of people smoking, and the healthcare industry’s ability in reducing premature deaths.
“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. 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.”
The group has identified the ‘Cancer Treatment Revolution’, the ‘Era of Regenerative Medicine’ and the ‘Retardation of Aging’ as three major drivers of future mortality change.
The RMS® Longevity Risk Model draws on a scientific knowledge-base of medical studies, including a catalogue of mortality and medical data, a database that tracks over 3,000 individual new drugs in development, population data, evidence of impact of historical epidemics, emerging patterns of infectious disease, and mortality exposures in a number of portfolios.
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