21 November 2016 Insurance

Increasing UK mortality rates make projections difficult for insurers

Increasing mortality rates in England and Wales pose a significant challenge for life insurers, which are struggling to make long-term assumptions and may mean overpriced products for consumers, a new report by Willis Towers Watson has revealed.

High mortality rates in 2016 are continuing the direction set last year, which saw the highest number of deaths since 2003. Most firms are planning to keep their year-end longevity assumptions unchanged from previous years leading to overpriced products, reveals the survey conducted on 15 annuity firms in the UK.

The new survey has raised questions on the aptness of annuity pricing and reserving solely based on the trends.

“The gap between insurers’ assumptions and these lower levels is partly due to regulatory pressure, making annuity business unnecessarily expensive from the consumers’ perspective,” said Matthew Edwards, head of mortality and longevity at Willis Towers Watson.

According to insurers, the size of longevity stresses has increased by over 50 percent over last four years, in spite of UK mortality data now pointing in the opposite direction, largely due to the regulatory pressure on insurers to strengthen their assumptions.

“Market speculation that the high mortality in 2015 was largely due to an ineffective flu vaccine is now accepted as wrong. With deaths to date in 2016 being nearly 7% above levels seen from 2011 to 2014, last year seems less of a blip and more like a turning point,” said Edwards.

“However, setting long-term assumptions based solely on data from the last few years would be extremely risky,” he added.

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