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... mortality is not directly considered in our mortality assumptions. However, we have calculated the implications of our assumptions for cohort mortality -see Figure 7. 4 We may note that projected cohort mortality ap- proaches projected period mortality; this tendency may be expected in view of the assumptions made. ...
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... In the field of mortality modelling, there has been a shift from the traditional trend-113 oriented approach to a more process-oriented one, that is, a change from inter-or 114 extrapolation to one that uses disease processes and related risk factors in model 115 formulation (Keilman 2003;Manton and Stallard 1984;Tabeau et al. 2001 produced that also covered the first half of the twenty-first century, but were based on 195 the key question as to whether Europe will be characterised primarily by economic 196 and cultural similarities, or by differences (Van Hoorn and Broekman 1999). 197 The above frame of thought has also been applied here, but in a quantitative man-198 ner by utilizing non-demographic macro models to produce cause-specific mortality 199 forecasts. ...
Mortality is forecast for total mortality, lung cancer and circulatory system diseases excluding stroke for 21 countries. The forecasts are produced from models that include non-demographic variables in their model formulation and a time lag of 0–15 years between the exogenous variable and mortality. Separate time-series models are first constructed for men, women, Eastern and Western Europe and 11 causes of death using data for the period ± 1980 to 2000. The three cause-of-death models are then validated by comparing modelled with observed standardised death rates up to 2005–2009, depending on the country, before two short-term forecasts are made up to 2020. The first forecast is called the constant scenario as all exogenous variables are held constant after the year 2009. The second is the convergence scenario as values are set to converge by a certain year. Results showed that in most Western European countries the observed decline in total mortality since the late 1970s is set to continue in the near future for men, but is likely to level off for women. The mortality decline since the mid- to late 1990s in most Eastern European countries is predicted to continue. One important advantage of short-term forecasts is that values of the exogenous variables are already known for those variables for which a time lag has to be incorporated, meaning that both total mortality and specific causes of death can be accurately estimated for about 10–15 years ahead. This should of course be of great interest to policy makers
Purpose
– Bodies with responsibilities for paying pensions to individuals face a mortality risk in that the pensioners may prove longer lived than expected. The significant scale and uncertainity of this risk is becoming increasingly clear. Various measures are available to control this risk and new innovations such as mortality linked bonds and derivatives have been proposed. The purpose of this paper is to evaluate the alternative methods of controlling morality risk and discuss their potential policy implications.
Design/methodology/approach
– The paper considers the various parties affected by mortaling risk and assesses the difficulties of predicting mortality. Different methods of predicting mortality are discussed. Policy issues are considered and conclusions presented.
Findings
– There is a huge demand for methods of hedging and trading mortality risk. Financial markets are responding to this with a number of insurers moving into the bulk annuity market. New products, such as survivor bands and mortality derivatives, are just appearing in the market, it is still to be seen whether this major financial problem will be best be solved by the financial markets or by government intervention.
Originality/value
– The paper offers an evaluation of the alternative methods of controlling mortality risk together with the potential policy implications.
Purpose
In the UK, there is a strong government commitment to the compulsory use of annuities to manage the “decumulation” of assets in defined contribution pension schemes. Almost all annuity rates are determined by reference to the gender of the individual involved. This has the implication that females receive a lower pension for a given size of pension fund. It is arguable that this situation represents a clear case of sex discrimination and moral, legal‐ and policy‐based arguments can be made for and against this view. The purpose of this paper is to review these arguments in the light of emerging evidence about longevity.
Design/methodology/approach
The paper outlines the nature of the UK annuity market and the associated methods of annuity pricing, details the difficulties of predicting longevity and discusses the economic implications of a move to unisex annuity rates.
Findings
A number of recent trends are weakening the financial and statistical arguments against introducing unisex annuity rates. The life expectancy of males and females is converging, the use of annuity pricing factors other than gender is increasingly common and it has become clear that there is great uncertainty in mortality projections.
Practical implications
Statistical and financial arguments that gender should be a primary factor for costing annuities should be accorded less weight than in the past.
Originality/value
The paper offers an evaluation of the merits of unisex annuity rates in the light of recent evidence about longevity.
In most stochastic mortality models, either one stochastic intensity process (for example a jump-diffusion process) or a collection of independent processes is used to model the stochastic evolution of survival probabilities. We propose and calibrate a new model that takes inter-age correlations into account. The so-called stochastic logit's Deltas model is based on the study of the multivariate time series of the differences of logits of yearly mortality rates. These correlations are important and we illustrate our study on a real-life portfolio. We determine their impact on the price of a longevity swap type reinsurance contract, in which most of the financial risk is taken by a third party. The hypotheses of our model are statistically tested and various measures of risk of the present value of liabilities are found to be significantly smaller in our model than in the case of one common underlying stochastic process.
