A ground-breaking medical-based approach to quantifying longevity risk that takes account of changing mortality phases was unveiled by Risk Management Solutions (RMS) today. The RMS® Longevity Risk Model examines expected future waves of mortality improvement that depend on changing social patterns, healthcare expenditure, and the development of new medical treatments, as well as historical phases of change. Exploring how transitions occur between the different phases provides companies with a better assessment of longevity risk than conventional models that use forward projections of past statistical trends.
“Most existing probabilistic longevity models measure current mortality trends, but fail to adequately capture the medium and long-term dynamics of mortality change,” commented Dr. Andrew Coburn, vice president of RMS’ Emerging Risk Solutions business unit. “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 25 years, which means the traditional methods that project forward current trends may be overestimating the longevity risk.”
Mortality improvement rates for U.K. adults across all ages have reached more than two percent a year, mainly driven by a decrease in the number of people smoking and the healthcare industry’s effectiveness in reducing premature deaths, particularly from heart disease. However, both of these trends have diminishing returns in improving mortality, as smoking rates have already dropped to low proportions and the decline in premature deaths related to cardiovascular disease treatments is slowing down.
“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,” said Dr. Coburn. He added: “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.”
Future phases of mortality change
RMS has identified three major drivers of future mortality change, which are the subject of significant investment by leading biotech companies. These include the ‘Cancer Treatment Revolution’, the ‘Era of Regenerative Medicine’, based on breakthroughs in stem cell therapy, and the ‘Retardation of Aging’, driven by potential treatments to slow the process of cell degeneration.
“There are numerous potential scenarios that could play out in the future to change the profile of mortality risk,” said Peter Ulrich, senior vice president of Emerging Risk Solutions at RMS. “Our model allows insurers to gain a deeper understanding of their unique risks, which depend on the characteristics of their portfolios, rather than simply applying an industry average.”
According to the model, the most likely pattern for mortality improvement is that the current high rate will tail off in 15 to 25 years. This will be followed by a moderate and sustained improvement from Regenerative Medicine, peaking in the middle of this century, before a major wave of improvement occurs over the second half of the century from advances in our understanding of the biology of ageing.
The RMS® Longevity Risk Model draws on a robust scientific knowledge-base of medical studies, including an extensive 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, as well as the mortality exposures in a number of pension portfolios. Initially focused on the U.K., the model will shortly be expanded for the U.S. and Continental European markets.