Insurance and reinsurance broker and risk advisory Aon has warned today that re/insurers and pension funds need to avoid over-reacting to how inclusion of COVID-19 deaths changes recognised mortality models, saying that “longevity risk has not gone away.”

Once excess deaths are added into the mortality models for the United Kingdom it may produce an unrealistic fall in life expectancy, Aon warns.

Insurance and reinsurance companies, as well as pension schemes and funds, factor life expectancy into their calculations for managing their liabilities.

If life expectancy falls, longevity risk could be perceived as reduced, but Aon’s Risk Settlement Group believes it’s important not to over-react to this when it causes “disruption” to the CMI Mortality Projections Model.

Tim Gordon, Head of Demographic Horizons in Aon’s Risk Settlement Group, explained, “The CMI Model is the de facto official mortality projections model for the UK and, since it was introduced in 2009, we have all become accustomed to its annual update in March.

“The CMI Model blends an average of recent national mortality improvements into a long-term improvement rate, which has been a robust approach since its introduction. If, however, the 60,000 excess deaths we have experienced in the UK in 2020 so far, are input into the model without adjustment, then it is likely to produce unrealistic falls in life expectancy. The CMI’s newly released consultation focuses on whether or how to adjust its model to ensure its projections remain reasonable.

“We need to be mindful that COVID-19 doesn’t necessarily imply a fall in future mortality improvements. Although mortality in 2020 has been much heavier than expected, it is possible that future mortality may actually be lighter than anticipated. In the short-term this could be because some individuals who died in 2020 would have otherwise died in the next few years.

And although the UK is currently in an economic recession, and recessions tend to be associated with lower future mortality improvement, the increased attention to healthcare and social care may lead to greater long-term public spending on these areas, which is also typically positive for future mortality improvement.

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