Spotlight on Longevity December 2014: Volatility of annual mortality improvements

Annual mortality improvements for pensioner ages in England & Wales were very unusual in 2012 and 2013, by historical standards, having the lowest two-year mortality improvement for 40 years. However, years of high and low mortality improvements have tended to alternate – not taking account of this could overstate the capital required for longevity risk.

We find that the volatility of crude mortality improvements is much greater than would be expected from idiosyncratic risk alone. The similarity of patterns of improvements for males and females, for different ages, and for different countries suggests that crude annual improvements are dominated by short-term factors, such as winter temperature and infectious diseases, rather than long-term trends. This poses a challenge for actuaries, in ensuring that models do not over-react to a single year of new data.

Our Longevity services team produces regular commentaries on topical issues in the management and transfer of longevity risk known as 'Spotlight on Longevity'.

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