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Mortality Improvement and Annuities

Mortality Improvement and Annuities. Penny Teddiman CIA Annual Meeting, June 28, 2007. Background Projections over the Short Term Projections over the Long Term Convergence Recent Canadian studies Comparison to AA Scale Conclusions. Topics. 1. BACKGROUND. Demographics

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Mortality Improvement and Annuities

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  1. Mortality Improvement and Annuities Penny Teddiman CIA Annual Meeting, June 28, 2007

  2. Background Projections over the Short Term Projections over the Long Term Convergence Recent Canadian studies Comparison to AA Scale Conclusions Topics

  3. 1. BACKGROUND

  4. Demographics Higher improvement at older ages UK Experience Rapid changes in medical techniques, science and behaviour Low interest rate environment Why Concern Now?

  5. Lower Interest Rates Magnify ErrorsPV of $1,000 pa at age 65

  6. What is meant by mortality improvement? • In 1965, the probability of a 65 year old male dying within the next year was 0.03375 • In 2004, the probability of a 65 year old male dying within the next year was 0.01413 • Mortality improvement can be solved by the equation: 0.03375 × (1 – improvement) ^ 39 = 0.01413 • Average Annual Mortality Improvement = 2.2%

  7. Projections • In short term (20 years?) – improvement assumed to resemble the past. • In long term – improvement is unknown

  8. 2. PROJECTIONS OVER THE SHORT TERM . Term to use . Cohort Effect . Improvement increasing at older ages

  9. Missing later improvement

  10. Using Graduation Source: Bob Howard

  11. Canadian Male Population Cohort Improvement

  12. Rate of Annual Mortality ImprovementMales—20 Years to 2003 • Improvements standout at younger ages • UK stands out; US males lagging • SOA scale AA inadequate—created in 1995

  13. Rate of Annual Mortality Improvement Males—10 Years to 2003 • Improvement accelerating in most recent 10 years • US males at oldest ages show pickup

  14. Rate of Annual Mortality Improvement Females—20 Years to 2003 • Females improving less than male • UK stands out; US females lagging • SOA scale AA inadequate

  15. Rate of Annual Mortality Improvement Females—10 Years to 2003 • Improvement accelerating in most recent 10 years, especially at younger ages

  16. 3. PROJECTIONS OVER THE LONG TERM . Record female life expectancy . Have we reached a maximum? . Convergence and divergence . Comparison of different countries

  17. 95 UN World Bank Oishansky et al. UN Fries, Oishansky et al. Coale Coale & Guo World Bank, UN Bourgeois-Pichat, UN Siegel Bourgeois-Pichat UN, Freijka Dublin Dublin & Lolka Dublin Australia Iceland Japan The Netherlands New Zealand non-Maori Norway Sweden Switzerland 90 85 80 75 Life expectancy in years 70 65 60 55 50 45 1840 1860 1880 1900 1920 1940 1860 1880 2000 2020 2040 Year Record Female Life Expectancy Record female life expectancy from 1840 to the present [suppl. table 2 (1)]. The linear-regression trend is depicted by a bold black line (slope = 0.243) and the extrapolated trend by a dashed grey line. The horizontal black lines show asserted ceilings on life expectancy, with a short vertical line indicating the year of publication (suppl. table 1). The dashed red lines denote projections of female life expectancy in Japan published by the United Nations in 1986, 1999, and 2001 (1): It is encouraging that the U.N. altered its projection so radically between 1999 and 2001. Source: Broken Limits to Life Expectancy, Jim Oeppen and James Vaupel, Science, Volume 296, May 10, 2002

  18. Have we reached a maximum? No evidence yet of the best practice life expectancy slowing down. Source:’10 years after Kannisto: further evidence for mortality decline at advanced ages in developed countries’, R. Rau, E. Soroko, D. Jasilionis, J. Vaupel, MPIDR Working Paper WP 2006-033, October 2006

  19. Have we reached a maximum? Source: Mark-André Belzil Not only life expectancy is increasing, maximum lifespan shows a slight increase.

  20. 80 75 70 65 60 55 50 45 40 35 30 25 1740 1765 1790 1815 1840 1865 1890 1915 1940 1965 Life expectancy at birth Long-term trends in female life expectancy for selected industrialized countries until the mid-60s Source: Denmark: Andreev, 2002; England & Wales: Wrigley and Schofield (1981); France: Vallin and Meslé (2001); other countries: various statistical or demographic yearbooks and historical series. This chart is in Demographic Research – Special Collection 2: Article 2 , Convergences and divergences in mortality. A new approach to health transition, by Jacques Vallin and France Meslé, April 16, 2004

  21. 82 80 78 76 74 72 70 68 66 64 1965 1970 1975 1980 1985 1990 1995 2000 Life expectancy at birth Trend in life expectancy (both sexes) since 1965 in industrialised countries Source: France: Vallin And Meslé 2001; Russia: Meslé et al. 1998; Ukraine: Meslé amd Vallin, in press; other coutnries: various statistical and demographic yearbooks. This chart is in Demographic Research – Special Collection 2: Article 2 , Convergences and divergences in mortality. A new approach to health transition, by Jacques Vallin and France Meslé, April 16, 2004

  22. MALE LIFE EXPECTANCY AT 65 COUNTRY 1962 2002 Increase Netherlands 1.71 13.93 15.64 Denmark 1.86 13.51 15.37 Norway 2.03 14.18 16.21 Sweden 3.18 13.7 16.88 Belgium 3.4 12.46 15.86 Canada 3.53 13.64 17.17 US 3.64 12.92 16.56 Italy 4.02 12.9 16.92 New Zealand 4.18 12.71 16.89 Austria 4.26 11.99 16.25 UK 4.41 11.85 16.26 France 4.52 12.54 17.06 Finland 4.61 11.16 15.77 Switzerland 4.72 12.77 17.49 Australia 5.14 12.44 17.58 Japan 6.43 11.55 17.98 Average 3.85 12.77 16.62 Male Life Expectancy at 65Developed Countries Data is from the Human Mortality Database. University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). Available at www.mortality.org (data downloaded on February 2007).

  23. Female Life Expectancy at 65Developed Countries Data is from the Human Mortality Database. University of California, Berkeley (USA), and Max Planck Institute for Demographic Research (Germany). Available at www.mortality.org (data downloaded on February 2007).

  24. Male Comparison Life Expectancy at 65 Female Average Female Best Practice Male Best Practice Male Average UK

  25. Female Comparison Life Expectancy at 65 Canada Female Best Practice United States Female Average UK

  26. 4. RECENT STUDIES

  27. Projection using CPP Data

  28. Projection using CPP Data

  29. Old Age Security Program Mortality Experience, Actuarial Study No. 5February 2006, Office of the Chief Actuary

  30. Canadian Studies - Comparisons

  31. 5. COMPARISON TO AA SCALE

  32. Comparison to AA Scale

  33. Comparison to AA Scale

  34. In the short term, mortality improvement is increasing rapidly for males at older ages. Long term is unknown, but based on worldwide trends, should allow for possibility of high levels of improvement. A projection scale that can vary by calendar year and attained age is more flexible than the AA Scale, which varies by attained age only. AA Scale is too low. 6. CONCLUSIONS

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