August 31, 2010
A study released by global reinsurer, Swiss Re, has warned about the consequences to longevity funding brought about by underestimating life expectancy.
In its recently released report entitled ‘A short guide to longer lives: Longevity funding issues and potential solutions’, Swiss Re says current reserving made for longevity by reinsurers, life companies and governments is based on outdated historical assumptions about actual life expectancy.
The example used in the study to highlight this problem showed that in 1977, life expectancy projections for a UK male who would be born in 2010 was 71 years. However in 2000, this estimate had been significantly revised to project a life expectancy of 77 years for a UK male born in 2010.
The report considers what insurers, reinsurers, governments and pension plans can do to help address the challenges faced by societies, including Australia, as a result of increased life expectancy.
While the study covers its recommendations in some detail, the summarised recommendations for key stakeholders in addressing longevity funding include:
- The insurance industry must encourage the development of more sophisticated risk models that recognise potential future longevity trends, especially in light of recent regulatory initiatives
- Governments should support the development of a longevity capital market through the publication of reliable, consistent mortality data to allow the production of transparent and robust indices
- Annuity providers will need additional longevity capacity in the longer term and the capital markets may be able to provide some of this
Governments and regulators need to consider re-aligning retirement ages with life expectancy
- Governments and regulators need to consider re-aligning retirement ages with life expectancy and implement consistent regulation and accountancy guidelines
Christian Mumenthaler, Head of Life & Health Products and member of Swiss Re’s Group Management Board, said: “While life expectancy is on the increase, the time required for implementing effective longevity funding solutions is running out. Insurers, governments and pension providers must act now to ensure that living longer remains a benefit to society, rather than a financial burden.”