Recent mortality trends and implications for the CMI model
20 Apr 2020
CMI 2019 provides an interesting snapshot of England & Wales mortality before COVID-19.
The CMI Mortality Projections Model is widely used across the insurance and reinsurance industry to project longevity improvements. The model is updated regularly for emerging mortality trends within England & Wales.
The most recent version of the model (CMI_2019) was released in early March 2020. This model confirms that mortality improvements were relatively high in 2019, in comparison to the well-known slowdown in mortality improvements experienced over much of the last decade.
Now looking ahead, we can be certain that 2020 is going to be a very different year, heavily dominated by the on-going pandemic. COVID-19 is likely to have a material impact on 2020 mortality rates and actuaries will need to allow for this in their models.
2019 is an important data-point, despite the subsequent onset of the pandemic. This is because it shows that the period of lower mortality improvements which started in 2011 was not necessarily going to continue. CMI Working Paper 129 shows that the annual mortality improvement for 2019 was 3.8% which is the highest level of mortality improvement observed since 2011.
2019 is also a reminder of the influence of seasonal effects on mortality data. The chart below compares quarterly deaths over the last decade. We can see that mortality during the first two quarters of 2019 was relatively light when compared with the same period of 2018. Possible reasons for this include a relatively mild winter and limited flu impact. This trend reversed during the last half of the year with exceptionally high temperatures during Summer 2019 being a possible contributor to the higher number of deaths seen in the third quarter. However, on the whole, age-adjusted mortality rates were lower in 2019 than in previous years.
Impact of 2019 data on the CMI model
We see higher life expectancies and hence annuity liabilities using CMI_2019 relative to the core parameterisation of CMI_2018 (the previous version of the model). This is due to the core model reacting to recent data.
A recent blog by one of Club Vita’s longevity experts discusses how higher improvement rates under the CMI_2019 model compared to the CMI_2018 model is around the order of an increase of 0.3% to 0.5% in technical provisions.
This year is set to be a change from the high improvements seen over the last year. It is likely that mortality will be heavily influenced by the pandemic for an extended period.
Immediate impact on mortality improvements
At the time of writing (14 April 2020) the UK had reported nearly 89,000 cases with over 11,000 deaths. There is great uncertainty regarding how things will develop over the coming months. For context, extra deaths in the order of 20k-50k compared to 2019 would lead to an improvement rate that is in the range -4% to -10%, depending on age distribution and other factors.
Setting assumptions in the current climate
Actuaries will need to consider the impact of the pandemic when setting their mortality improvement bases. CMI_2019 may be the starting point for adjustments.
Consideration will need to be given both to the short-term effect of high mortality in 2020 and medium-term effects, for example the surviving population may be stronger and therefore subject to different mortality improvement rates than otherwise. Allowance may also be made for the fact that the effects of the pandemic are being felt differently across socio-economic groups.
As well as the more direct effects on mortality, we could also see some indirect effects as the economy and society respond to the situation. For example, we may see a delay in the treatment of other diseases as resources are redirected to tackle the crisis. Social isolation may also affect mental health and hence longevity.
Future CMI output to look out for
CMI Working Paper 129 (published alongside CMI_2019) acknowledges the pandemic and says the model may need to be reviewed if deaths are outside the typical range of annual volatility.
The CMI are publishing abbreviated weekly updates to give an indication of the impact of COVID-19. The next edition of their quarterly mortality monitor is expected to be released in July 2020.
CMI 2019 provides us with a snapshot of England & Wales mortality improvements before the pandemic struck. Since its publication, the situation has changed materially. It will be necessary to monitor emerging data and to consider adjusting mortality improvement assumptions.
The Hymans Robertson team is well placed to help in this area. Please get in touch if you would like to discuss the points raised in this article.