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Improved mortality puts new pressure on annuities

Annuity rates and life office solvency are set to face fresh pressures

following research from the Continuous Mortality Investigation Bureau

showing that mortality has improved significantly faster than anticipated.

The Bureau, set up by the Faculty and Institute of Actuaries, has issued a

working paper sharing with the industry its new figures and employing novel

mathematical techniques known as cohort effects.

As a result, life offices could be forced to assign additional scarce

financial resources into reserving for future annuity liabilities at the

same time as coming under sustained pressure from the markets.

The Bureau prepares the mortality data relied upon by life actuaries when

setting annuity rates and assessing future liabilities. Its paper is still

a work in progress, intended to alert life offices of its findings, ahead

of the publication of a full new mortality table in 2004.

CMIB assistant secretary Peter McGurk says: “It is an important piece of

research which life offices would have to consider very carefully when

setting annuity rates and reserving bases.”

Wentworth Rose chief executive Philip Rose says: “Clients who have waited

to take out annuities made an error, rates are only ever going to get

worse. The Green Paper has ducked the issue by saying that annuities are

fine – longevity is a problem that is not going to go away.”

Prudential UK actuarial director David Belsham says: “The CMI research

reflects work that we have already done. We have already assumed a higher

rate of improvement.”

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