Longevity Risk: New CMI Model Implications for Annuity Writers

Background

The Continuous Mortality Investigation (CMI) regularly updates its mortality improvement model, which is widely used by UK insurers and pension schemes for projecting future mortality rates. The latest update incorporates additional years of data and introduces methodological refinements that have significant implications for annuity writers.

Key Changes in the Latest Model

Treatment of Recent Mortality Experience

The pandemic years created significant challenges for mortality modelling. The CMI has refined its approach to handling these unusual periods, giving users more flexibility in determining how much weight to place on recent experience versus longer-term trends.

Long-Term Rate Assumptions

The model's default long-term rate of mortality improvement remains a key assumption. The latest analysis provides updated evidence on what long-term rates might be appropriate, though this remains an area of significant judgement.

Cohort Effects

The treatment of cohort effects—where particular generations show different mortality patterns—has been reviewed. The "golden cohort" born around 1930 continues to show distinctive patterns, and the model's approach to projecting similar effects for later cohorts has been refined.

Impact on Annuity Valuations

Initial analysis suggests reserve movements in the range of 1-3% for typical annuity portfolios, though individual firm impacts will depend on their specific circumstances and current assumptions.

Pricing Implications

For new business pricing, the model update raises questions about appropriate assumptions in a competitive market. Firms need to balance competitive positioning against prudent pricing that reflects genuine uncertainty about future mortality improvements.

Practical Considerations

• Quantify the impact under various parameter combinations to understand the range of outcomes
• Document the rationale for parameter choices clearly for auditors and regulators
• Consider how assumption changes affect capital requirements under Solvency II
• Review hedging strategies in light of updated longevity projections

How Wizard and Company Can Help

We can help you understand and implement the latest CMI model updates, from technical impact assessment to assumption-setting and documentation. Our experience across multiple annuity writers provides valuable benchmarking perspective.