Articles - Mortality assumptions remain internationally inconsistent

Cass academics warn of serious implications for investors

 Five years on from their study warning that actuaries must address the ‘considerable differences’ in mortality assumptions across the EU, academics from Cass Business School, which is part of City University London, and Kingston University have discovered that nothing has changed.
 The paper questions whether the differences in the mortality assumptions can be justified by the data, and calls on actuaries to take a more consistent approach across countries, warning that this lack of consistency could have significant implications for investors and organisations across the world.
 The widest variation in assumed life expectancy in the study was between France and Denmark, where actuaries assume that a 65 year old man can expect to live for 27.5 years in the former and 15.1 years in the latter, a difference of more than twelve years.
 The paper ‘Second International Comparative Study of Mortality Tables for Pension Fund Retirees’, by Cass Professors Steve Haberman and Richard Verrall withTerry Sithole of Kingston University, updates a previous study from 2006 which comparedmortality assumptions used in the valuation of defined benefit pension liabilities in Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Spain, Sweden, Switzerland, UK and USA.  
 Professor Verrall said: “It is not surprising that the mortality assumptions used in company pension schemes should vary from country to country, due to variations in underlying population mortality as well as variations of the profile of typical membership of a company pension scheme. However, it appears that variations in mortality assumptions are much greater than would be justified by these factors alone.”
 Commenting on the importance of the conclusions of the study, Professor Haberman said: “Defined benefit pension liabilities can form a significant item on the balance sheet of many companies. If, for example, a company is the subject of a merger or acquisition and the jurisdiction of the regulations governing the pension liability changes, this can have a significant impact on the transaction.”
 The 2006 study was funded by the Actuarial Profession and a group of firms of consulting actuaries. This new project was requested by the IAA Mortality Task Force because new mortality tables have been adopted in some countries since the original study, and, in many cases, the population mortality data have also been updated.  The underlying research work has been funded by the Actuarial Profession through the Mortality Research Steering Group.
 The paper will be presented by the authors at the Staple Inn Hall, London on 20 June 2011 at 5pm.

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