Beyond the Pandemic: A driver-based view of mortality rates and their implications for actuaries

Understanding mortality rates and how they might change in the future has always been key to pricing protection business and annuities. Throughout recent history, actuaries have assumed that mortality rates progressed relatively smoothly year-on-year, and the tools and techniques developed to work with mortality data reflect this.

The COVID-19 pandemic was a tumultuous time for actuaries, as they assessed the immediate impacts of waves of additional deaths and the implications for protection policies and annuities. Now, actuaries must determine how to return to something resembling business-as-usual when recent data is impacted by spikes in COVID-19 deaths, and thus unsuitable for the tools and techniques developed pre-pandemic. 

Adding to this challenge, the data emerging from 2022 and 2023 suggest that many countries are observing significant excess mortality, i.e., deaths beyond what was expected before the pandemic, that cannot be attributed to COVID-19.  Does this data represent a new normal for mortality, or is this a transient “blip” on a return to a pre-pandemic mortality trajectory?

I was invited to contribute to the Institute and Faculty of Actuaries’ (IFoA) Post-Pandemic Biometric Assumption-Setting Working Party, which was tasked with providing guidance to U.K. actuaries as they navigate this difficult post-pandemic period. I was delighted to be able to give something back to the actuarial profession and to collaborate with peers wrestling with shared challenges.

I relished the opportunity to research different drivers of mortality, develop technical methodology, and turn the group’s thoughts and outputs into a coherent publication. 

Despite the complex and subjective subject matter, the working party quickly converged on a preferred approach for handling mortality in a post-pandemic world, which is outlined in our recently published paper:

• Of the options available for working with mortality data since 2020 (which can be summarized as: adjust, ignore, or explain), the group’s preferred option is taking a driver-based view to explain the ways in which mortality has deviated from expectations. 
• In a driver-based approach, the aim is to attribute differences between what has been observed and what was expected to potential causes (or drivers). While it may be hard to do this precisely, thinking of excess mortality in this way provides an intuitive framework for  considering how the excess will evolve in the future. Although this can be onerous, the insights gained from such an approach are invaluable for basis-setting.
• The paper identifies and analyzes some of the key drivers of adverse mortality experience in the U.K. and concludes that the most material drivers are likely to be COVID-19, its sequelae, and the strain on the healthcare system – increased accident and emergency waiting times and ambulance response times, for example.
• The paper proposed a methodology that allows actuaries to benchmark projection models – such as the popular CMI model – against even a simple driver-based view. The insights gleaned from this straightforward approach can help with choosing appropriate parameters for extrapolative models and provide a tangible interpretation of changes between pre- and post-pandemic bases.

The working party was tasked with helping U.K. actuaries, but many of the paper’s insights are applicable regardless of geography. To learn more, please view the following:

• IFoA summary blog post
• Report webinar (IFoA members only)
• Full report
  

RGA is equipped with both the technical expertise and financial security to manage post-pandemic mortality risks. Contact us to find out more about our reinsurance and de-risking solutions.