By Andrew Peterson
A key theme for the SOA Pension Section over the last year has been mortality improvement and longevity-related topics. In fact I have touched on this topic in both my prior 2012 Pension Section News (PSN) columns and will continue to do so for this one.
In the June 2012 PSN we had an article highlighting the new Scale BB Mortality Improvement exposure draft report. The SOA's Retirement Plans Experience Committee (RPEC) has since finalized the report and it is available on our website. As a reminder, Scale BB has been developed as an interim mortality-improvement scale that may be used by pension actuaries until a formal successor to the widely used improvement scale, Scale AA, is completed. In addition, an updated and expanded question and answer document (Q&A) is available. The Q&A contains additional background information on the development, application and impact of Scale BB. Finally, thanks to everyone who sent in comments on the Scale BB exposure draft; a summary of the comments and RPEC's response to them can be found on the SOA website. (If you have trouble with the hyperlinks, the documents can be found at www.SOA.org under Research -> Completed Experience Studies -> Pension)
Another reminder: the Pension Section has developed a mortality resources page on the SOA website that provides a wealth of information on mortality topics. It’s an easy to remember Web link: www.SOA.org/pension-mortality. The page is organized topically and includes sections on mortality tables, surveys/introductory articles, mortality models, p-splines/smoothing (for the more technically oriented) and much more. I invite you to check it out, and I also invite submissions of new items to add, as there are constantly new articles and items of research in this area.
Finally, continuing with the longevity topic, I was recently privileged to attend the “Longevity Eight” conference, an international event covering “Longevity Risk and Capital Markets Solutions,” hosted by the University of Waterloo, Ontario, Canada. This event was an interesting mix of industry and academic experts in the field of longevity research and the capital market products that are being designed to manage longevity risk. There was a strong actuarial presence at the event, given our view of the importance of this work, the SOA was a gold sponsor.
The most interesting aspect of the event for me was hearing how the longevity risk market has developed in the United Kingdom (U.K.) and how the products being used there (e.g. like buy-outs, buy-ins and longevity swaps) are now making their way to the North American market. Several of the conference speakers talked about how the U.K. longevity market took off when the participants in the market (plan sponsors, plan trustees and providers) came to a common understanding of the price of mortality risk. This common understanding of pricing has resulted in a market where discussions are focused on the efficacy of managing/transferring longevity risk versus the basic issue of the appropriate price.
From my perspective, I don’t believe the North American market is at this point yet, but it appears to be moving in this direction. The recent announcements by GM, Sears and several other large companies to buy annuities for their participants points in this direction. I expect we will be hearing much more about this in the future and the Pension Section will be seeking to cover this topic through our research and continuing education efforts. If you have interest in reviewing presentations from the Longevity Eight conference, they can be found here.
Andrew Peterson, FSA, MAAA, EA, is staff fellow – Retirement Systems at the Society of Actuaries’ headquarters in Schaumburg, Ill. He can be reached at apeterson@soa.org.