The analysis and projection of mortality rates for annuity and pensions business

Longevity risk is a major issue for the developed world. As both mortality rates and birth rates fall, the increasing burden of providing for retirees falls on a smaller working population. Under such circumstances, the accurate modelling and measurement of longevity risk becomes particularly important. Longevity risk is present in the annuity portfolios of insurance companies, and increasingly of reinsurers as well. However, the biggest concentration of longevity risk in the private sector in the United Kingdom is most often in the shape of definedbenefit pension promises by employers. This makes longevity risk of crucial interest to managers and investors, even if they think that their business has nothing to do with insurance. Actuaries handle longevity risk by breaking it into two components: the current (or period) rates of mortality, and the projection of future rates. In both areas actuaries have made significant advances in their modelling and understanding of longevity risk. This critical review outlines how methods have developed, and how the papers in the accompanying thesis have contributed to these advances.