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Aon says new Continuous Mortality Investigation model will reduce scheme liabilities

LONDON (7 March 2019) – Aon, the leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that it expects use of the latest model from the Continuous Mortality Investigation to lead to a reduction of around 2.5% in the liabilities of a typical UK pension scheme. The exact impact will depend on the age profile of an individual scheme’s members and the valuation assumptions used.

The Continuous Mortality Investigation released its latest Mortality Projections Model, CMI_2018, today.  Compared to the last model (CMI_2017), CMI_2018 adds data on deaths from across the UK population up to the end of 2018 and places more weight on lower mortality improvements in recent years.  Both changes will decrease projected life expectancies and therefore scheme liabilities – meaning projected life expectancy at age 65 will fall by almost half a year.

The updated model also introduces a new way to allow for higher or lower improvements in sub-populations (for example pension scheme members) compared to the population as a whole, which should provide a more intuitive way of reflecting such differences.

Matthew Fletcher, senior longevity consultant at Aon, said:
“While the pensions industry still expects mortality rates to improve, by increasing the weight placed on recent mortality improvements, the new model reflects the growing evidence that these improvements are likely to be slower in the near term than the historically high rates seen in the years up to 2011.

“The CMI model is based on mortality data across the whole population, but we are often trying to estimate life expectancies for a sub-population – for example members of defined benefit pension schemes where evidence suggests that mortality improvements may have been higher than across the broader population. With previous versions of the model, the only easy way to reflect this was to reduce the weight put on recent low improvements.

Matthew Fletcher continued:
“We’re therefore really pleased to see that CMI has added the facility to increase or decrease initial rates of improvement more easily. This should allow actuaries a more straightforward way to explain any adjustments they are making to the model to reflect improvements for sub-populations.”

Martin Bird, senior partner & head of Risk Settlement, said:
“The insurers and reinsurers have continued to evolve their pricing models in light of emerging data and we expect these updates to the CMI’s model to be routinely adopted, reflecting the now strong evidence that underlying longevity improvements are materially lower than seen in the first decade of this century.”

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Notes to Editors
About Aon

Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.

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