abcd

1
abcd
Panning for SilverThe Implications of an Ageing
PopulationJoanne WellsYounger Member
Convention 2002
2
TODAY'S PRESENTATION

• Population trends
• Opportunities for insurers
• Longevity and medical advances
• Developments in the pricing and underwriting of
  risk

3
THE CHANGING DEMOGRAPHICS
Age profile of the UK is rising

• Ageing of the baby boomers
• Declining fertility
• Improving mortality
• Some consequences
• The number of people aged over 50 is forecast to
  grow by 6m over the next 25 years
• Total number of older people is higher and these
  people are also living longer
• A different target market for the financial
  services industry

4
DEMOGRAPHICS
Fertility Rate
Source Government Actuaries Department
5
DEMOGRAPHICS
Improving Mortality
Life expectancy at different ages
Source Government Actuarys Department
6
DEMOGRAPHICS
Projected Age Distribution United Kingdom 1971
2070
Source Government Actuaries Department
7
WEALTH
Income in Retirement
Source Department of Social Security (2001)
Pensioners Income Series, 1999-2000
8
WEALTH
Home Ownership
Source NOP, Financial Research Survey, 2000
9
LONGEVITY HAS ITS BENEFITS
.......and its problems

• All financial services brochures for the silver
  market show happy attractive old people - we all
  want to live longer
• Silver market is expanding..
• Insurers run significant extra risks on their new
  and existing business
• Reinsurers are keen to selectively expand into
  this large market by assisting their clients

10
WHICH RISKS ARE PROVIDERS FACING?

• We are living longer - but not necessarily in a
  healthy state
• We will work, and need income protection, for
  longer
• People will need life assurance at older ages
• Annuitants are already living longer and will
  continue to do so
• Impaired annuity market will grow
• The need for long term care will be greater

11
PROVIDERS FACE EXTENDED RISKS FOR

• Income protection
• Life assurance
• Critical Illness
• Annuities
• Impaired annuities
• Long term care

12
NEW RISKS FOR INSURERS
Life Assurance

• Improving longevity is good news for existing
  block!
• More demand from older lives
• People have children older
• Inheritance tax, demand up to age 90 or longer
• Retirement age to increase?
• Demand for higher ages at entry
• Little data available
• Reinsurers have mortality studies from around the
  world and have written such business in
  specialist areas

13
NEW RISKS FOR INSURERS
Life Assurance

• Mortality continuing to improve
• ...but already priced in?
• Rates close to bottom?

14
IMPROVED LONGEVITY HAS ITS RISKS
The Annuity Market

• Existing blocks - improvements greater then
  expected
• New business - how much further will mortality
  improve?
• How much have rates changed - due to improved
  longevity?
• Male 65, 100,000 purchase price in 1991
  9,455pa
• Male 65, 100,000 purchase price today
  8,511pa
• Reduction in annuity 10
• Can reinsurance help?

15
REASSURANCE AND ANNUITIES
Will reinsurers help?

• Reinsurers know about mortality, but most of us
  are reluctant to take longevity risk from
  existing blocks
• Why?
• Life insurer has margins in investment and
  expenses
• Everyone worried about the scale of future
  improvements - including the reinsurers
• A large possible downside for little upside!
• So where can we help in this market?

16
IMPAIRED ANNUITIES
A growing market

• We are keen to provide support to clients for
  impaired annuities, why?
• The market is relatively new and growing
• Opportunities for innovative product development
• Underwriting and mortality pricing are our key
  strengths
• Risk can be high, so insurers keen to pass risk
  on
• Potential upside is higher - in relation to
  downside

17
IMPAIRED ANNUITIES
Key questions for reinsurers and providers

• Which market segment?
• Serious impairments
• Lifestyle impairments
• Occupation / location
• What is risk profile for each impairment?
• How will medical advancement affect experience?
• New drugs for Alzheimer's for example

18
LONG TERM CARE
Markets

• Two separate markets
• Pre-funded
• Immediate needs
• Insurers and reinsurers and tried to develop a
  pre-funded market in the early 90s, without
  success
• Immediate needs market is now growing

19
LONG TERM CARE
Immediate Needs

• Impaired annuity, with different characteristics
• Older age at entry, typically aged 80 and higher
• Lower expected life expectancy
• No compulsion to effect annuity

20
REINSURANCE FOR IMMEDIATE NEEDS LTC

• Underwriting at advanced ages is a difficult art
• Pricing information is scarce
• Potential error could be high
• Living one more year causes larger proportionate
  loss
• For shorter term annuities investment yield less
  significant
• Reinsurance product a great benefit for providers

21
EQUITY RELEASE
Role of Reinsurance

• Great product for the silver market
• Product structure is complex behind the scenes
• Product design depends on expected longevity
• Lenders require repayment based on expected
  deaths
• Reinsurance product can swap expected for
  actual

22
WHAT IS A REASSURANCE PRODUCT?

• A combination of advice and support on
• Product development
• Pricing
• Underwriting
• Claims
• Marketing
• Research
• Followed by a comprehensive financial programme
  to share the risk between the provider and
  reinsurer

23
THE SILVER MARKET
Reinsurance Services Required

• Research
• Pricing
• Underwriting
• Product design
• Ongoing advice
• Fits very well with our skills and services
  brought to a long term client partnership

24
Developments in the Pricing and Underwriting of
Risk
25
SOCIAL POLICY

• To underwrite and price for the elderly we must
  consider a wider social view
• Government and social policy will be a major
  influence
• Current elderly population are not high priority
  for government
• What will happen as elderly population becomes
  more affluent?

26
GOVERNMENT INITIATIVES
Our Healthier Nation

• Priority areas are
• Heart disease and stroke
• Accidents
• Cancer
• Mental health
• Aim to reduce death rates
• Targetted at working population - up to 65

27
IMPLICATIONS OF GOVERNMENT POLICY

• As initiatives work, there will be knock on
  effect to older ages
• Improving mortality will continue into old age
• We will view people with minor impairments as
  standard
• Those disease free will be super preferred
• Major implications for annuity market, especially
  with growth of impaired products

28
AVAILABILITY OF TREATMENT

• Availability of diagnosis and treatment for
  older lives will be key
• As our generation ages, we will demand the best
  care - and many of us will be able to pay for it
• We wont accept priority given to younger lives
• More treatment will be given to elderly lives
• Underwriting will become even more specialised

29
MEDICAL ADVANCEMENT

• Life expectancy for men was 45 in 1901 and is
  projected to be 84 in 2011 (GAD 1998 population
  projections)
• Medical science has advanced substantially in the
  20th century
• Still developing very fast
• Of specific interest to the life assurance and
  health industry
• New diagnostic techniques
• New screening programmes
• May improve mortality - but what about morbidity?

30
SPECIFIC DEVELOPMENTS

• Improvements in treatment of hypertension have
  already benefited incidence of heart attack and
  strokes
• Screening initiatives
• Cervical screening
• Prostate cancer

31
EXAMPLE
New Screening Programs
32
EXAMPLE
New screening programmes

• Prostate Cancer
• Screening programme now proposed
• 2 year trial launched April 2001
• 230,000 men between 50-69 invited to attend for
  check
• Sweden has had a full screening programme for
  some time
• They have one of the highest incidence rates of
  prostate cancer in the world

33
PROSTATE CANCER
Possible effects of successful screening

• Many more cases of prostate cancer detected
• Average age of detection will reduce
• Diagnosis before disease is life threatening
• Cases which would have gone undetected will be
  found
• Mortality rates will improve, morbidity rates
  will worsen

34
CRITICAL ILLNESS
Prostate cancer
35
POSSIBLE FUTURE DEVELOPMENTS

• Early detection system for lung cancer
• Early use of MRI scans for Multiple Sclerosis
• Memory assessment testing for Dementia
• MRI screening to detect silent stroke
• Full body scanning
• Genetic screening by GPs in general practice

36
PRICING
Life and Health

• Developments point to improving mortality
• Are these improvements already priced in?
• If so term rates could be close to bottom
• Critical Illness rates set to increase at older
  ages
• Especially if definitions not updated
• Guarantees to become more expensive, if available
• Other health products to become more expensive at
  older ages

37
PRICING
Annuities

• More players will enter the impaired annuity
  market
• Own mortality table pricing by reinsurers
• Segmentation of annuity market resulting in lower
  standard rates
• More criticism of annuities?
• Further product development

38
UNDERWRITING THE SILVER MARKET

• No clean proposals at older ages
• How do diseases interact?
• Underwriting decision for a disease may vary by
  product
• For example, diabetes
• In middle age insurable for life assurance (with
  rating)
• May not be insurable for health assurance
• In old age the survivors may be ordinary rates

39
SUMMARY
Some speculation

• Medical science will continue its relentless
  advancement
• As a result mortality will continue to improve at
  the middle and advanced ages
• Demand for health insurance will grow in these
  age groups
• Product designs in both the health and annuity
  areas will change
• Interaction between product development actuaries
  and underwriters will become ever more important
• Risks run by life insurers and reinsurers will
  need careful and close monitoring

40
THE SILVER MARKET
Summary

• Large potential for growth in risk products
• Pricing and underwriting are major challenges
• Reinsurers will continue to research this growing
  market and provide their clients with competitive
  advantage

41
abcd
Panning for SilverThe Implications of an Ageing
PopulationJoanne WellsYounger Member
Convention 2002