Close Menu
    What's Hot

    Does the Decline in Life Settlement Provider Numbers Impact Investors?

    13 August 2025

    Member Experience Coming to the Fore in Competitive UK Pension Risk Transfer Market

    13 August 2025

    Is a Geroscience Breakthrough the Black Swan Event for Life Insurers and Pensions?

    13 August 2025
    X (Twitter) LinkedIn
    LinkedIn X (Twitter)
    Life Risk News
    • Home
    • Features

      Does the Decline in Life Settlement Provider Numbers Impact Investors?

      13 August 2025

      Member Experience Coming to the Fore in Competitive UK Pension Risk Transfer Market

      13 August 2025

      Is a Geroscience Breakthrough the Black Swan Event for Life Insurers and Pensions?

      13 August 2025

      Q&A: Carl Groth, Chief Risk Officer, Legal and General Retirement America

      13 August 2025

      Economic Weakness Expected to Accelerate Growth of German Pension Buy-Outs

      13 August 2025
    • Commentary

      Why Is Working-Age Mortality Worsening in the UK?

      13 August 2025

      Navigating Credit Allocations for Buy-In: Why Getting It Right Matters Now

      13 August 2025

      Mental Health Illness and Its Impact on Life Expectancy in the USA

      16 July 2025

      The Dangers of Defaulting to Fast Track

      16 July 2025

      Life Expectancy in Breast Cancer

      12 June 2025
    • Events
    • Magazine
    • News

      Prudential Awarded International Longevity Risk Transfer Mandate by NN Life & Pensions

      11 August 2025

      MMC UK Pension Fund Sedgwick Section Completes Bulk Purchase Annuity Buy-In With Standard Life

      11 August 2025

      National Grid UK Pension Scheme Completes Third Buy-In With Rothesay

      6 August 2025

      Finance of America Announces Repurchase of Blackstone Equity Stake

      6 August 2025

      Kosmos Management Completes Maple Life Financial Acquisition

      5 August 2025
    Subscribe
    Life Risk News
    Home » Nuanced Impact of CMI Model Change on Pension Risk Transfer Market

    Nuanced Impact of CMI Model Change on Pension Risk Transfer Market

    Features 16 July 2025Greg WintertonBy Greg Winterton
    Twitter LinkedIn Email
    Share
    Twitter LinkedIn Email

    Life insurers in the UK have taken on pension liabilities worth hundreds of billions of pounds across hundreds of thousands of lives in the past decade or so, and therefore, any increase in life expectancy (i.e., a decrease in mortality rates) would, other things being equal, increase the aggregate payouts over time.

    At the end of June, the Continuous Mortality Investigation (CMI) in the UK, which produces mortality data and analysis, issued its latest update, CMI_2024, which indeed showed an increase in cohort life expectancies at age 65 in England and Wales; men gained approximately three months (1.3%), and women, two weeks (0.1%).

    While there are sub-trends within the new data, life insurers tend to see the CMI data as a useful benchmark, as opposed to a bible.

    “The headline change in life expectancy between CMI_2023 and CMI_2024 is an increase of three months for males and two weeks for females at age 65. All else being equal, an insurer using the core CMI model could see an increase in liabilities of around 1% moving from CMI_2023 to CMI_2024, albeit this would vary depending on the maturity of their liabilities,” said Stuart McDonald, Partner at Lane Clark & Peacock.

    “Importantly though, many insurers and reinsurers form their view on life expectancy independently, and the majority of insurers and reinsurers who responded to the CMI_2024 consultation indicated that their own view on life expectancy was higher than proposed in the consultation. So, in practice there may be limited impact on insurer liabilities.”

    Still, the CMI data is certainly a foundational pillar in the insurance and pensions actuarial world. It is deeply embedded in Solvency II valuation frameworks for insurers, funding valuations for pension schemes, pricing models for annuities and protection products, and stress/scenario testing, for example.

    This latest iteration is considered to be the result of the most significant changes to the model – announced in a consultation request in February – in many years. Specifically, the structure of the CMI Model now allows for different mortality trends at young, middle, and old ages to better reflect recent experience, and includes an explicit mortality shock in 2020 – the height of the Covid-19 pandemic – with the impact reducing in each successive year. Previous iterations of the model disregarded data from 2020 and 2021 entirely.

    The consultation received plenty of feedback from members to help shape how the latest edition looks.

    “The CMI had good engagement with its consultation on the proposed changes, with 27 respondents including insurers, reinsurers and actuarial consultants advising pension schemes. Consequently, the model now better reflects recent real-world data such as the impact of the Covid-19 pandemic and differences in mortality trends seen between groups. For example, mortality has been improving more rapidly for pensioners than for people of working age,” said McDonald.

    As McDonald states above, CMI_2024 provides good news for pensioners and less encouraging signs for those in the age cohorts below. But the life insurer’s back book is weighted toward retirees – the last vestiges of the defined benefit pension industry, which began to decline in the late 1990s and early 2000s – of which the majority are men.

    That means that, despite what seems, at just 1.3%, a small increase in life expectancy for males, the back book is more exposed to this cohort from a liability perspective.

    Not quite.

    “Life insurers hold significant capital buffers and risk margin against the risk of increases to life expectancies. The increase in life expectancy between CMI_2023 and CMI_2024 is very small relative to these buffers. The increase is also small relative to the falls in life expectancy seen over the last decade,” said McDonald.

    Still, an increase in liabilities, even an expected one, is an increase in liabilities. And it is not only the life insurers that use the CMI model as a baseline for their own – the pensions trustees do so as well.

    In recent months, there has been talk in the pensions industry about the benefits to the corporate sponsor of running on, as opposed to winding up, the scheme via a bulk purchase annuity buy-out.  Lower costs (in the short term), investment flexibility and the ability to generate a funding surplus – which could benefit members (via discretionary increases) or even be refunded to the sponsor – all have their own appeal to trustees.

    But the news that mortality rates are down, particularly in the older cohorts, might provide additional support for increased activity in the longevity swap market.

    “Trustees and corporates have become accustomed to seeing successive CMI models reduce life expectancies. For the first time, the new model will lead to a significant increase in liabilities for many schemes if they choose to use the core model “out-of-the-box”,” said McDonald.

    “This increase in life expectancies may serve as a reminder that longevity, which is often the largest unhedged risk that schemes face, is not a one-way bet. This potentially increases the appeal of longevity hedging for schemes pursuing a run-on strategy.”

    The CMI Mortality Projections Model was introduced in 2009 to replace previous projections and has been updated on a broadly annual basis since then. There was a pronounced steady fall in mortality until 2011, but falls were more modest from 2011 to 2019. The increase in mortality from 2019 to 2020 was exceptional, with mortality in 2020 returning to levels previously seen in 2008 before falling again between 2020 and 2024, returning to levels similar to the previous record low mortality observed in 2019.

    So, record low mortality means, in a nutshell, that pricing for DB pensions looking at a buy-in or a buy-out will go back up, right?

    It is not nearly that straightforward.

    “The impact of the update to the CMI model on PRT pricing is nuanced as it depends on the extent to which both the pension scheme and the insurer reflect the change in life expectancies,” said McDonald.

    “PRT pricing may now appear better value to pension schemes if the CMI model change has a larger impact on their view than it does on life insurer pricing, for example.”

    2025 - July Longevity and Mortality Trends Longevity Risk Mortality Risk Volume 4 Issue 7 – July 2025
    Share. Twitter LinkedIn Email

    Related Posts

    Does the Decline in Life Settlement Provider Numbers Impact Investors?

    13 August 2025

    Member Experience Coming to the Fore in Competitive UK Pension Risk Transfer Market

    13 August 2025

    Is a Geroscience Breakthrough the Black Swan Event for Life Insurers and Pensions?

    13 August 2025

    Q&A: Carl Groth, Chief Risk Officer, Legal and General Retirement America

    13 August 2025

    Comments are closed.

    Most Popular

    Does the Decline in Life Settlement Provider Numbers Impact Investors?

    13 August 2025

    Member Experience Coming to the Fore in Competitive UK Pension Risk Transfer Market

    13 August 2025

    Is a Geroscience Breakthrough the Black Swan Event for Life Insurers and Pensions?

    13 August 2025

    Why Is Working-Age Mortality Worsening in the UK?

    13 August 2025
    Ad

    Your trusted source for capital markets participation in Life Risk

    X (Twitter) Instagram LinkedIn
    Life Risk
    • About Life Risk News
    • Get In Touch
    • Our Team
    • Copyright Notice
    • Terms and Conditions
    • Privacy Policy
    • Sitemap
    Coverage
    • Home
    • Features
    • Events
    • Commentary
    Subscribe

    Type above and press Enter to search. Press Esc to cancel.

    We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
    Cookie SettingsAccept All
    Manage consent

    Privacy Overview

    This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
    Necessary
    Always Enabled
    Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
    CookieDurationDescription
    cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
    cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
    cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
    cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
    cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
    viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
    Functional
    Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
    Performance
    Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
    Analytics
    Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
    Advertisement
    Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
    Others
    Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
    SAVE & ACCEPT