Register here to join our upcoming webinar on the new CIA Mortality Improvements scale (CanMI-2024).
This is the beginning of a multi-part series covering the recently released Report to the CIA’s Project Oversight Group on Mortality Improvements Research (the “report”). We are pleased to present key observations as well as outline important considerations that we will cover in future instalments of this series.
The result of work commissioned by the Canadian Institute of Actuaries (CIA) in 2020, the report represents the CIA’s first comprehensive review of mortality improvements (MI) in Canada since 2017. While the report does not change accepted actuarial practice, the CIA’s stated desire of harmonizing MI assumptions across pension and insurance disciplines means that we would expect the MI scales will soon form the basis for accepted actuarial practice. The question will be the level of adjustments and discretion allowed for in implementation.
What’s the key takeaway from the report?
Most plan sponsors will likely be most concerned with the impact of the new MI scales on plan liabilities. For plan sponsors using CPM-B, pensioner liabilities would be expected to increase between 1.5% and 3.5% for men and 1.5% and 2.5% for females. For reference, the change in liability in moving from CPM-B to MI-2017 is approximately 0.5%.
It has become common practice in the UK and US to regularly update near term improvement rates used in actuarial valuations to reflect emerging data. The new MI reflects this trend, basing its short-term rates on a projection of recent Canadian population data, up to 2019. In comparison, MI-2017 bases its near-term rates on Canadian population data up to 2015 and CPM-B uses data from the Canada and Quebec Pension Plans up to 2011.
The new MI scale also assumes an update to ultimate MI rate of 1.3% per annum, higher than both the 0.8% p.a. assumed in CPM-B and the 1.0% in MI-2017.
Adopting these new MI scales will increase liabilities for plan sponsors. How these new tables are incorporated into actuarial practice will be an important issue for plan sponsors.
How were the new MI scales developed?
Much of the report is quite technical and quite a difficult read for all but the most technically minded actuary. The important takeaways concerning the development of the MI scales are:
- The primary data source used was the Human Mortality Database. This data was supplemented and cross referenced with data from the Canada Pension Plan, Quebec Pension Plan and Old Age Security.
- The researchers considered multiple time periods, ultimately basing both the near-term projections and derivations of ultimate rates in the improvement scales on data from 1980 through 2019.
- The new MI scales are based on methodology that builds upon that used by the UK’s Institute and Faculty of Actuaries’ Continuous Mortality Investigation (CMI) in developing MI tables in the UK. Chosen from among fourteen different methods considered, the methodology combines both deterministic and stochastic methods and differs from that used to construct CPM-B and MI-2017.
What issues should pension actuaries and the CIA consider when implementing the MI tables?
Future mortality improvements are inherently difficult to predict, which leaves a lot of room for professional judgement. The “Outlook” section of the report does a good job of recognizing that there are many additional considerations that warrant scrutiny prior to formalizing guidance. We will focus on some of these considerations in the upcoming parts in this series:
- Analysis of cause-of-death drivers behind MI
The improvements in longevity experienced by Canadians over the past 100 years have been remarkable. Looking back, we can isolate several major causes for these improvements – for example the decline in smoking has led to a marked decrease in premature deaths due to circulatory system issues. With smoking rates among Canadians, especially younger cohorts, now very low, we shouldn’t expect further reductions in mortality due to smoking cessation (at least not to the same magnitude). We will delve deeper into the drivers of recent improvements to provide insights into what could be expected into the future. (If you are interested in this subject, we have also recently been hosting a webinar series on potential drivers of significant future longevity improvements. See here for recordings of the series so far, and details of future sessions). - Impact of socio-economic factors
Not only do mortality improvements vary by age, cohort and time – research suggests that they also vary socio-economic status and other factors. Club Vita’s large database of Canadian defined benefit pensioners has allowed us to gain important insights into the direction and size of these factors. We’ll explore whether population level data is appropriate for projecting mortality improvements for the Defined Benefit and Insured populations, or whether improvements need to be adjusted before applying to this population. - Implications of COVID-19
While most health agencies have declared that the pandemic is over, emerging mortality data continues to suggest lingering impacts. To those who don’t spend most of their time dealing with longevity, it may come as a surprise that excess deaths in Canada were higher in 2021 than 2020 and higher again in 2022. Full data for 2023 is not yet available, but deaths appear to have remained at least somewhat elevated. Not all excess mortality is directly attributable to COVID-19. Understanding the sources will be important to making informed projections for the future.
Finally, for those interested in a deeper dive into different approaches to modelling mortality improvements, a webinar recording of an event we hosted on this subject can be found here.
We look forward to helping you navigate the implications of the new MI curves. If you aren’t already signed up to our mailing list, please do so using this link to ensure you are notified when future instalments of this series are released.
Lastly, we’d love to hear from you. Please contact us with any questions or topics you want us to cover.