Generational mortality table
A table giving mortality specific to each year of birth, thereby building in expected longevity improvement instead of freezing it.
In 2016, the annual model of the UK's Continuous Mortality Investigation cut market reserves by about 2%, without a single pensioner's situation changing. A period table describes the mortality observed in a given year at every age. It implicitly assumes that a man of forty today will meet, thirty years from now, the mortality that seventy-year-old men face today. That assumption is wrong as soon as longevity improves, and the longer the commitment the more wrong it becomes. A generational table fixes the flaw by giving each birth cohort its own set of probabilities, projected through a mortality improvement model. On the annuity side, the financial consequence is severe. Underestimating improvement by a few tenths of a point a year is enough to underreserve a book by several percent, an error that surfaces over thirty years. On the death benefit side, the effect is symmetrical and favorable. One insurer can therefore be exposed both ways, yet the offset is only apparent, since the two books share neither size nor duration. The problem solved is to stop treating mortality as a constant when it is a trend.
Britain's Continuous Mortality Investigation has published a projection model since 2009, revised every year. Each vintage moves pension fund reserves by billions of pounds without a single retiree's situation changing. The 2016 version cut reserves across the British market by roughly 2%, taking in the slowdown in longevity gains observed since 2011.
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