Mortality Improvement: Trends and Future Projections
Understanding mortality improvement trends and how actuaries project future changes in death rates.
Historical Mortality Improvements
Over the past century, mortality rates have declined substantially across most age groups in developed countries. Medical advances, public health initiatives, and improved living standards have driven these improvements. Actuaries track these trends using mortality improvement scales published by the SOA, such as Scale MP-2021, which provide annual rates of improvement by age and gender.
The pace of improvement has varied over time and across age groups. In the mid-twentieth century, dramatic reductions in infant and childhood mortality drove much of the overall improvement. In more recent decades, the largest gains have come from reduced cardiovascular mortality among older adults, largely due to better treatments for heart disease and stroke. For example, mortality rates for males aged 65 to 74 declined by roughly 1.5% to 2% per year during the 1990s and 2000s.
Mortality Improvement Scales
The SOA publishes mortality improvement scales that actuaries use in pension and insurance valuations. Scale MP-2021 and its successors use a two-dimensional model that varies improvement rates by both age and calendar year. The scale blends short-term rates based on recent observed experience with long-term assumed ultimate rates of improvement. The ultimate rate is typically set at 1.0% per year for most ages, reflecting an assumption that some level of ongoing medical progress will continue indefinitely.
To apply a mortality improvement scale, the actuary starts with a base mortality table (such as the PRI-2012 table for pension valuations) and projects mortality rates forward using the scale. For a 65-year-old in 2025, the projected mortality rate in 2035 would be the base rate multiplied by (1 minus the improvement rate) raised to the power of 10 (the number of projection years). Even small annual improvement rates compound significantly over long projection periods.
Projecting Future Improvements
Projecting future mortality improvement is challenging because past trends may not continue. The SOA's Mortality Improvement Scale uses a blend of short-term observed trends and long-term assumptions. Key considerations include the potential impact of obesity, opioid use, antibiotic resistance, and medical breakthroughs like gene therapy. For pension and annuity valuations, mortality improvement assumptions can change liabilities by 5% to 15%, making this one of the most consequential assumptions actuaries set.
Several factors could either accelerate or decelerate future improvement. On the positive side, advances in cancer treatment, precision medicine, and early disease detection could lead to faster improvement. On the negative side, rising obesity rates, the opioid crisis, and the potential emergence of new pandemics could slow or reverse progress. Some researchers believe there may be biological limits to human lifespan that will eventually constrain improvement rates.
Impact on Actuarial Valuations
The financial impact of mortality improvement assumptions depends heavily on the type of product or plan being valued. For life insurance, mortality improvement means fewer death claims and generally improves profitability. For annuities and pensions, improvement means longer payout periods and higher costs. A pension plan covering 10,000 retirees with an average annual benefit of $30,000 might see its liability increase by $50 million or more if the improvement assumption is changed from zero to 1% per year.
This asymmetry means that insurers writing both life insurance and annuities face a natural hedge. If mortality improves faster than expected, the life insurance block benefits while the annuity block suffers, and vice versa. However, the hedge is imperfect because the populations insured by each product may have different mortality characteristics.
Common Pitfalls
One common mistake is using a static mortality table without any improvement projection. This approach understates pension and annuity liabilities because it ignores the expectation that people will continue to live longer in the future. Another pitfall is applying a single improvement rate across all ages. In reality, improvement rates vary significantly by age, with middle-aged adults often showing faster improvement than the very elderly.
Students should also be aware that mortality improvement is not always positive. In some recent years, mortality rates for certain age groups in the United States actually worsened, driven by drug overdoses, suicides, and other causes sometimes grouped as "deaths of despair." The COVID-19 pandemic caused a significant temporary increase in mortality rates. Actuaries must decide whether such events represent temporary setbacks or signals of a longer-term trend change.
Study Tips
For exam preparation, practice applying mortality improvement scales to base mortality rates. Understand the mathematical mechanics of projecting mortality rates forward using annual improvement factors. Be comfortable explaining why mortality improvement affects life insurance and annuity valuations in opposite directions. Review the structure of the SOA's MP scales, including the distinction between short-term and long-term improvement rates. Finally, be prepared to discuss the uncertainty inherent in mortality projections and the methods actuaries use to address that uncertainty, such as scenario testing and stochastic modeling.