Base Mortality Framework
Aon have invested heavily in our Demographic Horizons baseline mortality analytical processes and tools. They are certainly tried and tested – we have used them to advise pension schemes, insurers and reinsurers in over 1,000 cases.
Our baseline mortality assessment has two components:
- a postcode model – calibrated to our proprietary central bank of mortality data for 200+ UK defined benefit pension schemes
- an experience model – calibrated to the mortality data for the actual scheme in question (where this has been provided)
The combined best estimate model is a weighted average of these two components, where the weight reflects relative statistical confidence in each model's predictions:
- we measure the confidence in the postcode model by testing its actual performance in predicting mortality for pension schemes outside the calibration dataset, and
- we measure the confidence in the experience model based on the statistical noise in the scheme mortality data to which it is fitted.
It provides a concrete means of combining the two sources of information in one consistent framework, correctly accounting for their relative uncertainty.
For more information on the Demographic Horizons base mortality model, please contact Matt Fletcher or any member of the Demographic Horizons team.