Demographic Horizons™

Base Mortality Framework

Aon have invested heavily in our Demographic Horizons baseline mortality analytical processes and tools. Our modelling framework is tried and tested - we use it for all our advice in total over 1,200 cases internationally. Our framework is used:

• to advise insurers and reinsurers
• to advise pension plans and companies, and
• for all our Aon Scheme Actuary pension plan funding advice.

Our baseline mortality assessment has two components:

• a postcode model – the UK model is calibrated to our proprietary central bank of mortality data for 200+ 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 uncertainty in the scheme mortality data to which it is fitted.

This approach is robust and objective.

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, Miles Blackford or any member of the Demographic Horizons team.