With interest rates at an historical low, the assumptions for contingent dependants (proportions married/dependent and associated age differences) are now typically as material for pricing longevity reinsurance and bulk annuities as the longevity assumptions themselves. Recognising the need for innovation and improvement, the Demographic Horizons team invested in producing a cutting-edge dependants analytics service, which was rolled out in 2019.
There are multiple sources of information typically available when a longevity hedging transaction is being considered, namely
- survey of the individuals covered
- actual portfolio experience
- postcode modelling
The Demographic Horizons dependants model optimally combines data from all of these sources, including correcting for their biases. It is calibrated to dependants data from over 300,000 individuals in 30 pension schemes – as illustrated below, it uses multiple overlapping data sources to ensure robust results.
For more information about the Demographic Horizons dependants model, please contact Andy Harding or any of the Demographic Horizons team.