Our approach combines all components of longevity risk
- Per-individual risk
- Base mortality risk
- Improvement risk
Whilst the key risk relates to improvements, understanding the base mortality risk is critical for pricing, and driven by our robust approach to base mortality modelling.
Our best estimate for mortality improvements is based on the traditional CMI framework, and calibrated against longevity swap market pricing.
The Demographic Horizons™ longevity risk framework is able to produce internally-consistent and credible mortality risk figures on any time horizon from below one year to run-off, using market data and historic model volatility to allow for the impact of change in views of improvements outside the time horizon.
Compared to commonly used stochastic mortality models, Aon’s Demographic Horizons™ team take a different approach to various features seen in mortality data
- Historical variation in annual noise
- Variation by time horizon
- Fat tails
- Symmetry in multi-population models
- Using judgement / common sense to improve robustness
For more information on the Demographic Horizons™ stochastic mortality model, please contact Kishore Ananda or any member of the Demographic Horizons™ team.