The challenge of living longer lives
Longevity is transforming the re/insurance industry, explains Daniel Ryan, putting a premium on knowledge and crossing institutional boundaries.
Daniel Ryan, photographed near
his office in London
Daniel Ryan: In developed and developing countries alike, average lifespan has increased dramatically over the past four decades — indeed, at a rate consistently underestimated by actuarial forecasts. Longevity is a global challenge that is transforming our industry. Swiss Re’s new cancer care product for South Koreans over 60 is one good example of how we are meeting that challenge.
Of course this ‘challenge’ also represents a wonderful achievement in social and medical terms. Nevertheless, rapidly ageing populations present financial challenges and opportunities that many economies will find difficult to meet. Governments have to re-think state pension provisions; employers must examine the viability of their employee retirement funds; individuals may wonder if they have made sufficient provision for what could be a very long old age.
In China, for instance, a Swiss Re study revealed that people still expect to retire at age 58 and live, on average, a further 31 years. But during those years, demographic trends generated by a lower birth rate mean that only one employed person will be contributing to the state pension scheme while up to six – two parents and four grandparents — are drawing from it. This is obviously unsustainable.
“Average lifespan has increased dramatically over the past four decades — indeed, at a rate consistently underestimated by actuarial forecasts.”
Daniel Ryan
Head of Swiss Re Life & Health R&D
Swiss Re is working with the World Economic Forum to define the problems that longevity poses for social security and to propose new approaches. Along with changes to retirement ages and benefits and a greater emphasis on individual savings, there is clearly a significant role for reinsurers — because they hold mortality risk that can balance longevity risk. They also have the capacity to structure the insurance-linked securities that allow financial markets to participate in longevity risk, as Swiss Re did in 2012 with its GBP 1.4 billion longevity swap for AkzoNobel’s employee pension scheme.
These approaches depend critically on intelligent modelling of future risks, incorporating both best estimates and extreme scenarios for longevity and mortality to create a detailed picture of capital needs. That is one reason why our department spends much of their time consulting and working with researchers outside our industry — because experience shows that the insurer who relies only on actuarial modelling will find it insufficient. >
Daniel Ryan joined Swiss Re in 2010 as Head Life & Health R&D. Dan leads a multi-disciplinary group that is focused on the development and evaluation of forward-looking scenarios based on prior history of disease or good health. He is a keen advocate of closer links between the actuarial and medical profession, and is a member of World Economic Forum’s Global Agenda Council for Ageing. He is also the Chair of the Technical Committee for the Life and Longevity Market Association, a non-profit venture to promote a liquid traded market in longevity and mortality risk.