The Board for Actuarial Standards (BAS) has today published a Discussion Paper on Actuarial Mortality Assumptions.

Assumptions about future mortality rates are required in many actuarial calculations. They play a significant role in the costs of pensions and the solvency of life insurance companies. Substantial increases in life expectancies have occurred in recent decades but there is a lack of consensus about future mortality trends. Recent trends may or may not continue but what is clear is that long-established principles and practices in these calculations and their presentation need to be re-examined.

Today’s discussion paper presents the results of a review that the BAS has conducted into the mortality assumptions used in actuarial calculations, looking at the evidence on which the assumptions are based, methods of deriving them, and how information about them should be communicated.

Paul Seymour, Chairman of the BAS, commented:

“One of the BAS's goals is that decisions should be based on sound and defensible assumptions. This Discussion Paper has set out to explore the complex issues involved in making mortality assumptions and to discuss the part that technical actuarial standards might play in achieving this goal.”

He went on to emphasise the importance of the consultation for pension schemes and insurance companies:

“We need to hear from the pension scheme trustees and insurance company directors who necessarily make decisions based on assumptions about mortality. They need information which can assist them to understand risks. Actuaries providing advice must focus on how best to communicate the choices to be made, the uncertainty surrounding them and their implications.”

The Discussion Paper appears as one of a number of significant developments currently taking place in the regulatory framework. The Pensions Regulator has recently issued a consultation paper on good practice when choosing funding assumptions for defined benefit pension schemes, which includes proposals for a new approach to looking at mortality assumptions.

For its part, the BAS last week issued an exposure draft of its conceptual framework for actuarial standards. Further publications relating to the BAS’s work are due in the next month or two, including a consultation on the content and structure of the book of actuarial standards and the exposure draft of a reporting standard.

The consultation period ends on 20 June 2008. Copies of the discussion paper can be downloaded from the BAS’s website at http://www.frc.org.uk/bas/publications/consultation.cfm.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the Committee on Corporate Governance.
2. The Board for Actuarial Standards has a primary objective of promoting competence and transparency of actuarial practice by establishing and improving actuarial technical standards and ensuring that they are coherent, consistent and comprehensive.
3. The BAS is also publishing a non-technical background article. It is freely available for use in whole or in part and can be downloaded from the BAS’s website at http://www.frc.org.uk/bas/publications/pub1557.html.
4. The BAS is also publishing a technical research paper on mortality, which can be downloaded from the BAS’s website at http://www.frc.org.uk/bas/publications/development.cfm.
5. All media enquiries should be addressed to Paul Seymour, Chairman of the Board for Actuarial Standards, 020 7492 2328 or email at p.seymour@frc.org.uk.