More than three years after the start of the Covid-19 pandemic, excess mortality may finally be declining in Europe, but it remains at elevated levels compared to a 2019 baseline. That is the latest observation from EuroMOMO, a pan-European mortality monitoring group which measures excess deaths among public health threats such as pandemics and seasonal influenza.
In its tenth weekly 2023 bulletin, the group, which draws on data from 28 European countries and subregions, said that while the recent trend of elevated all-cause mortality was receding, the exclusion of post-2020 data means its analysis could be unreliable: in other words, the baseline itself could be wrong.
“Due to the exclusion of data from the Covid-19 pandemic, the trends incorporated in the statistical estimation of the baseline are presently forecasted beyond the intended duration. This prolonged forecast has introduced an increasing bias over time, which can cause incorrect estimations of the excess mortality, particularly when the numbers are cumulated.”
The EuroMOMO figures are based on general population data and while the long-established principle that insured lives have a greater life expectancy than their uninsured peers has been borne out by Covid-19, that does not mean the former group has been unaffected by the pandemic.
Indeed, according to Stephen Caine, Manchester-based director at actuarial consultants WTW, the signs are the baseline for life expectancy has been changed permanently across all cohorts. Caine says that WTW’s view of Covid-19’s long-term impact on mortality, and consequently pension schemes, has evolved through the pandemic.
“Certainly, when Covid-19 first hit, and into 2021, schemes were assessing the situation and didn’t make any knee-jerk reactions; nobody knew if the pandemic was going to be a blip, which wouldn’t affect the existing life expectancy path. What has changed is that during 2022 it became clear that the elevated level of mortality has continued.”
Caine says that the higher levels of mortality are not just directly related to the virus. The UK experienced between 500 and 1000 Covid-19 deaths a week through 2022 with numbers generally lower in the latter half of the year but still at a significant level.
“But there were also excess deaths that weren’t directly from Covid-19, due to a number of reasons; some known, such as the heat waves, flu and pressure on the health care system, but also less well proven sources, for example the link between Covid and an elevated risk of death from other causes. So, in terms of general mortality, 2022 was over and above what we would normally expect.”
This continuation of this trend has led to pension schemes reassessing their existing life expectancy projections in response to what Caine says is, “the sad truth” that these expectations now need to be downgraded and that Covid-19 will have a long-tail effect on mortality.
“That has changed the thinking. Everyone now appreciates that there are both long and short-term factors in play and the ongoing disruption from Covid-19 will not disappear overnight.”
Actuaries in Europe may be reassessing their baseline longevity assumptions but Corwin Zass, founder of Texas-based Actuarial Risk Management (ARM), says that the US is moving more slowly on this issue.
He points to the UK’s Institute and Faculty of Actuaries’ Continuous Mortality Investigation working group which has added a feature allowing for Covid-19 and lockdown factors to be incorporated into life expectancy projections, contrasting that with statements made by the US Society of Actuaries (SOA).
“There has been some conversation in the US, over the long-term impact of Covid-19, and long Covid during the mortality assumption setting stage. The SOA here in the US has stated correctly that it is too early to evaluate its impact. Obviously, these statements do not cover every US pension plan actuary’s perspective.”
In the life settlement industry, Zass says that his firm is not making alterations to its mortality assumptions, but that could change, a move which would in turn increase the value of existing life settlement investments.
“I say this as an explicit statement, yet I would caveat the impact of Covid-19 and long-Covid as I suspect life expectancy underwriters are seeing some insureds with greater impairments, which in turn implies higher values, all things equal.”
While life settlement investors may see a higher return as a result of Covid-19 impacting the mortality expectations of the underlying pool of lives, pension funds are now faced with a quandary, according to Caine. He says that the realisation that their members’ life expectancy has been negatively affected, albeit at a lower level than the general population, has implications for their funding levels.
The UK Pensions Regulator’s 2022 analysis of funding levels, based on the triennial funding results, conducted between December 2020 and December 2021, showed that schemes in deficit had an average funding ratio of 82%, with recovery plans that forecast 5.9 years to eliminate this shortfall.
Putting Covid-19 aside, Caine says the subsequent increase in interest rates since the start of the pandemic, and complicated by the UK’s recent highly publicised LDI crisis, has led scheme trustees to realise that they are better funded than they expected to be.
“The implications of that will be different for every pension scheme but ones in deficit could be further along their de-risking journey plan than expected and can therefore take risk out of their investment strategy sooner than expected,” he said. “We have seen a lot of schemes de-risk recently, because as a result of dramatic change in financial market conditions they found they’re much better funded on an insurance basis than they expected.”
According to Zass, this appears to already be happening in the US, with 2022 seeing a record level of 560 buyouts, worth a collective $50bn dollars – this includes some major schemes, such as IBM which offloaded $16bn worth of pension liabilities to US insurers last September – a trend he expects to continue into 2023.
As with Caine, however, he points to the broader macroeconomic picture as being a more important driver of pension buy-out than a revised view of longevity.
“While the longevity component is an important assumption, I wouldn’t say it is the most significant factor. In my view, one of the more important assumptions relates to investments, the yields that are available and the supporting hedging against financial stresses.”
Despite data currently pointing to a likely long-term fall in life expectancy, Caine cautions that there is still such a high level of uncertainty of the future path of longevity that pension schemes which now find themselves in position to offload their liabilities could be making a mistake in waiting for even lower life expectancy projections that would make the cost of de-risking even cheaper in the future. Citing previous pandemic scares such as avian and swine flu, which were relatively contained, he says that Covid-19 pandemic is not a new risk, simply one which had not manifested itself before.
“While we might now be making a judgement that Covid-19 has caused a long-term impact on life expectancy, what if instead life expectancy jumps right back up again,” says Caine.
