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- ■ Radian promises to change, analysts want the receipts
Longevity Risk Modeling Under Fire Just as Regulators Scrutinize Reinsurance Deals
The global life insurance insurance industry faces mounting questions over its ability to accurately model social and demographic changes just as regulatory pressure intensifies on reinsurance arrangements designed to transfer these risks.
A new report by PwC and the The London Foundation for Banking & Finance identifies significant vulnerabilities in how insurers account for evolving longevity trends.
"Social Change Modelling" – the author's term for measuring rapid changes in longevity and mortality risk – ranked 15th in the 2025 "Banana Skins" survey risk assessment, but industry experts warn this may understate its long-term significance.
"This is a significant and large silent risk which requires more focus," according to a compliance head at a life insurer in Ireland quoted in the report.
According to the authors and the industry professionals quoted in the report, the issue lies in insurers' traditional reliance on historical actuarial data surrounding longevity and mortality in an era of accelerating change.
"The risk is that the insurance industry, which relies on the law of large numbers and the stability of historical trends, is operating in an era where those trends are fracturing. The past is no longer a reliable guide to the future," warned a Chief Risk Officer at an Italian life insurer quoted in the report.
"Aging populations challenge the validity of traditional actuarial assumptions, making them less predictive and potentially obsolete," the report notes. This concern is amplified by rapid advances in medical technology and unpredictable changes in social behaviors that could dramatically alter mortality and longevity patterns.
The industry's struggle with these modeling challenges comes as regulators increase scrutiny of how insurers manage longevity risk through reinsurance arrangements.
Speaking at the Bank of America Financials CEO Conference in September, Bank of England Deputy Governor Vicky White highlighted particular concerns about Funded Reinsurance (FundedRe) transactions.
"The IAIS's recent consultation on structural shifts in the life insurance sector sets out why some firms are turning to FundedRe," White explained. "Thirdly, it could be about leveraging differences in reserving approaches, capital requirements and investment flexibility. This third reason is more troubling from a supervisory standpoint."
White's speech revealed regulatory concerns that current frameworks may be creating perverse incentives. "The two (investment) strategies I have outlined are close in economic substance, yet our initial diagnosis is that they receive very different regulatory treatment simply because one is labelled 'reinsurance', but actually 'bundles' a collateralised loan with more common reinsurance in the form of a longevity swap," she noted.
For the Bulk Purchase Annuities market, these modeling and regulatory challenges arrive at a critical juncture. The market continues expanding rapidly as more pension schemes transfer liabilities to insurers, making accurate longevity modeling increasingly vital for sector stability.
The Banana Skins report suggests the industry recognizes these limitations. Pedro Herrera, CEO of Nacional Re in Spain, emphasized that "The industry has to adapt to rapidly evolving technologies, social changes and new scientific and medical knowledge. Otherwise, it will not be possible to successfully fulfil the main industry role of providing security to society in its main needs and demands."
However, questions remain about the sector's adaptive capacity. "History shows that re/insurers are not particularly good at anticipating long-term trends correctly," observed a non-executive director from the Swiss reinsurance sector.
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