Saturday, 5 January 2008

Actuaries confirm inductive hypothesis shock

Here's what an actuary used to do.

Look at the markets. Assume the future will continue to be like the average of the past. Take massive amounts of hugely long dated risk on that basis.

Unsurprisingly that strategy didn't work that well which is why we have a pensions crisis (as I discussed earlier: see here or here). The latest in this slow motion train wreck is that UK life insurers have finally woken up to the continuing improvements in longevity and are now shoring up their reserves, again, to account for this.

Over the past hundred years, life expectancy in the UK has increased by four months every 10 years. Now all we need is for insurers to start to appreciate that they are not just short longevity but they are also short longevity vol...

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