The risk management solutions company said the approach was used to address problems previous longevity models for The Netherlands had faced with incorporating future developments in medical science into mortality improvement projections.

Its analysis, which incorporates estimates of lifestyle trend changes, medical advances and future healthcare environment specific to the Dutch population, is intended to help capital market investors quantify Dutch longevity risk.

Among the specific challenges the Dutch exercise posed for modelling future mortality improvement solutions are the high mortality improvement rates – up to 4% a year – recorded in The Netherlands over the past decade.

The country has higher smoking rates than other European countries, but slightly fewer deaths from cardiovascular disease, lower obesity levels and higher standards of healthcare. It also has a marked birth cohort effect around the birth year of 1936 – six years later than the similar effect in the UK.

With uncertainty over future life spans of retirees drawing pensions, funds, annuity providers and insurers are increasingly looking to protect themselves from potential funding shortfalls.

According to RMS, longevity risk transfer to the capital markets has proved difficult in the past due to uncertainties inherent in longevity risk. Its modelling is intended to underpin investor confidence in risk assessments.

The Netherlands has seen increasing demand for longevity protection as a result of the major revision of actuarial tables by the Dutch Actuarial Society in 2010 which was prompted by the mortality improvements seen earlier in the decade. This caused a significant increase in liabilities for many pension funds.

RMS believes its approach to longevity risk modelling is ‘more transparent’ than a statistical model.  Instead of extrapolating historical mortality rate volatility out into the future, its model begins with current mortality levels and trends and then explores scenarios for future trends in the different causes of mortality improvement. These incorporate likely timelines for medical developments in the lab or new drugs that are yet to be approved.

The company now has models in place for the UK, US, Canada, The Netherlands, France and Germany.

Andrew Coburn, senior vice president of LifeRisks at RMS, said: ‘There are very interesting, different local market conditions for the variation in longevity risk from country to country.’

‘Demographics, social structures, and lifestyle patterns are very different in each country, and the national health care systems result in some very different health outcomes for local populations. These need careful adaptation to model life expectancy projections in each territory.’

Peter Nakada, managing director RiskMarkets at the company, added: ‘Longevity is one of the most difficult risks to take to market. There is clearly strong demand for longevity de-risking solutions, but there is such a wide spread of opinion and disparity of expectations around the appropriate pricing.

‘We believe that RMS can help facilitate the growth of this market by providing an objective, verifiable benchmark assessment of the risk that has the respect of investors.’