A recent memo from Liberty Life Assurance of Boston's Tom Donahue to its brokerage force detailed Liberty's recent
project involving extensive research of medical data and a detailed and
complex mortality study, which has brought them to the same conclusion that the
medical professionals, financial planners and others have already drawn, people
are living longer. With advancements in medicine and medical treatments,
people who were once experiencing shortened life expectancies for certain
conditions are no longer necessarily facing that fate. Almost across the board,
conditions are being treated more effectively, allowing for life expectancies to
increase. For instance, it is no longer unusual for an individual to reach
their 100th birthday or even higher. The vast majority of these 100 year olds
are living with medical conditions associated with their age but many are living
quite well due to advancements in medicine.
Annuities protect against the risk of outliving your income ( as one gets older one appreciates the subtleties of why "living too long" is probably not a good feeling sales pitch). The mortality risk to the insurers of annuities is on the opposite pole to life insurance. If the insurers guess wrong on your life expectancy and the concomitant reserve setting, they lose and must pay claims out of available surplus. If they guess wrong on a lot of people or advances in medicine mean significant blocks are going to exceed expectations then there is a bigger drag on surplus.