Bad news (for life assurers). Men are living longer. Not just longer than they were ten years ago. Not just longer than the experts thought they would ten years ago after adjusting for the fact that longevity was galloping ahead. Even longer than that. The entire life and pensions industry appears to have been wrong-footed because old men just aren't getting on with it and dying like they used to. With utter disregard for actuarial science and the holy writ of mortality tables, they just keep breathing in and out, the buggers. The discovery was made just before Christmas. Not by medics, but by actuaries. The deliciously named Continuous Mortality Investigation Bureau - the number-crunchers who gather information on behalf of the pensions industry - came up with evidence that registers a good nine on the actuarial Richter scale.
Naturally, it gave its report a catchy title (An Interim Basis for Adjusting the '92' Series Mortality Projections for Cohort Effects), so the ramifications have taken a little while to filter out. Legal & General, having digested the findings, has just admitted that it will lose £140m because its annuitants (people promised an income for life) will live longer than it calculated when it wrote their policies. The bill could be even more on what it quaintly calls "a worst-case scenario" - worst case meaning customers and future customers tiresomely not pegging out at the time dictated by its reworked sums. More widely, across the life assurance industry, the extra cost will be well into ten digits. And annuity rates - the percentage income for life that a lump sum will buy you at 65 - are likely to sink even lower.
No one knows the reason why male life expectancy at retirement age has suddenly accelerated. The watershed moment seems to have been 1926. Men born after that year are now showing a leap in longevity. National service, greater understanding about the dangers of smoking and wider availability of fruit and veg have all been mooted as causes. Whatever the reason, it is tremendous news (though it has barely merited a paragraph outside the financial pages). Meanwhile, it underlines that old financial saw, that the past is not necessarily any guide to the future. Which brings me to the stock market.
This is the other side of the pensions coin that the industry forecasters have got spectacularly wrong. As I write, the FTSE 100, the main index of British blue-chip share prices, is languishing below 3,500 - almost exactly half the level reached at the top of the market on Millennium Eve. For three years the industry has stubbornly believed share prices would go relentlessly higher, as they did for most of the 25 years to the turn of the century. It is beginning to dawn on people that the high share market returns enjoyed throughout that period may have been a statistical anomaly and not the norm.
The cracks are beginning to appear. Falling share prices reduce life assurers' assets and make it harder for them to meet their pay-out promises. Several small life assurers have alerted the Financial Services Authority that they are in difficulties and close to breaching solvency rules. In the past the authority's response has been to move the goalposts. By relaxing its solvency rules (thrice in the past 18 months) it has prevented failures. It seems to believe that by preventing an embarrassing and confidence-smashing life insurance failure, it is maintaining market stability. But its credibility is diminished each time it changes the rules. The weaker life companies, which under the old rules would probably have been closed down by now, can continue to woo new customers. Another of the authority's prime responsibilities, however, is consumer protection. Any further downward lurch in share prices, and it will have little choice but to step in and close the weakest life companies down.
Do you ever wonder what stockbrokers tell their clients when they lose them their shirts? I have been passed an enlightening letter from a major Scottish institution (which, alas, must remain anonymous) that gives a flavour. Said institution achieved the remarkable feat of turning the client's £11,000 into £13.62 by investing it in Marconi shares. "We thought it would be helpful to provide some background," burbles the obliging letter, which goes on to blame the chief executive, the technology bubble and, indeed, anything but the writer's lousy judgement in putting the client into Marconi in the first place and not baling out till the bitter end. Nowhere is there an apology. Then comes the immortal paragraph: "The sale proceeds [which are less than £14, remember] will be reinvested in companies with better growth prospects, credible business plans and good management teams in place."
So that's all right then.
Patrick Hosking is deputy City editor of the London Evening Standard
