BSW Timber is the largest sawmilling company in the UK. It has 1200 employees, £300m turnover and 2 closed final salary (DB) pension schemes. We believe it is the first company to use medical underwriting for both an insurance transaction and for valuation purposes, a MUBA and a MUMS project.

“In 2013, we decided to go to market to insure the current pension benefits of one of our schemes. MorganAsh was contracted to undertake the medical underwriting part of the tender. They interviewed sufficient pensioners and their spouses that made up over 85% of the pension liability. As a result, we were able to insure all current pensions in payment without additional contribution from either the company or the scheme above and beyond the technical provisions already existing in the scheme.

“Following this success, we have repeated the medical underwriting exercise in our other scheme for our high-liability pensioners, but instead of attempting an insurance transaction we used medical underwriting to improve the valuation of our liabilities. This time MorganAsh achieved a 96% response rate! The outcome showed a reduction in liability due to mortality of some £5m compared to the scheme actuary’s assumptions for this £40m scheme.

“In both cases MorganAsh carried out this delicate work with sensitivity and efficiency and the weekly progress reporting was excellent too. The payback on the investment in this project is tremendous.” – H Jones, chief financial officer, BSW Timber

“Using actual health data to understand the mortality of scheme members can improve the accuracy of predicting mortality for schemes and reduce the reliance on mortality assumptions,” says Andrew Gething, managing director at MorganAsh. “Using an evidence-based approach to improve accuracy of data is just a logical stop from postcode analysis and solid step down the big data revolution.”

MUMS is just the next step from postcode valuation. Armed with more data, we can make better estimates of the longevity of individuals and hence for the whole scheme, reducing the need to make assumptions.

“Effectively, we’re seeing medical underwriting of individuals start to be used in the insurance space and this is an example of it coming into pension scheme funding and valuations,” says Iain McLellan of KPMG. “I think this will become much more standard with more schemes adopting this type of approach going forward with insurance transactions.” 

Typically, the medical underwriting is undertaken on a sample of the scheme members with the highest liabilities in the same manner as for MUBA transactions. Participation is good, and advisors have remodelled their longevity models to accommodate the medical underwriting data.

Just as postcode modelling saw a good deal of activity, we are likely to see similar levels of activity to include medical underwriting data. There are discussions as to whether the medical data should be refreshed for each triennial evaluation.

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