Evaluating life expectancy evaluations. (English) Zbl 1393.91098

Summary: The quality of life expectancy estimates is one key consideration for an investor in life settlements. The predominant metric for assessing this quality is the so-called A-to-E ratio, which relies on a comparison of the actual to the predicted number of deaths. In this article, we explain key issues with this metric: In the short run, it is subject to estimation uncertainty for small and moderately sized portfolios; and, more critically, in the long run, it converges to 100% even if the underwriting is systematically biased. As an alternative, we propose and discuss a set of new metrics based on the difference in (temporary) life expectancies. We examine the underwriting quality of a leading U.S. life expectancy provider based on this new methodology.


91B30 Risk theory, insurance (MSC2010)
Full Text: DOI Link


[1] Life settlements mortality, (2013)
[2] Aspinwall, J.; Chaplin, G.; Venn, M., Life Settlements and Longevity Structures: Pricing and Risk, (2009), John Wiley and Sons, New York
[3] Behan, D. F., Measurement of incurred but unreported deaths in life settlements, (2012)
[4] Bhuyan, V. B., Life Markets: Trading Mortality and Longevity Risk with Life Settlements and Linked Securities, (2009), John Wiley and Sons, New York
[5] Billingsley, P., Probability and Measure, (1995), John Wiley and Sons, New York · Zbl 0822.60002
[6] Bowers, N. L.; Gerber, H. U.; Hickman, J. C.; Jones, D. A.; Nesbitt, C. J., Actuarial Mathematics, (1997), Society of Actuaries, Schaumburg, IL
[7] Braun, A.; Gatzert, N.; Schmeiser, H., Performance and risks of open-end life settlement funds, Journal of Risk and Insurance, 79, 193-230, (2012)
[8] Cook, D.; Ezell, G., Life settlement characteristics and mortality experience for two providers, (2008)
[9] Davó, N. B.; Mendoza Resco, C.; Monjas Barroso, M., Portfolio diversification with life settlements: an empirical analysis applied to mutual funds, Geneva Papers on Risk and Insurance—Issues and Practice, 38, 22-42, (2013)
[10] Gatzert, N., The secondary market for life insurance in the U.K., Germany, and the U.S.: comparison and overview, Risk Management and Insurance Review, 13, 279-301, (2010)
[11] Giaccotto, C.; Golec, J.; Schmutz, B. P., Measuring the performance of the secondary market for life insurance policies, Journal of Risk and Insurance, 84, 127-151, (2017)
[12] Januário, A. V.; Naik, N. Y., Testing for adverse selection in life settlements: the secondary market for life insurance policies, (2016)
[13] Qureshi, A. H.; Fasano, M. V., Measuring actual to expected accuracy for life settlement underwriting, Reinsurance News, 68, 23-26, (2010)
[14] Rhodes, T. E.; Freitas, S. A., Advanced statistical analysis of mortality, (2004)
[15] Seligman, E. J.; Kahn, S., Testing for significant differences between actual and expected results, Transactions of Society of Actuaries, 32, 585-600, (1980)
[16] Stone, C. A.; Zissu, A., Securitization of senior life settlements: managing extension risk, Journal of Derivatives, 13, 66-72, (2006)
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. It attempts to reflect the references listed in the original paper as accurately as possible without claiming the completeness or perfect precision of the matching.