Evaluating Life Expectancy Evaluations

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.

This is an Accepted Manuscript of an article published by Taylor & Francis in North American Actuarial Journal on 2017-12-20, available online: https://www.tandfonline.com/10.1080/10920277.2017.1381031.

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Work Title Evaluating Life Expectancy Evaluations
Access
Open Access
Creators
  1. Daniel Bauer
  2. Michael V. Fasano
  3. Jochen Russ
  4. Nan Zhu
Keyword
  1. Life settlement
  2. Life insurance
  3. Investment
  4. Secondary market
  5. Life expectancy evaluation
  6. A/E ratio
  7. Difference in temporary life expectancies
License CC BY-NC 4.0 (Attribution-NonCommercial)
Work Type Article
Publisher
  1. North American Actuarial Journal
Publication Date December 20, 2017
Publisher Identifier (DOI)
  1. https://doi.org/10.1080/10920277.2017.1381031
Deposited December 12, 2023

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Version 1
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  • Created
  • Added Evaluating_Life_Expectancy_Evaluations-1.pdf
  • Added Creator Daniel Bauer
  • Added Creator Michael V. Fasano
  • Added Creator Jochen Russ
  • Added Creator Nan Zhu
  • Published
  • Updated Keyword Show Changes
    Keyword
    • Life settlement, Life insurance , Investment, Secondary market, Life expectancy evaluation, A/E Ratio, Difference in temporary life expectancies
  • Updated Keyword Show Changes
    Keyword
    • Life settlement, Life insurance , Investment, Secondary market, Life expectancy evaluation, A/E Ratio, Difference in temporary life expectancies
    • Life settlement, Life insurance , Investment, Secondary market, Life expectancy evaluation, A/E ratio, Difference in temporary life expectancies
  • Updated