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 |
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License | CC BY-NC 4.0 (Attribution-NonCommercial) |
Work Type | Article |
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Publication Date | December 20, 2017 |
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Deposited | December 12, 2023 |
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