Evaluating Life Expectancy Evaluations

Daniel Bauer, Michael V. Fasano, Jochen Russ, Nan Zhu

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

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.

Original languageEnglish (US)
Pages (from-to)198-209
Number of pages12
JournalNorth American Actuarial Journal
Volume22
Issue number2
DOIs
StatePublished - Apr 3 2018

Fingerprint

Life Expectancy
Metric
Evaluation
Uncertainty Estimation
Quality of Life
Long-run
Biased
Converge
Methodology
Alternatives
Estimate
Life expectancy
Underwriting

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

Bauer, Daniel ; Fasano, Michael V. ; Russ, Jochen ; Zhu, Nan. / Evaluating Life Expectancy Evaluations. In: North American Actuarial Journal. 2018 ; Vol. 22, No. 2. pp. 198-209.
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Evaluating Life Expectancy Evaluations. / Bauer, Daniel; Fasano, Michael V.; Russ, Jochen; Zhu, Nan.

In: North American Actuarial Journal, Vol. 22, No. 2, 03.04.2018, p. 198-209.

Research output: Contribution to journalArticle

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