A Semiparametric Method for Assessing Life Expectancy Evaluations

38 Pages Posted: 23 Sep 2019 Last revised: 29 May 2020

See all articles by Hong Beng Lim

Hong Beng Lim

The University of Iowa, Department of Statistics and Actuarial Science

N. D. Shyamalkumar

The University of Iowa

Date Written: May 8, 2020

Abstract

In the life settlements industry, Life Expectancy (LE) providers are firms which conduct health underwriting towards predicting the future mortality of an insured. Multiple stakeholders are interested in assessing the quality of their evaluations. There has been some recent interest in better alternatives to the traditional metric for this quality, the A/E ratio: the ratio of actual to expected number of deaths. One such alternative is the Implied Difference in Life Expectancies (IDLE) metric proposed by Bauer et al. (2018). Its design largely retains the simplicity of the A/E ratio while being informative, unlike the A/E ratio, throughout the life of a policy block. Even though the IDLE is a significant improvement over the A/E ratio, it turns out that the IDLE is sensitive to departures from a key assumption, which motivates our development of a more robust metric. We propose the use of a Cox proportional hazards model for this purpose with the covariates derived from the information contained in the LE provider’s report. We present evidence that the deviation of the future life expectation evaluations from those derived using this model is a worthy alternative to both the A/E ratio and the IDLE.

Keywords: Life settlements, life expectancy provider, life expectancy assessments

Suggested Citation

Lim, Hong Beng and Shyamalkumar, Nariankadu, A Semiparametric Method for Assessing Life Expectancy Evaluations (May 8, 2020). Available at SSRN: https://ssrn.com/abstract=3453503 or http://dx.doi.org/10.2139/ssrn.3453503

Hong Beng Lim (Contact Author)

The University of Iowa, Department of Statistics and Actuarial Science ( email )

Iowa City, IA 52242-1409
United States

Nariankadu Shyamalkumar

The University of Iowa ( email )

Iowa City, IA 52242-1409
United States

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