Like many things in life, longevity markets have followed broad cycles. Industry veterans will remember a particularly painful turn in late 2008, when new information regarding life settlement population mortality was reflected in industry life expectancies. In response, some industry players adapted better than others. In 2019, there was another market downturn, and those who learned from 2008 were rewarded.
Covid-19 has provided an opportunity for the industry to demonstrate what we have learned – but will we? We have been recently inundated with data about Covid-19 and its effects on mortality. Some of this information is applicable to life settlements, but some is not. Yet there is no broad recognition of that fact. This paper presents a general overview of the situation. Specific details and calculations are beyond its scope but are available upon request.
The Issue
When the industry initially shifted from viatical settlements for HIV patients to impaired seniors, folks presumed that life settlement population mortality would resemble that of the life insurance population and life insurance mortality tables would properly reflect this. That made sense, as both populations underwent the life insurance underwriting process and owned policies. But it was not a good assumption and it led to a market crash in 2008, for three main reasons as outlined in a paper I wrote in 2011:
1. The insured had better information about their health than was contained in their medical records and they would select against the investor, selling if their health was better than expected and vice-versa.
2. The life settlement industry, with its fragmented sources of data, did not have statistically significant data bases to prove this phenomenon until 2008.
3. Use of the 2001 VBT without adjusting for mortality improvement, would have led to issues even if these two populations had very similar mortality.
The lessons of 2008 included understanding that the life settlement population is somewhat unique and certainly different from the US general population and the US life insurance population, and it was necessary to assume future mortality improvement in valuing policies.
Current Environment
Covid-19 affected nearly every element of life for nearly everyone. Increased mortality was observed among most populations. It was critical for both investors and policyowners in life settlements to assess the proper response. Given the uncertainty of the situation, initial responses from all parties were to delay or forego transactions. With the rapid resolution and binary outcome of Covid-19 infection, this was a perfectly logical response. Over time, two important issues emerged – the lasting effect of Covid-19 on mortality rates, and the emergence of so-called ‘long Covid’ (cases where victims survived but symptoms remained). Given the widespread impact of Covid-19, studies were plentiful and prioritized. It was only a matter of time before these studies were completed. This is the news that everyone was waiting for.
Information Overload
As I looked at the myriad of information being disseminated, it was difficult to hold back from leaping into action. Soon, statistics were being widely quoted in industry gatherings about Covid-19’s effects. But did we learn from the past? Perhaps it’s too early to tell. Let’s review the important lessons from the past.
The life settlement population is different from the US general population and the US life insurance population. The studies are clear – Covid-19 increased mortality by 15-20%. A closer look reveals that this applies to the general population, not the life settlement population. Further, by isolating Covid-19 as a cause of death, the fact that deaths from another cause, the flu, virtually disappeared. The Society of Actuaries published a study that suggested that the life insurance population suffered 15% excess mortality from Covid-19. Again, this is not our population in life settlements. The SOA study did provide insight that might be useful for life settlements. At ages above 65, excess mortality was far lower than the rate for the overall life insurance population.
But when we look at data from life settlements’ populations, the Covid-19 effect is negligible. In the Predictive Resources data base, raw mortality rates hardly moved throughout 2020 and 2021. In fact, the 2017-18 flu caused a bigger mortality ripple in our data. Other industry participants have echoed this finding. Yet the talking heads at industry meetings still quote either population data or life insurance data when talking about Covid-19’s effect on mortality. You know better than to listen. Someone may know the general population inside and out, but if they don’t understand the life settlement population, they are of little help.
Long Covid. I have also seen and heard quoted, studies from respected institutions of higher learning that place the percentage of Covid-19 cases that will eventually become long Covid-19 cases at 30-40%. Those figures are shocking until you carefully read those studies and realize they define long Covid-19 as symptoms lasting over 2-3 weeks. Again, the lessons learned from the past can help us today.
Mortality improvement. Covid-19 has hampered researchers studying mortality improvement in the general population, as it presents a one-time blip that may or may not continue. Since life settlement populations are so small, it’s not possible to extract statistically significant mortality improvement statistics. In those instances, give careful consideration to other populations, and take care to not rely too heavily on the conclusions. Recent research by Predictive Resources suggests both age and birth era are appropriate independent variables from which to derive mortality improvement statistics. Given recent trends in obesity and other factors, it is quite possible that, for the first time in centuries, mortality may no longer be improving.
Conclusion
The impact of Covid-19, both short and long term is a vital concern for life settlement industry participants. Properly judging its impact is a key task that is made more difficult by the myriad of data that is being disseminated, much of which needs to be judiciously evaluated in order to avoid similar mistakes of bygone eras in life settlements.
Vince Granieri is CEO At Predictive Resources