This post updates our previous analysis which estimated a COVID-19 net mortality risk factor for the life settlements population between 6x and 12x.  Since then, we have seen a decrease in life settlements excess mortality resulting in a net risk estimate at the floor of our original range, around 6x.  This is consistent with a delayed protective wealth effect where the delay is explained by a lack of early information on the virus and the unprecedented nature of the pandemic.

In our previous analysis, we introduced a measure of life settlements mortality risk due to COVID-19 based on an “equal-risk” baseline.  This baseline assumes that life settlement insureds experience the same mortality risk as the average citizen in their county of residence.  This is an underestimate since older ages and certain comorbidities increase mortality risk and are disproportionately represented in life settlements.  As we stated in that article:

“The value of the equal-risk estimate is that it provides the baseline for an empirical test of the net impact of risk factors like age, comorbidities, and socio-economics on COVID-19 outcomes within life settlements.  By comparing the equal-risk estimate to observed excess deaths in life settlements, we can compute a net mortality risk factor for the population taken as a whole.”

The data available at the time (through April 4th) suggested a net mortality risk factor of 6-12x, meaning the average life settlement life was 6-12x more vulnerable to COVID-19 than the average citizen in the same county.  Since then, life settlements excess mortality has declined faster than national COVID-19 mortality, resulting in a risk estimate at the floor of our original range, around 6x.

For this analysis, we defined excess mortality as the difference between observed deaths and those expected using the average weekly mortality rate observed between 12/29/2019 and 3/28/2020.  We ignored seasonality since historically it has not had a significant impact.  The mortality risk factor was defined as the ratio of this observed excess mortality to the expected excess under the equal-risk assumption.

The total mortality risk factor has steadily declined from a high of 13.5x on April 4th down to 6.2x on May 30th.  It is not clear if this number has stabilized or will decrease further in the coming weeks.

One explanation for the decline could be a delayed protective wealth effect where the delay is caused by the unprecedented nature of this pandemic.  Once good information became widely available, wealthy individuals were able to take measures to guard against the virus such as moving away from hotspots and maintaining social distancing through remote work or retirement, use of delivery services, and avoiding public transportation.

There are other possible explanations.  It could be that the time from exposure to death is shorter for victims of COVID-19 that are older or had more pre-existing impairment, and therefore COVID-19 deaths in life settlements occur disproportionately early in the lifecycle of a virus outbreak.  A final possibility is that the surviving insureds represent a lower risk population because the most vulnerable insureds, most notably those in care facilities, were impacted in the early weeks of the pandemic.

The true underlying mechanism may be revealed with new data from ongoing virus outbreaks in the Sun Belt.

We will continue to monitor the pandemic’s impact on life settlements as we see new outbreaks in some localities and enter a season that might bring a second wave throughout the country.