Executive Summary: Historically, mortality rates trend downward during the summer months, but in the summer of 2020 mortality was on the rise for life settlements. In total from April through September, we observed at-most a very small protection from COVID-19 on the life settlements population. COVID vaccines will likely reduce excess mortality in life settlements significantly by Spring 2021. Insureds in nursing homes and long-term care facilities will receive the vaccine first, probably early in the new year.
In this post, we update our previous analysis of excess mortality and discuss potential implications of COVID vaccines. We found little or no protection from COVID on the life settlements population based on our COVID mortality risk factor through September. This is a reversal of the trend observed in our previous post.
Life Settlement Excess Deaths Elevated Through the Summer
For our analysis, we used five years of historical data to estimate life settlement deaths from March through September of 2020. The central improvement over our previous analysis is the incorporation of mortality trends and seasonality factors into our estimate. To accomplish this, we used a triple exponential smoothing (a.k.a. Holt-Winters) model to forecast expected monthly mortality rates using the last 5 years of experience. “Predicted Life Settlement Deaths” is the product of these forecasted mortality rates and the number of insureds in our population alive at the start of each month. Actual deaths above this line are considered excess and presumed to be caused, directly or indirectly, by the COVID-19 pandemic. The population used here and in our previous analysis is all lives that have received a 21st underwriting.
Actual deaths exceeded predicted deaths every month from March to September. Predicted deaths (orange line) are derived from historical data; deaths above this line are considered excess. The downward prediction trend reflects monthly seasonality. The 95% prediction interval is included for reference.
The biggest surprise is the substantial excess mortality in life settlements from July through September. This becomes especially clear when factoring in seasonal trends because summer months tend to have the lowest life settlements mortality.
Previously, we observed significantly lower excess mortality in May. One possible explanation was a delayed protective wealth effect wherein the life settlement population began to take protective measures around the start of May, such as self-isolation and working remotely. However, the elevated excess summer mortality is counterevidence of that hypothesis. It remains unclear as to why excess mortality was low in May and June but elevated again from July through September.
Mortality Risk Factor Implies Little or No Protection
The mortality risk factor measures the COVID mortality of life settlements relative to the national average. It is defined as the ratio of excess life settlements deaths to a county-of-residence-weighted expectation of excess deaths (“Equal-Risk Expected” deaths). If there is no COVID protective effect on life settlements, we expect a mortality risk factor around 9.5 based on this analysis. Mortality risk factors from 9.5 to 1 would indicate degrees of protection in the life settlements population, which could be explained by wealth or other factors.
The mortality risk factor as measured by the cumulative ratio of excess deaths to equal-risk expected deaths. Despite apparent life settlements protection in May and June, the mortality risk factor (cumulative) has returned to levels indicating no special protection on life settlements.
Using cumulative data through September, we estimate a mortality risk factor of 9.3, meaning the average life settlements life is 9.3x more at-risk to COVID than the average American. This indicates that there has been at most a very small protective effect from COVID for life settlements.
COVID-19 has disproportionately higher mortality risk for those 85 and older. Thus, we expect excess mortality to be primarily observed in that cohort. A simple comparison of 2019 and 2020 deaths during the months of April through September shows this clearly.
Number of life settlement deaths during the months April through September for 2019 and 2020. Significant increases were observed in ages 85 and older.
COVID-19 Vaccine Likely to Reduce Excess Deaths Dramatically
In clinical trials[1], both the Pfizer and Moderna vaccines offered around 95% effectiveness at protecting against infection. Combined between both trails, 37,000 participants received vaccination, of which 19 contracted COVID-19 during the trial, 1 had a severe COVID-19 case, and 0 died from the disease. By comparison, 37,000 participants received a placebo, of which 347 contracted COVID-19 during the trial, 39 had severe cases, and 1 died. Both companies report that the vaccine efficacy was stable across age, gender, and race and ethnicity demographics. It is not yet clear how long the protection lasts. Pfizer’s vaccine is already being offered to the highest priority individuals in the UK.
Neither Pfizer nor Moderna noted any serious safety concerns about the vaccine. However, there were four cases of Bell’s palsy in Pfizer’s vaccinated group, a condition that causes partial and generally temporary facial paralysis[2]. In addition, a few early recipients of Pfizer’s vaccine in the UK experienced allergic reactions, which had not been observed in the clinical trial[3]. Despite these potential concerns, the FDA advisory panel recommended authorization of Pfizer’s vaccine in the United States[4].
Both Pfizer and Moderna vaccines rely on mRNA technology, which would be a first of its kind for a licensed vaccine in the United States[5]. One benefit of mRNA vaccines is the ability to scale up much faster than traditional vaccines.
In the long term, there is good reason to believe that the vaccine will effectively eliminate excess mortality caused by COVID. However, some unknowns could limit its effectiveness, such as
- Will the success of the clinical trials hold for the general public?
- Will there be any serious and widespread adverse reactions to the vaccine?
- How long will the vaccine protection last?
- Will public concern about a rapidly developed vaccine based on new technology severely limit the number of people willing to be vaccinated?
In the near term, prioritization of the COVID vaccine in the U.S. will affect the relative COVID mortality of subpopulations within life settlements. States will individually prioritize vaccine administration, though most are expected to follow the CDC recommendations. Those recommendations place first priority on health care workers and elderly people living in nursing homes and long-term care facilities. There are not expected to be enough doses to completely vaccinate those cohorts until at least February. Next, the CDC recommends essential workers receive the vaccine. The next cohort after essential workers is likely to include people over 65, which would cover the majority of the life settlements population. Based on this timeline, we would expect reduction in life settlements excess deaths to come in two phases – first in January with the vaccination of nursing home and long-term care residents, and then in the spring as the rest of the senior population becomes eligible for the vaccine.[6]
As with most things COVID-related, there are still many unknowns about these vaccines. Nevertheless, there is good reason to be optimistic that COVID mortality in the U.S. will be down significantly by the coming spring.
[1] https://www.pfizer.com/news/press-release/press-release-detail/pfizer-and-biontech-conclude-phase-3-study-covid-19-vaccine; https://investors.modernatx.com/news-releases/news-release-details/moderna-announces-primary-efficacy-analysis-phase-3-cove-study
[2] https://www.nbcnews.com/health/health-news/pfizer-s-covid-19-vaccine-could-get-fda-committee-nod-n1250537
[3] https://www.reuters.com/article/health-coronavirus-britain-vaccine/uk-issues-anaphylaxis-warning-on-pfizer-vaccine-after-adverse-reactions-idUSKBN28J1DX
[4] https://www.wsj.com/articles/fda-advisory-panel-takes-up-pfizer-biontech-covid-19-vaccine-11607596201?mod=hp_lead_pos1
[5] https://www.cdc.gov/vaccines/covid-19/hcp/mrna-vaccine-basics.html
[6] https://www.nytimes.com/2020/12/01/health/covid-vaccine-distribution-first.html
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