Members of an American Academy of Actuaries (AAA) work group say any new life expectancy projection guidelines should go through a formal Actuarial Standards Board development process.
Linda Lankowski, chairperson of the Life Settlements Investment Work Group at the AAA, Washington, says she believes the board should, and will, develop a standard, a practice note or some other document relating to life expectancy analyses.
Life Expectancy Providers (LEPr), a group for companies in the longevity forecasting field, released the first version of a life expectancy estimation best practices document in May. The five companies that formed LEPr are hoping actuaries will adopt the best practices standards, such as standards for protecting the privacy of the insureds and standards for disclosing data adjustments, when they develop life expectancy estimates.
LEPr members have done a good job of coming up with ideas and drawing eyes to an important topic that needs actuarial standard setters’ attention, Lankowski says.
To ensure that actuarial estimates are based on reasonable assumptions and calculated using clear, well-disclosed methods, any standards that actuaries are expected to follow should go through a full standards board research, development, review and public comment process, Lankowski says.
The Actuarial Standards Board’s Actuarial Standards of Practice require an actuary who is preparing a report to review current actuarial practices and follow relevant board guidance and precepts rather than to use documents such as best practices guides prepared by outside organizations, Lankowski says. Otherwise, she says, guidelines that seem reasonable could let actuaries manipulate their estimates or force actuaries to use rigid cut-offs or formulas that are a poor fit for the data being analyzed.
Many actuaries in the life expectancy estimation field are helping life settlement providers or investors estimate the life expectancies of insureds who are selling life insurance policies. Life expectancy estimation also can play a role in many types of retirement and estate planning.
Several years ago, life settlement investors found that the consumers who had originated the life insurance policies in the life settlement pools were living longer than expected. Critics accused life settlement providers and their actuaries of misrepresenting the insureds’ life expectancies; defenders say actuaries have trouble coming up with accurate life expectancy estimates partly because the life settlement industry is so new.
- Allison Bell