The London American

Swing a tennis racquet or a golf club? Check. Walk the dog? Check. Live in a city? Check. How to add years to your life – the underwriter way

Policy Selection looks at the factors determining life policy pay outs 

- Leading life settlements fund manager examines lifestyle factors determining how life policies are assessed by underwriters

- Usual suspects – regular exercise, not smoking… and walking the dog are all pluses

- And swapping country for town can be a life or death choice

LIVE in a city? Play tennis? Or golf? Swim regularly? Walk the dog? Don’t smoke? 

Older people – those in their 70s and beyond – are likely to have significantly increased life expectancy (assuming they are non-smokers) if they tick some or all of these key boxes established by insurance underwriters responsible for calculating life expectancy, according to new research by Policy Selection Ltd (PSL).

PSL, which runs Assured Fund, one of the UK’s biggest life settlement funds, based on the US Senior Life Settlements market, asked its two major underwriters to identify the key determinants which have a direct impact on life expectancy for senior citizens –‘senior’ typically being those aged 72 and over.

The research found the following:

a) Those living in cities benefit from significant advantages over those a living in rural environment. These include the ability to receive rapid, quality medical care for most conditions, especially for those who have pre-existing medical conditions which require frequent, expert support.

b) Having a pet – preferably a dog which needs daily exercise – can make a substantial difference, as simply walking a dog a couple of times a day can add up to 18 months to typical life expectancy. 

c) Regular exercise, such as playing golf, tennis, or swimming can also have a direct bearing on how long older people live, adding at least 12 to 18 months to the life expectancy of a 75-year-old man or woman.

Underwriters also found that those aged 75 plus who were still living with their spouse had, on balance, a greater chance of longer life: typically, a man aged 75 suffering acute depression as the result of losing his wife would see his own life expectancy reduce by up to two years.

While there are a host of ‘typical’ events which can affect life expectancy – anything from so-called ‘chronic’ conditions such as cardiovascular illnesses, diabetes, arthritis etc – some of the ‘fundamentals’, as they are observed by underwriters, form a significant basis on which life expectancy criteria are based.

“The longevity differential will depend in part on the impairment you suffer from and the severity of your impairment,” said PSL’s Andrew Walters.

“Our underwriters maintain for example that for certain impairments, such as well-controlled diabetes, it may not matter where you live. However for more serious risk profiles, including many types of cancers, living close to a major city centre medical complex can make a significant difference.

“If you take a really common impairment, such as diabetes, there are a host of variables: (a) length of time with diabetes and age at diagnosis; (b) how well or poorly controlled their blood sugar is; (c) whether they have developed diabetic complications, such as retinopathy, peripheral vascular disease or renal insufficiency; and (d) whether they suffer from co-morbid conditions,” he said.

“Obviously, their age at underwriting will also affect the longevity impact. By way of example, the life expectancy for a 75-year-old male non-smoker without any rateable impairments is approximately 169 months.”

Underwriters also have to take a view on more esoteric effects on life expectancy, such as death of a spouse, which affect different people differently.

“Some people are devastated and will themselves die within a short time of losing their spouse,” said Walters.

“The literature supports the theory that there is approximately a one year period following the death of a spouse where the living spouse has an increased risk of dying. All other things considered, that risk goes away after one year. This increased risk is not huge but statistically valid. 

“Anecdotally, the underwriters have also seen – particularly with surviving males – the spouse remarry within one month, even after 60 years of marriage. Usually the surviving spouse just can’t embrace being alone. Most older individuals find a good reason to live as long as possible, provided their health and quality of life remains good.

“In other words, underwriters need to determine as to whether the death has resulted in some degree of prolonged depression. For a 75-year-old male non-smoker, mild depression would reduce life expectancy by perhaps six to 9 months; moderate depression would reduce LE by about a year, while severe depression would reduce LE by two years or thereabouts.”

Assured Fund invests in US life assurance policies sold on the second hand traded market by elderly US citizens – the typical age of policy holders is between 75 and 85. 

Reflecting similar products in the UK, the US-based policies carry a guaranteed death benefit and the sum assured. When the policyholder dies, the full sum assured is realised, with Assured Fund then receiving the proceeds.

“The return from a Life Settlement depends principally on the maintenance costs, i.e. the number of premiums to be paid over the life of the insured. Thus it is important to us to partner with independent underwriters who have a proven track record,” Walters added.

The fund has grown at between 9 and 11 % per year since its launch in 2005. Predictions for 2010 are for the fund to grow by 9%.

Its Sterling Share Class C has easily outperformed government gilts and as the returns are based on pay outs from maturing life policies held within the fund, investors do not have the worry of the market volatility which has seen the value of equities plummet.