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Vesttoo publishes COVID-19 era mortality models, offers risk transfer index


Vesttoo, which uses proprietary artificial intelligence and machine learning solutions to help companies assess and transfer risks to the capital markets, has published mortality risk models and forecasts for the U.S. including COVID-19 impacts, and offers the resulting index for mortality risk transfer transactions.

Vesttoo aims to help risk bearers better forecast and price long-tail exposures, including longevity risk, excess mortality risk, lapse, as well as Value-in-Force (VIF) monetization and also what it terms excess mortality Industry Loss Warranties (ILW), then transfer those risks to the capital markets.

The company has now published a United States COVID-19 era mortality model and an excess mortality risk forecast for the next few years.

The mortality risk model, which is based on historical population and death counts from the past 80 years, showed an increase of between 10-20% in mortality rates in 2020, in comparison with historical averages, with the risk of elevated mortality forecast to continue.

“Using proprietary AI and machine learning risk modeling algorithms, Vesttoo built two stochastic forecasts – one based on historical data until the end of 2019 (before COVID-19), and the other based on historical data until November 2020, with the 2019 model assigning a probability of 0.5% for the outcomes of 2020,” explained Ben Zickel, Chief Technology Officer of Vesttoo.

Vesttoo’s excess mortality risk model output, which you can see below, clearly shows the increases when comparing the the 2019 model to the November 2020 model. It also shows the impact of COVID-19 on future mortality forecasts, including the current January 2021 third wave of mortality, which Vesttoo’s November 2020 model predicted has a high likelihood of being worse than previous waves.


“Our data clearly demonstrates the extent of COVID-19’s devastating effects on mortality, and the likelihood that this trend will persist in the years to come. The insurance industry as a whole has to brace for the years to come by adjusting risk models and capital strategy to combat COVID-19 era stress,” Yaniv Bertele, CEO of Vesttoo added.

Vesttoo takes an actuarial approach to its offer of data-driven risk management solutions, designed to help insurance and reinsurance companies, or pension funds, access efficient sources of capital markets funding for their risk transfer.

Using technology to analyse, measure, price and enable structuring of these risks, Vesttoo wants to open up the capital markets as a viable alternative source of reinsurance, while enabling access to relatively uncorrelated returns from insurance linked risks, such as mortality and longevity, for capital market investors.

Specifically, on COVID-19 and the elevated mortality levels that are being experienced around the world, Vesttoo offers to structure portfolio-specific mortality hedging programs for cedents.

In addition, the company offers a structured excess mortality Industry Loss Warranty (ILW) product, using the mortality forecasts from its risk model to define and track the underlying index.

Mortality risks have been traded in an index-based instrument before, as too has longevity risk exposure. In addition, modelled loss indices have been used for this kind of reinsurance risk transfer previously as well.

The difference now is in the technology available to create such stochastic and forward-looking models, with artificial intelligence and big-data set to enhance the accuracy and predictability of indices focused on any insured exposure.

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