Kevin questioned yesterday whether the deferment rate is affected at all by any illiquidity premium. Here is a mathematical approach to the same question.
Diamond Princess update
Data so far suggests that of the 3,711 people on the Diamond Princess cruise ship, 705 contracted the virus, i.e. 19%. Much higher than in any place in China, as we have stated passim, but then a cruise ship is a confined space with a lot of people in it. So far, 6 people appear to have died, which is 0.85% of those diagnosed. The mortality relative to the whole population is therefore 6 divided by 3,711, i.e. 0.16%.
These figures conflict somewhat with the crude distribution we published here, but we did say to treat all figures with caution. There is a conflict because, as is well known, mostly old people like us go on cruises, but we are seeing nothing like an 18% case fatality rate.
[EDIT] A useful paper on the Diamond Princess age distribution is here. Table copied below.
| Age group | Symptomatic cases | Asymptomatic cases 1 | Total | Crude asymptomatic ratio 2 | Persons aboard3 |
| 0-9 | 0 | 1 | 1 | 100% (95%CI: 2.5%, 100%) | 16 |
| 10- | 1 | 1 | 2 | 50.0% (95%CI: 1.3%, 98.7%) | 23 |
| 20- | 18 | 2 | 20 | 10.0% (95%CI: 1.2, 31.7%) | 347 |
| 30- | 18 | 5 | 23 | 21.7% (95%CI: 7.5%, 43.7%) | 429 |
| 40- | 18 | 7 | 25 | 28.0% (95%CI: 12%, 49.4%) | 333 |
| 50- | 27 | 22 | 49 | 44.9% (95%CI: 30.1%, 59.8%) | 398 |
| 60- | 73 | 56 | 129 | 43.4% (95%CI: 2.5, 100%) | 924 |
| 70- | 92 | 136 | 228 | 59.6% (95%CI: 53.0%, 66.1%) | 1015 |
| 80- | 27 | 25 | 52 | 48.1% (95%CI: 34.0%, 62.3%) | 215 |
| 90- | 2 | 0 | 2 | 0% (95%CI: 2.5%, 84.2%) | 11 |
Effect of corona virus crash on insurers
See table below, sourced from Financial Times market data. The FTSE is down 11% since the start of the current market crisis (around the middle of February 2020), but it looks as though insurers have been disproportionately affected.
ERMs again
Published on Friday 28 Feb, although dated earlier, this Discussion Note on the Economic Valuation of Equity Release Mortgages has some interesting stuff. It is written by the IFoA Equity Release Mortgages Working Party, published by the Institute (although the Institute has the usual disclaimer).
We will be commenting shortly.
Resolution and recovery
As we suggested earlier, unresolved (existing) cases (E) tend to resolve into recovery rather than death. The table below shows this clearly. Between 28 February and 1 March, there were 79 deaths in Hubei, but 5,133 recoveries. By the same token, the apparent fatality rate also falls.
| Place | Date | C | D | R | E | D/(D+R) |
| Hubei | 28-Feb-20 | 65,914 | 2,682 | 26,403 | 36,829 | 9.22% |
| Hubei | 29-Feb-20 | 66,337 | 2,727 | 28,930 | 34,680 | 8.61% |
| Hubei | 01-Mar-20 | 66,907 | 2,761 | 31,536 | 32,610 | 8.05% |
Note again that the percentage of cases is small compared to the population. The population of Hubei is about the same as the UK. So about 1 in 1,000 have been diagnosed with the disease since it began. Only because of draconian isolation measures, however, which is why the impact on the economy is so severe.
Conflicting data
The table below shows, for 28 February 2020, the diagnosed cases (C), deaths (D), and recoveries (R) from 25 parts of China. Data from John Hopkins University.
The usual caveats apply.
The last three columns are a function of the primary data. Existing cases (E) is C-(D+R), i.e. diagnosed cases less resolved cases. D/(D+R) is one method for estimating the case fatality ratio. E/C is the unresolved cases divided by diagnosed cases. This ratio will fall to zero over time given that all cases will resolve into recoveries or deaths. The table is sorted by this number.
As is evident, the fatality ratio varies wildly, from Jiangxi, where 790 out of 935 cases have already been resolved, with only one death, to Hubei where little more than half the 65,914 cases have been resolved, with a 9.22% apparent fatality ratio.
Time series analysis (not shown here) suggests that unresolved cases (E) tend to resolve into recovery rather than death, hence there is a moderately strong correlation (0.6) between E and apparent fatality.
There is no explanation yet of why cases should have taken so long to resolve in Hubei, which the media call the epicentre of the outbreak. Note also, as before, that the cases in Hubei are a tiny fraction of its population.
In other news, manufacturing activity in China in February plunged faster than during the 2008 financial crisis.
| Place | Date | C | D | R | E | D/(D+R) | E/C |
| Qinghai | 28-Feb-20 | 18 | 0 | 18 | 0 | 0.00% | 0% |
| Gansu | 28-Feb-20 | 91 | 2 | 82 | 7 | 2.38% | 8% |
| Yunnan | 28-Feb-20 | 174 | 2 | 156 | 16 | 1.27% | 9% |
| Henan | 28-Feb-20 | 1,272 | 20 | 1,112 | 140 | 1.77% | 11% |
| Hebei | 28-Feb-20 | 318 | 6 | 277 | 35 | 2.12% | 11% |
| Jiangxi | 28-Feb-20 | 935 | 1 | 790 | 144 | 0.13% | 15% |
| Shanghai | 28-Feb-20 | 337 | 3 | 279 | 55 | 1.06% | 16% |
| Anhui | 28-Feb-20 | 990 | 6 | 821 | 163 | 0.73% | 16% |
| Hunan | 28-Feb-20 | 1,017 | 4 | 830 | 183 | 0.48% | 18% |
| Shanxi | 28-Feb-20 | 133 | 0 | 109 | 24 | 0.00% | 18% |
| Shaanxi | 28-Feb-20 | 245 | 1 | 199 | 45 | 0.50% | 18% |
| Jiangsu | 28-Feb-20 | 631 | 0 | 515 | 116 | 0.00% | 18% |
| Zhejiang | 28-Feb-20 | 1,205 | 1 | 975 | 229 | 0.10% | 19% |
| Fujian | 28-Feb-20 | 296 | 1 | 235 | 60 | 0.42% | 20% |
| Jilin | 28-Feb-20 | 93 | 1 | 73 | 19 | 1.35% | 20% |
| Guizhou | 28-Feb-20 | 146 | 2 | 112 | 32 | 1.75% | 22% |
| Liaoning | 28-Feb-20 | 121 | 1 | 93 | 27 | 1.06% | 22% |
| Tianjin | 28-Feb-20 | 136 | 3 | 102 | 31 | 2.86% | 23% |
| Xinjiang | 28-Feb-20 | 76 | 3 | 52 | 21 | 5.45% | 28% |
| Chongqing | 28-Feb-20 | 576 | 6 | 402 | 168 | 1.47% | 29% |
| Beijing | 28-Feb-20 | 410 | 7 | 257 | 146 | 2.65% | 36% |
| Sichuan | 28-Feb-20 | 538 | 3 | 338 | 197 | 0.88% | 37% |
| Shandong | 28-Feb-20 | 756 | 6 | 405 | 345 | 1.46% | 46% |
| Hubei | 28-Feb-20 | 65,914 | 2,682 | 26,403 | 36,829 | 9.22% | 56% |
Winners and losers
Mostly losers, to be honest.
Harry Hindsight says to have loaded up on healthcare (NMC), makers of surgical masks and stuff (Bunzl) and pharma (Hikma), and dumped airlines (Easyjet, ICAG), but he has never been a friend in need.
| Name | Price 28/2 | Price last week | Total gain/loss | Pct |
| Easyjet PLC | 1,059.21 | 1,464.2 | -405.00 | -27.7% |
| Melrose Industries PLC | 208.8 | 280.4 | -71.60 | -25.5% |
| International Consolidated Airlines Group SA | 473.1 | 623.1 | -150.00 | -24.1% |
| Legal & General Group PLC | 255 | 313.9 | -58.90 | -18.8% |
| Standard Life Aberdeen PLC | 268.9 | 323.0 | -54.10 | -16.7% |
| Schroders PLC | 2,834.00 | 3,376.0 | -542.00 | -16.1% |
| Persimmon PLC | 2,756.00 | 3,282.0 | -526.00 | -16.0% |
| BHP Group PLC | 1,399.40 | 1,661.4 | -262.00 | -15.8% |
| Prudential PLC | 1,260.44 | 1,489.4 | -229.00 | -15.4% |
| Halma PLC | 1,909.50 | 2,227.5 | -318.00 | -14.3% |
| Tesco PLC | 219.5 | 255.7 | -36.20 | -14.2% |
| 3i Group Plc | 1,006.50 | 1,171.5 | -165.00 | -14.1% |
| Ashtead Group PLC | 2,358.00 | 2,741.0 | -383.00 | -14.0% |
| Aviva PLC | 347.7 | 404.1 | -56.40 | -14.0% |
| Meggitt PLC | 531.4 | 615.8 | -84.40 | -13.7% |
| Smiths Group PLC | 1,507.50 | 1,745.5 | -238.00 | -13.6% |
| Compass Group PLC | 1,689.00 | 1,953.0 | -264.00 | -13.5% |
| Phoenix Group Holdings PLC | 682.5 | 788.5 | -106.00 | -13.4% |
| AVEVA Group PLC | 4,234.00 | 4,870.0 | -636.00 | -13.1% |
| BP PLC | 394.65 | 453.6 | -58.90 | -13.0% |
| DCC PLC | 5,502.00 | 6,252.0 | -750.00 | -12.0% |
| Royal Dutch Shell PLC | 1,662.00 | 1,888.0 | -226.00 | -12.0% |
| WM Morrison Supermarkets PLC | 164.55 | 186.0 | -21.40 | -11.5% |
| Reckitt Benckiser Group PLC | 5,676.00 | 6,414.0 | -738.00 | -11.5% |
| Ferguson PLC | 6,728.00 | 7,566.0 | -838.00 | -11.1% |
| Intertek Group PLC | 5,202.00 | 5,844.0 | -642.00 | -11.0% |
| Experian PLC | 2,549.00 | 2,863.0 | -314.00 | -11.0% |
| Diageo PLC | 2,738.26 | 3,072.3 | -334.00 | -10.9% |
| Sage Group PLC | 690.8 | 773.8 | -83.00 | -10.7% |
| J Sainsbury PLC | 188.11 | 210.7 | -22.59 | -10.7% |
| Spirax-Sarco Engineering PLC | 8,365.00 | 9,365.0 | -1,000.00 | -10.7% |
| Coca Cola HBC AG | 2,507.00 | 2,798.0 | -291.00 | -10.4% |
| RSA Insurance Group PLC | 510.6 | 569.0 | -58.40 | -10.3% |
| London Stock Exchange Group PLC | 7,568.00 | 8,422.0 | -854.00 | -10.1% |
| Smith & Nephew PLC | 1,735.00 | 1,924.0 | -189.00 | -9.8% |
| BAE Systems PLC | 604.4 | 669.0 | -64.60 | -9.7% |
| Relx PLC | 1,873.50 | 2,072.5 | -199.00 | -9.6% |
| SSE PLC | 1,530.50 | 1,686.5 | -156.00 | -9.2% |
| Unilever PLC | 4,188.00 | 4,593.0 | -405.00 | -8.8% |
| Imperial Brands PLC | 1,580.65 | 1,728.7 | -148.00 | -8.6% |
| AstraZeneca PLC | 6,934.00 | 7,544.0 | -610.00 | -8.1% |
| National Grid PLC | 988 | 1,063.8 | -75.80 | -7.1% |
| GlaxoSmithKline PLC | 1,563.00 | 1,658.2 | -95.20 | -5.7% |
| Rentokil Initial PLC | 482.3 | 508.4 | -26.10 | -5.1% |
| Rolls-Royce Holdings PLC | 628.8 | 662.4 | -33.60 | -5.1% |
| Hikma Pharmaceuticals PLC | 1,832.50 | 1,927.5 | -95.00 | -4.9% |
| Bunzl plc | 1,895.00 | 1,948.5 | -53.50 | -2.7% |
| NMC Health PLC | 938.4 | 855.2 | 83.20 | 9.7% |
Artificial bloodbath
Markets are looking ultra grim this morning. The Eumaeus portfolio down 10% on the month, and that is after a nasty previous month. High yielding bond markets are also suffering badly, with significant investor outflows.
Well it’s all artificial volatility I suppose!
Time for an admission from me, namely that my own pension is largely invested in risky assets. Is that consistent with my view that insurance firms shouldn’t be booking risky profits in advance?
Yes perfectly. I recognise that risky investments are risky, and that the risky profits might not materialise for a long time, perhaps a very long time. I willingly bear that risk. I don’t make commitments that assume the risk isn’t there, and I have household ‘management actions’, namely not going on holiday, cutting down on the port etc, that will absorb the risk if realised.
It will be an interesting year.
Perhaps not so grim
The markets have been in a tailspin this week due to coronavirus and Eumaeus is a bit glum. On the other hand, is the apocalypse really upon us?
Grim distribution
The table below is from Worldometers, based on a paper by the Chinese CCDC released on February 17 and published in the Chinese Journal of Epidemiology1
I would treat all such statistics with caution, but here they are anyway.
| AGE | DEATH RATE |
| 80+ years old | 14.8% |
| 70-79 years old | 8.0% |
| 60-69 years old | 3.6% |
| 50-59 years old | 1.3% |
| 40-49 years old | 0.4% |
| 30-39 years old | 0.2% |
| 20-29 years old | 0.2% |
| 10-19 years old | 0.2% |
| 0-9 years old | 0.0% |
Death Rate is number of deaths divided by number of known cases of Coronavirus, but we still don’t know the ratio of known to unknown cases.