Life Settlement News

I subscribe to Google alerts for "life settlement news" and over the past two months the alerts that used to come twice a week-and often included news on settlements that had nothing to do with the selling of a life insurance policy- have now become daily alerts, typically with a minimum of four new stories/blog postings.

On one hand, the increased publicity for this asset class is a positive given the impact the economic crisis had on all financial markets-and specifically on baby boomers retirement plans, I just wish that I could say the actual information being written was A) True, and B) Positive. Neither is the case.

Most of the articles and blogs I have read utilize similar phrases, such as: death bonds, wall street scheme, betting on death, the second coming of sub-prime, etc. I did come across these recent articles that I felt provided a good representation of why someone would look to settle their policy and the associated benefits.

http://online.wsj.com/article/SB10001424052748704471504574447350852232082.html

http://www.peterboroughtoday.co.uk/businesscomment/Steve-Hunt-Understanding-life-settlement.5755078.jp

I am one of the pieces of the life settlement puzzle as my firm provides the life expectancy calculations utilized by investors to price the individual life insurance policies. From this vantage point, I can say that there is little difference assessing the associated mortality of these individuals from our experience on the life insurance side-other than our goal in life settlement is to make as reasonable and realistic assessment as possible-on the life side underwriters tend to take a "worst case" approach and when in doubt debit the risk (lowering the life expectancy and increasing policy premiums) or declining the risk altogether. Some of the articles would lead people to believe that depending upon who pays for the life expectancy review affects the outcome of the life expectancy provided-this is absolutely not the case for our company. We utilize all of our experience as medical underwriters, all of the "tried and true" underwriting methodologies and tools, with a good dose of clinical and actuarial expertise to come as close to the estimation of a life expectancy on each individual we review. It is unreasonable to expect that our estimation is precise, which is why you will hear talk of the need for the "law of large numbers" or portfolios of thousands of individual life insurance policies to assist in the distribution of the risk. It is reasonable to expect that the company providing the life expectancies is making an unbiased review, that they are basing it on clearly defined methodologies that are transparent to the investor groups which may be purchasing the risk, and that any assumptions made on the status of an individuals health is on a "best case" scenario-which leads to a longer than average life expectancy vs. unreasonably shorter.

The focus from the life expectancy provider standpoint should be protecting the investors bottom line-hence the glaring difference from what happened in the sub-prime market where mortgage underwriters were making highly risky decisions and overlooking their most basic underwriting principles.

"Quote Du Jour" : "The purpose of life is to fight maturity" Dick Werthimer

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