The packaging of life insurance assets, their corresponding liabilities, and cash flows into asset-backed securities (ABS) is a relatively new advent within the nascent life settlements industry. The first rated securitization of life settlements, occurred in March of 2004, when Moody’s Investor Services rated two separate traunches of a $70MM bond offering syndicated by Merrill Lynch A1 and Baa2. The securitization of life insurance assets is a closely-held area of expertise within the already specialized Life Settlement industry.
Securitized portfolio yields are based upon the actual maturity date of portfolio assets relative to the expected maturity date of said assets. The Company, in conjunction with various Broker-Dealers, through the Life Settlement Portfolio model, and the deployment of various other means, and applications of instutional methods used to liquidate and exit from Life Settlement Portfolios, in the aggregate, these assets are typically priced to provide wholesale investors with a minimum expected rate of return, IRR, equal to no less than 10%.
All policies held in portfolios are issued by “A”, or better, rated insurance carriers. The investor will, upon purchase of a Life Settlement Portfolio, own all rights to future death benefits held within the securitized asset.
Even though the medically underwritten life expectancy is determined by third party underwriters, the Company targets effective life expectancy using a time stress variable of between 6 months- 24 months. The degree of sensitivity analysis employed with respect to life expectancy is contingent upon the risk tolerance of each investor.
The emergence of Life Settlements as an asset class has brought about the development of securitization of the vehicle. Securitization provides investors with the opportunity to gain rights to the future death benefit of a Life Settlement contract, while circumventing the idiosyncrasies that come with purchasing the asset in its raw form. By definition, securitization is the process of repackaging the cash flows corresponding to insurance premium payments and death benefit into a security. These securities can take the form of private placements, or rated securities, such as bonds collateralized by Life Settlement contracts.
