Short Term Line of Credit


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Short Term Line of Credit

  • Short Term Line of Credit

  • Stop Loss Longevity Protection

  • Credit Enhancement





$12 Billion (Face Value) closed in 2007

  • $12 Billion (Face Value) closed in 2007

  • $23 Billion (Face) In Force, Year-end 2007

  • ($6 Billion of which is estimated to be

  • held by AIG)





$10.1 Trillion Individual Life Insurance In Force*

  • $10.1 Trillion Individual Life Insurance In Force*

  • 6.3% Annual Lapse/Surrenders*

  • Estimated Gross Market Potential of $177 Billion Face Value by 2017**

  • Estimated Net Market Potential of $114 Billion Face Value by 2017**











Pre-1970’s mortgage investing was localized in thrift institutions

  • Pre-1970’s mortgage investing was localized in thrift institutions

  • Securitization opened mortgage market to wide range of institutional investors

  • Similar potential for Life Settlements

  • Prepayment risk was significant consideration in early MBS transactions. Longevity risk is the primary risk for life settlement transactions.



Longevity Risk

  • Longevity Risk

  • Wrong Mortality Tables

  • Credit Risk needs to be dealt with, but a lesser consideration



Life Expectancy estimates have been inconsistent and often wrong

  • Life Expectancy estimates have been inconsistent and often wrong

  • A.M. Best Study of 909 life portfolio underwritten by the 3 major Life Expectancy Underwriters

    • Average spread of 8 months between longest and second longest L.E. Provider
    • Average spread of 24 months between longest and shortest L.E. Provider


Fasano has consistently been the longest of the L.E. Providers

  • Fasano has consistently been the longest of the L.E. Providers

  • Fasano Actual to Expected accuracy has been established at 96%, suggesting an A/E Ratio of 90% for the second longest, and 79% for the shortest LE Provider

  • Yet because of misalignment of interest between the portfolio aggregators and the funders, many portfolios have been assembled based on the shorter, less accurate life expectancy estimates

  • Market recently shocked when the shortest of L.E. Providers announced plans to extend life expectancies by 20 to 25%.

  • This clearly is a developing market



Portfolio priced at 12.4% based on the shortest L.E. Underwriter would =>

  • Portfolio priced at 12.4% based on the shortest L.E. Underwriter would =>

    • IRR of 8.3% based on second longest L.E. Underwriter;
    • IRR of 6.5% based on longest of L.E. Underwriters
  • Source: A.M. Best



First Step is for Life Expectancy Underwriters to get better and for Market to get smarter

  • First Step is for Life Expectancy Underwriters to get better and for Market to get smarter

  • Encouraging Developments: Recent announcement of shortest of L.E. Underwriters to extend LE’s by 20 to 25%; follow-up announcement of second longest to extend by estimated 5 to 10%

  • Investment Banks have promoted synthetic transactions to hedge longevity risk

  • More traditional stop loss product is more appealing



Lloyd’s (Goshawk Syndicate) developed L.E. + 2 product in the 1990’s: Would purchase life settled or viaticated policy back if person lived 2 years beyond the 85th percentile. Premium charged of 4% of face value

  • Lloyd’s (Goshawk Syndicate) developed L.E. + 2 product in the 1990’s: Would purchase life settled or viaticated policy back if person lived 2 years beyond the 85th percentile. Premium charged of 4% of face value

  • Product failed due to:

    • Anti-selection (Investor could choose which policies to buy cover for.)
    • Poor control of underwriting function
    • No life settlement model will work with wrong LE estimate






Joint venture between Fasano Associates, U.S. underwriting firm, and Augur Capital, a German investment manager of life insurance and life settlement assets

  • Joint venture between Fasano Associates, U.S. underwriting firm, and Augur Capital, a German investment manager of life insurance and life settlement assets

  • Will offer both individual and portfolio extension risk products, priced off of Fasano Life Expectancy estimates

  • Preliminary interest strong; current market unsettled



Shape of the Mortality Curve is important for modeling cash flows, although not as important as getting the midpoint life expectancy estimate right

  • Shape of the Mortality Curve is important for modeling cash flows, although not as important as getting the midpoint life expectancy estimate right

  • Industry has used 2001 VBT and now 2008 VBT Tables: Both based on Life Insurance, not Life Settlement experience.

  • VBT 2001 and 2008 exclude impaired lives, assume too long of a select period and don’t adjust for Mortality Rating











More accurate and consistent underwriting

  • More accurate and consistent underwriting

    • PLUS
  • Extension risk products PLUS

  • Huge underlying U.S. Life Insurance Market

  • Substantial Market for Life Settlement

  • Securitizations





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