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Clark Troy has worked in the financial services world since 2000, and is currently a Financial Advisor at DWM Advisors, registered investment advisor in Durham, NC. He has completed the educational and exam requirements towards a CFP® certification. He worked for years as a management consultant... More
  • Life Insurers to Settle with Life Settlements? 5 comments
    Jun 2, 2010 3:21 PM | about stocks: MET, PRU, SWCEY, RGA, AZ, AXA, GS, CS

    New York Life and the Actuarial Society of Greater New York hosted Michael Fasano of Fasano Associates for a seminar called “Mortality Curves:  Lessons from Life Settlement Underwriting” on Friday, May 28.  On the face of it, this would not seem very shocking, were it not for the enmity general shown to the life settlements industry by life insurers. Life settlements, and particularly stranger-owned life insurance (STOLI), have in recent years been the bête noire of the life insurance industry. Life insurance trade association the American Council of Life Insurers has vigorously lobbied for strong legislation protecting senior citizens (and its own profitability) from fraudulent life settlement origination such as STOLI, and large states and key life settlements markets such as New York and California have enacted such laws. The life settlements industry, acknowledging that the unsavory practices of STOLI have besmirched its image, also generally supports such legislation.


    However, much as it may hate and fear the life settlements industry, life insurers and reinsurers have shown an interest in life expectancy providers such as Fasano Associates (the other two leaders are American Viatical Services and 21st Services), who estimate the longevity of senior citizens who are considering entering into a life settlement transactions.  These vendors provide the key data point for evaluating life settlements and, in so doing, have accumulated considerable expertise and data assets for estimating how long older people with health problems are likely to live. This is obviously something life insurers are interested in too.  Although the life expectancy providers have had some pretty major hiccups along the way, they’ve acquired enough domain knowledge that insurers are curious.


    Could a life insurer or reinsurer seek to partner with or acquire a life expectancy provider? It’s not outside the realm of possibility, but it would depend on pricing, which would in turn depend on how the life settlements market was doing as a whole.  For the life settlements market to flourish, institutional investors need to be in a risk-seeking mode. Through the first quarter of 2010, with accommodative fiscal policy successfully encouraging a global risk trade and thinning spreads between sovereign and corporate as well as G20 and emerging market debt, prospects for life settlements -- an asset with non-correlated fixed income like returns – might have been thought to be encouraging, although in fact the flows of capital towards life settlements slowed.  The big institutional investors to date have been German, primarily pension funds, and German institutional investors have other things on their minds these days.  

    2010 has also seen the exit and/or downscaling of major players such as Goldman Sachs and Credit Suisse from the life settlements market.  As we speak, life expectancy providers appear to be keeping prices low and seeking to diversify their income streams, implying that they aren’t overwhelmed with business.  On the other side of the equation, life insurers have been raising prices even though applications have been down in recent months after being up for some months prior. The 60 and over segment has been the sole demographic consistently applying for life insurance at an increased rate.  Anything that would give an insurer competitive advantage in underwriting senior applications for life insurance would let them price better than competitors.  A life expectancy provider might do just that.

    Disclosure: FUSEX, FSTMX, FSIIX -- index funds only
    Stocks: MET, PRU, SWCEY, RGA, AZ, AXA, GS, CS
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Comments (5)
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  • Credit Lime
    , contributor
    Comments (26) | Send Message
    exactly how big of a player was goldman and credit suisse in the life insurance settlements market? did they ever actually deal with the end clients or only participate on the wholesale financing and structuring end?
    and how long have they been in this market for or is it leftover from the viatical phase of the 90's?
    18 Jun 2010, 04:49 AM Reply Like
  • Clark Troy
    , contributor
    Comments (149) | Send Message
    Author’s reply » I cannot say "exactly" how big GS and CS were/are in the LS industry. Both were non-trivial participants. If by "end clients" you mean the individual American policy holders seeking to raise money by selling their policies, I don't believe either did that. There are typically multiple levels of intermediaries involved in deals. If by "end client" you mean the European pension investors who have seen settlements portfolios as a non-correlated source of fixed income-like returns, yes, I believe both dealt with those. I have a published report which can offer more insight into this world.
    19 Jun 2010, 12:08 PM Reply Like
  • Credit Lime
    , contributor
    Comments (26) | Send Message
    oh ok. the reason i asked about goldman and cs was because in the article it said that "2010 has also seen the exit and/or downscaling of major players such as Goldman Sachs and Credit Suisse from the life settlements market." but i guess if they were non-trivial participants in the LS industry then maybe i'm confusing different sub-sectors of the markets.


    on a side note, it is actually quite ironic the timing (or maybe thats why you reported on it now) of your report on this subject as i heard that some middle eastern sovereign wealth funds are buying a new billion-dollar zero-coupon 15-year life settlement bond being issued by a company called Gridiron Financial. since i am not an active participant in this market, i would be very interested to know what the pricing on this bond is/was if you happen to know. all i heard was that it was being pre-marketed with an oid 6 1/8% ytm.


    doing the backwards math implies a 2.375% spread over 15-year swaps (3.75% right now). assuming those numbers are somewhat accurate, is that a good level (238 bps spread over swaps) for pricing these kinds of securities? how does that level compare with the all-time or long-term highs and lows?
    22 Jun 2010, 05:14 AM Reply Like
  • Credit Lime
    , contributor
    Comments (26) | Send Message
    and yes i'd be interested in having a look at your published report if it is available.
    22 Jun 2010, 05:15 AM Reply Like
  • Clark Troy
    , contributor
    Comments (149) | Send Message
    Author’s reply » CL. My apologies for being slow on the uptake. I was on the road. The published report is available for purchase. If you're interested please contact Gerald Clemente of Aite Group at (617) 338-6027.
    25 Jun 2010, 08:52 AM Reply Like
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