Life Settlement Securitization
A New Asset Class.
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.
Securitization.
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.
Significant Advantages.
The asset class holds significant advantages because in a general
sense, it is not prone to interest rate risk, stock market
fluctuations, or systemic factors. In general, the risk of investing in
life settlement contracts is longevity risk, which is the risk of the
policy failing to mature at the expected future date.
Life Settlement Securitization Structure.
The life settlement securitization structure seeks to distill this risk
by providing a wide range of conservative policy maturity estimates
from leading third-party underwriters. Historical returns on life
settlement policies are between 15%-20% per annum. The unique
properties of this asset class makes it an important diversification
tool, which should be explored in any asset allocation plan.
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