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Trade Report December 08

Trade Report December 08

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Published by David Dorr
This was our first publication.
This was our first publication.

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Published by: David Dorr on Mar 15, 2010
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Trade Report
Longevity Markets 2Yields to LifeExpectancy3Capital MarketsCommentary4Longevity Market 5Special Reports 6Credit Watch 7State GuarantyFunds8
December 15, 2008
Volume I, Issue 1Inside this issue:
 The Week in Review section of ourpublication covers basic market data such as volume of life settlements and amount of face value sold in the last two weeks. Thisprovides readers with a quick snapshot of  what is currently happening in our markets.For a more in depth analysis of market con-ditions please refer to our Longevity MarketsCommentary Section on pg. 2 or for basictransaction data our Trade Data section onpg. 10. The last two weeks in the life set-tlement markets have seen the repercussionsfrom the changes in underwriting tables by both 21
Services and AVS. The impact of these revisions is likely to be felt well into2009. Based on data collected for the period11-17-08 thru 11-28-08 there was approxi-mately $297 million in face value transactedat an average of 19.02% of face value. Thisis a 8% decrease in volume from the priorperiod where approximately $326 million was transacted at an average of 21.16% of face value. The average policy face value was$2,041,751 and the 5 states with the most volume were Florida, California, New York, Texas and Delaware. Because of thechanges in underwriting tables, the averageage of male insured’s has risen to 74.3 from72.1 a 3.1% increase and the average age of female insured’s has risen to 75.7 from 74.1a 2.2 % increase. The ratio of males to fe-males remained constant at 1.8:1. Although there has been an in-crease in the average ages for insured it doesnot yet appear to be enough to compensatefor the average life expectancies now issuedfrom 21
and AVS. The average LE from21
for males is 158 up from 146 and forfemales 163 up from 152. Data is still being compiled for AVS LE’s.Funders will likely adjust for thesechanges in 2009 either with longer target ma-turity dates or increased demand for mortality impairments. In our Yields-to-Life-Expectancy section on pg. 3 you will be ableto watch for this increase over the coming  weeks by looking for a drop in IRR’s in LE’sunder 10 years.Even though the holidays are rapidly approaching and December can often be viewed as a half month for transactional pur-poses, it appears on track to exceed the vol-ume of November which was significantly reduced due to the recalculation of bids basedon new underwriting information. Year overyear November 2008 volume is significantly less than it was in 2007 where we estimatethat approximately $1.3 billion was closed andfunded. We believe 2009 will bring an oppor-tunity for the life settlement market to reas-sert itself as a valuable tool for consumers and investors alike. 
Trade Data 10
Week In Review
Editor & Publisher
Brian C. Dorr
Contributing Editors
 Anne K. ZandKeith M. FeldmanCarline B. Gele 
Managing Editor and Writer
David C. Dorr
LIFE-EXCHANGE tradedata is published twicemonthly on the first andfifteenth of each month.Subscription rate is $500per month or $5,500 forthe whole year. No dataherein should be con-strued to be recommenda-tions to purchase, retain,or sell securities, or toprovide investment adviceof the companies men-tioned or advertised. Nofees are accepted for pub-lishing any editorial infor-mation. LIFE-EXCHANGE, its subsidi-aries, and its employeesmay, from time to time,purchase, own, or sellsecurities or other invest-ment products of thecompanies discussed oradvertised in this publica-tion. 
Copyright @2008 Life-Exchange, Inc. All rights reserved.
Longevity Markets Commentary
Copyright @2008 Life-Exchange, Inc
2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137
(866) 907-9766
expected on the near horizon market volume should pick back up to nor-mal paces. We believe that 2008 willmark the first year where volume forclosed and funded life settlementtransactions was flat vs. 2007. Wealso note that there has been a pre-cipitous drop in premium financedtransactions. A key factor in the dropin the premium finance markets hasbeen the difficulty in exiting out of policies after the 2 year period. Theliquidity for many premium financeprograms is simply non-existent. This is unfortunate as there are many premium finance programs that werestructured properly but get lumped in with the ones that were not so wellassembled and they get passed overfor bids. In 2008 the premium fi-nance transactions that were con-cluded required on average a 116-238bps additional IRR for buyers toconsider purchasing them. We ex-pect that range to hold steady or in-crease slightly in 2009.for potential downgrades. You may turn to our Credit Watch section to seemore of this information. We’ve alsoprovided for readers a list on a state by state basis of the guaranty funds thatstates require be used for protecting policy owners in the event of a carrierbecoming insolvent. Because moststates cap death benefit payouts at$300,000 we expect to see policies of smaller face value start to trade at apremium vs. the larger face policiesthat attract the most bids. In fact ourdata shows that besides other key fac-tors like life expectancy and age, theface value size plays a large determi-nant in how aggressive bidders are inauctions for policies. Our data sug-gests that policies with a face value of $3 million to $5 million command apremium in bidding by as much as 14-17% over larger or smaller face valuepolicies. It should be noted that partof this relates to the oversupply of large policies on the market from pre-mium finance. In future issues we willcover specific data related to the im-pact on the overall market of premiumfinanced policies and policies wherethe beneficial interest was acquired inILIT’s during the contestability period.In our recent survey of buy-ers and sellers the sentiment is that thelife settlement markets should begin toimprove rapidly going into Q1 2009.Historically almost 75% of new lifeinsurance is written in the last quarterof the year, however, with the chaosthat we’ve seen in all markets for Q42008 it is likely that much of this busi-ness will be pushed into 2009. Al-though new life insurance business isnot directly related to the life settle-ment markets there are certainly someseasonal influences since this is thetime of year when life insurance agentsare the busiest. Now that there are nofurther changes in underwriting tables
Page 2 
 The last 90 days has seenone of the most disruptive timesever experienced for the life settle-ment industry. On September 16
,2008 21
Services made an adjust-ment to their mortality tables thatcaused many life settlement transac-tions to fall apart or move dramati-cally lower in price. The change intables resulted in life expectanciescoming back 25% + longer thanprevious tables would have esti-mated. It was also the exact sameday that the U.S. Government seizedcontrol of AIG. Then on Novem-ber 17
, 2008 AVS released thechanges to their tables. Originally thought to be a few minor adjust-ments the results shocked marketparticipants as average life expectan-cies increased by 14-20%. Certainly no one could have forecasted thiscombination of events. The result-ing effect has been a decrease in lifesettlement closings by as much as75% for the last 70 days. With all that said the lifesettlement market continues to dem-onstrate that it is a market that ishere to stay. The major institutionsthat are in our space show no signsof retreating and in fact many of them have allocated ample funds forpurchases throughout 2009. A challenge that we see forour industry is the large number of carriers that are getting draggeddown in the broader economic cri-sis. Although many have strong balance sheets, the fear in the mar-kets has sent share prices of many large carriers into the floor. Gen- worth Financial was actually trading under a $1 two weeks back. To helpinvestors make key decisions during these times we are tracking thedowngrades of major insurers as well as any that may be under review 
Advertise Here
Reach your target audience byadvertising your services in our Trade Data Report.Call our office for further detailson how you can advertise in thenext issue.Call: 1-866-907-9766Pricing will vary based on sizeof advertisement insert.
Yield to Life Expectancy 
 When we see policies traded in the secondary market we often see new buyers forget to take into account thepremium (in yield not payments to keep policies in force) that should be received for longer investment horizons i.e.longer life expectancies. There are 4 reasons we think this should be taken into consideration. 1. The most obvious isnaturally the time value of money. 2. The historical trend of mortality improvements as evidenced by recent revisionsto the industry’s most widely used underwriting tables. 3. The credit risk that exists over longer periods vs. shorterperiods. 4. The currency risk associated with the long term potential decline of US dollar denominated contracts/assets. You can see by looking at the chart below that the yield curve flattens out in the longer life expectancy ranges.Buyers active in the life settlement space also know that competition is limited in policies where insured’s have LE’sbeyond 14yrs so this would be an additional factor suggesting that the yield curve should steepen significantly from where it currently is today.
Copyright @2008 Life-Exchange, Inc
2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137
(866) 907-9766
Page 3 
Comparative Yields to Life-Expectancy Chart 
 We also want to point out in this issue’s chart 21
is for the first time showing IRR’s lower than AVS. Thereason for this is that this data incorporates the changes in underwriting tables from 21
but is prior to AVS’s adjust-ments being reflected. Early data for the next issue already suggests that this will go back to normal with AVS showing lower IRR’s than 21
        2       4        3        6       4        8        6        0       7        2        8       4        9        6        1        0        8        1        2        0        1        3        2        1       4       4        1       5        6        1        6        8        1        8        0        1        9        2        2        0       4        2        1        6        2        2        8        2       4        0
      Y       i     e       l       d       /      I      R      R

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