Trade Report
Month In Review 2Trade Data 3Yield to LE 4Longevity MarketSpreads5Credit Watch 6
February 15, 2009
Volume I, Issue 3Inside this issue:
Midway into the second month of 2009 it is a relief to see IRR’s starting to falla bit more. It seems that when IRR’s pushup past 17-18% (on a 50/50 blend AVS/21
st
) the ratio of policies that qualify for life settlements drops to less than 1 in10. Although our number of data contribu-tors is down significantly vs. the last twomonths our polling of brokers and providersindicates IRR’s may be down by as much as60-100bps. Purchase price as a percentageof face value has dropped significantly sincethe new changes in LE’s and the higherIRR’s buyers are seeking. Average purchaseprice as a percentage of face value is ap-proximately 16% although we have heard of several transactions that may have closednear 10-11%. A continued area we are monitor-ing for 2009 is the credit ratings of carriers. The obvious reason that this is concerning isbecause it raises longer term questions aboutcarrier solvency. The life settlement marketis fond of quoting the well known statisticthat “an A rated carrier has never failed topay out on a death claim”. Yes that’s true,however, B rated carriers have failed to pay and many carriers are on negative outlook watch and may see themselves get down-graded. Lincoln and Hartford are two insur-ers in particular to keep an eye on. A secondissue related to this is that many buyers inthe life settlement markets raise their capital via offering memorandums and most of these offering memorandums stipulate thatthe fund will not purchase policies withcredit ratings less than A-. This means thateven more opportunistic funds may be lim-ited from bidding for policies even if they could purchase the policy at a significant dis-count. With the challenges the marketfaces there do remain some very bright spotsin our market. The biggest one is that weexpect to see the largest resurgence of tradi-tional (i.e. non premium financed) policiesenter the market that we’ve seen in the lasttwo years. There are two large driving factorsfor this. The first is that many top producing agents have been making a fortune thanks topremium finance and have become accustomto income levels that have been much largerthan probably any other period in their ca-reers. Premium finance programs are cur-rently very limited and there are not too many news ones lining up on the horizon. Thismeans that agents will have to return to tradi-tional life settlements as a means to supple-ment their income.
Continued on Next Page
Month 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 monthly on the fifteenth of eachmonth. Subscription rateis $250 per month or$2,750 for the whole year.No data herein should beconstrued to be recom-mendations to purchase,retain, or sell securities, orto provide investmentadvice of the companiesmentioned or advertised.No fees are accepted forpublishing any editorialinformation. 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 @2009 Life-Exchange, Inc. All rights reserved.
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Copyright @2009 Life-Exchange, Inc
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(866) 907-9766
chase senior secured leveraged loansyielding 22%+ in a much more liquidenvironment? It is for this reasonthat we should as an industry encour-age the participation of the life insur-ers. Life insurers can use life settle-ments as a hedge against their existing book of business. This helps carriersbalance out longevity risk or evencancel out existing liabilities on prod-ucts that may have been mispriced.For long term viability of our marketit is critical to have participants withlegitimate hedging needs otherwiseour market will continue to be influ-enced by the flows of hot money.
Inour March issue we will begin thefirst of a series of columns covering some of the more interesting legalaspects of trading in life settlements.Many legal articles that currently cir-culate in the life settlement marketfocus on regulatory issues rather thanlegal issues as they relate specifically to transactions. We hope to fill that void with a series contributed by some of our industry’s top legalminds. Also as a reminder we arealways looking for new sources of data and feedback from our sub-scriber community regarding thetypes of data and charts you findmost useful for conducting your lifesettlement operations. In addition weare always interested in alternative valuation methodologies. While weprovide data and analyze it based onindustry preferences we by no meansbelieve that this will stay static and infact predict that there will be many more changes and improvementsover the next couple of years. If youfeel you have something unique tocontribute or a perspective that isn’tbeing heard in the marketplace pleasefeel free to get in touch with us.are too large for the life settlementmarket to currently digest. We hopeto see more institutional buyers enterthe market this year to help absorb thesteady stream of jumbo policies com-ing to market with no homes. Lifeinsurers as participants would be a big help in this arena and for more thanone reason.It’s important to see life in-surers get involved in the life settle-ment process. Their history of under-standing longevity and mortality risk issignificant and more importantly lifesettlements offer them interesting op-portunities that investment funds arenot able to capture.One benefit of having thecarriers involved would likely be thereduction in regulatory battles that ourindustry faces. This is costly for theentire market and ultimately doesn’thelp anyone. Another benefit of hav-ing carriers involved is there large bal-ance sheets. We have all experiencedthe frustration of funds “running outof money” as they place the last of their investors capital and then look toraise new funds. This has led to anerratic cash flow problem for our mar-ket. Granted having more investmentbanks in our space is helping tosmooth that out a bit, having carriersinvolved would help much further.Last but not least it is important torecognize that when investment fundspurchase life settlements it is still aspeculative asset class. This meansthat many funds that are in our markettoday may be swayed to other assetclasses as their risk/reward profileschange. In fact we saw this happenlast quarter as hedge funds stoppedlooking at life settlements to chasemarket distortions in other areas. Af-ter all why buy a pool of life settle-ments that are bulky and not very liq-uid yielding 17% when you can pur-
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The second factor is theoverall economic situation in theUnited States which is putting lotsof seniors in a squeeze for cash.Many seniors that depend on fixedincome products and returns ontheir stock portfolios are in a lot of pain. Tapping an insurance policy that is no longer needed will proveto be a much more attractive alter-native than selling a home. Addi-tionally because of the significantdecrease in overall estate valuesmany insured are likely over insured. This spells opportunity for the lifesettlement market. The average age for poli-cies purchased is continuing to inchup for both males and females. Average age for males has risen to75.2 from 74.3 and for females andeven larger move to 77.4 (this may be higher due to smaller sampling size this month and we estimate thatthe actual average for females isprobably closer to 76.4). It is alsointeresting to note that we are seeing an increased number of policiescoming to market that are just pasttheir contestability period with in-sureds issued policies below pre-ferred and standard. After a bit of investigation we found that it wasdue to agents advising their clientsto self finance their policies for twoyears and then sell them in the lifesettlement market. Naturally theagents had no problem writing poli-cies on individuals with health im-pairments because it simply meantlarger commissions. We’ve re- viewed several batches of policiesthat were written like this and lessthan 15% of them have any secon-dary market value. The face valuethat was issued on individual lives isastonishing and even some of thepolicies that have economic value
T r a d e D a t a J a n u a r y 2 0 0 9
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StateNumber of CasesClosedGenderMale FemaleAvg Age of Insured Total Face Value Avg Face ValueAvg Cash Suren-der ValueAvg PurchasePrice as % of Face
Alabama3 3 0 74 $4,260,000 $1,065,000 $70,290 13.6%Alaska0Arizona0Arkansas0California4 3 1 77 $7,073,008 $1,768,252 $124,500 15.3%Colorado1 0 1 75 $1,356,850 $1,356,850 $100,824 14.8%Connecticut3 1 2 74 $6,856,350 $2,285,450 $170,589 14.2%Delaware3 2 1 74 $6,301,500 $2,100,500 $186,524 16.4%Dist. of Columbia0Florida7 5 2 75 $13,267,835 $1,895,405 $148,789 16.3%Georgia4 2 2 73 $8,800,000 $2,200,000 $143,880 16.4%Hawaii0Idaho0Illinois0Indiana1 1 0 77 $1,500,000 $1,500,000 $50,196 16.7%Iowa0Kansas0Kentucky0Louisiana0Maine0Maryland2 2 0 79 $2,400,000 $1,200,000 $163,800 16.6%Massachusetts2 1 1 78 $4,000,000 $2,000,000 $290,400 16.7%Michigan1 1 0 73 $1,500,000 $1,500,000 $89,850 12.0%Minnesota0Mississippi0Missouri3 2 1 76 $7,350,000 $2,450,000 $188,461 15.4%Montana0Nebraska0Nevada3 2 1 76 $4,500,000 $1,500,000 $130,500 14.0%New Hampshire0New Jersey3 3 0 76 $6,249,999 $2,083,333 $89,934 16.1%New Mexico0New York 4 2 2 74 $6,354,400 $1,588,600 $236,701 14.4%North Carolina2 1 1 76 $2,625,000 $1,312,500 $108,150 16.7%North Dakota0Ohio1 0 1 74 $1,750,000 $1,750,000 $198,625 13.7%Oklahoma0Oregon2 1 1 76 $2,400,000 $1,200,000 $70,800 13.8%Pennsylvania2 2 0 75 $3,300,000 $1,650,000 $131,010 15.3%Peuerto Rico0Rhode Island0South Carolina1 0 1 74 $600,000 $600,000 $42,535 13.3%South Dakota0Tennessee0Texas2 1 1 75 $4,917,250 $2,458,625 $211,016 14.8%Utah0Vermont0Virginia1 1 0 73 $1,500,000 $1,500,000 $85,025 11.5%Washington2 1 1 75 $4,000,000 $2,000,000 $129,800 14.3%West Virginia0Wisconsin0Wyoming0Totals 57 37 20 75.17 $102,862,192 $38,964,515 $3,162,199 14.9%
Note- All gray highlighted rows are non-regulated states. The information contained herein is made available to the public by Life-Exchange, Inc.
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