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Volume I, Issue 6
Longevity Markets
Commentary 1
Yield to LE 4
Purchase Parame- 5
ters
IRS Clarifications 7
Continued from page 1 credit ratings of US based life insurers Japan’s currency credit rating two
and how it may signal potential sol- notches from AAA to Aa2. The full
If this happens IRR’s will vency issues that could impact life announcement can be read here
plummet by better than 300bps settlements as an investment. We’ve http://www.reuters.com/article/
from current levels (14.18%) in also begun to touch on credit ratings newsOne/
short order. This would cause sell and their impacts on IRR. We’ve been idUSTRE54H2RW20090518. If this
side volume to explode but not for suggesting for some time now the just happened to a country that has a
the reason that most people would need to model volatile changes in in- high savings rate and over $1 trillion
think. On the surface it is logical to terest rates for portfolios. In last in foreign currency reserves what do
conclude that considerably higher month’s issue we cited the bubble in you think the implications are for the
settlements would induce more pol- long term treasuries that is beginning United States?
icy owners to sell and while this is to burst and the impacts that it could How will this impact life
true and will certainly be a contribu- have on our market. This month we settlement investments? It will raise
tor to higher volume the real con- continue that theme. IRR’s back up and make credit facili-
tributor will be that more policies David Walker, formerly the ties expensive and in many cases un-
will qualify. Of policies currently comptroller of the Treasury wrote an available. It will also coincide with a
submitted to the market we estimate op-ed in the Financial Times on May decline in the US Dollar as investors
that roughly one in seven will pro- 12, 2009 titled “America’s triple A look for alternative safe havens. Re-
duce a price at current IRR’s that rating is at risk”. In the article he member, life settlements involve a
will exceed the CSV. In Q4 ‘08 with cites the growing off balance sheet one way long term directional bet
IRR’s almost approaching the 20’s liabilities of the US Government going long the US Dollar. Some may
less than one in ten policies submit- which are continuing to balloon at argue that higher interest rates in the
ted would price. TALF funding alarming rates. Currently those un- US Dollar will actually attract traders
would have the reverse effect mak- funded obligations, primarily for Social and investors back into our currency
ing it possible for perhaps one in Security and Medicare, are over $45 but this overlooks the greater funda-
five or one in four policies to price trillion. According to Walker, Social mentals. Many novice FOREX trad-
because of the low IRR created by a Security is going to start negative cash ers believe that trading currencies is
new low cost of capital funding flowing in less than 10 years. Both simply a matter of buying the higher
source. This could lead to a 60% or Moody’s and S&P have signaled that interest debt of one developed coun-
greater increase in industry volume they are carefully watching the US’s try and selling the lower yielding debt
instantly. While this may seem like a credit rating and if we’ve learned any- of another developed country. An
dream come true to life settlement thing from the financial crisis over the example of this would be buying US
participants, particularly the seniors last 24 months, it’s that credit down- Dollars and selling Japanese Yen.
who are in desperate need of cash grades are a lagging rather than leading This is also known as a carry trade
more than ever to shore up their indicator. In our April Trade Report because of the interest rate arbitrage
finances, it will be at the expense of we highlighted the bubble that had earned by simply holding the two
every US tax payer. This potentially occurred in long term US Treasuries. currencies. While this is a profitable
cannibalistic approach will likely Just since that issue we have seen a trade while currency pairs remain
have longer term repercussions that continued steeping of the US Govern- within a tight trading range, or even
may not bode well for the life settle- ment debt yield curve. Obviously if better when the higher interest cur-
ment market. the US gets downgraded from its AAA rency is trending upwards (usually
A topic that we are moni- status, which it has held since 1917, due to others jumping in on the same
toring for almost every issue of our borrowing costs are going to go up – a trade) it can turn disastrous when
trade report is credit quality and its lot. caught on the wrong side.
impacts on our market. Most of our Even as this publication goes
commentary has centered on the to press Moody’s just downgraded
Continued on next page
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 3
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 4
April 2009 Comparitive Yields‐to‐life‐expectancy
16
15
14
13 AVS
Yield/IRR
Fasano
12
21st Services
11 ISC
EMSI
10
8
24
36
48
60
72
84
96
108
120
132
144
156
168
180
192
204
216
If there are any additional life expectancy providers you would like to see added, please contact at the number
below.
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 5
Purchase Parameters
For this month we wanted to show what today’s life settlement market looks like. In the past we have shown
actual trades. For this Issue we polled 21 of the most active buyers in the industry to see what they are buying. Below is
the criteria collected based on information as of May 1st, 2009.
Insured Age
25
20
15
10
5
0
Age 60+ Age 65+ Age 70+ Age 75+
# of Buyers
Face Value Issue Date
25 25
20 20
15 15
10 10
5 5
0 0
$100K $250K $500K $1M $2.5M $5M $10M+ 24 months 30 months 36 months
# of Buyers # of Buyers
The twenty one groups who provided data are segregated as follows: two investment banks, seventeen pro-
viders, and two hedge funds. All information provided is based on current buying criteria as of May 1st, 2009.
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 6
Life Expectancy Certificates Policy Types
Accepted 25
25
20
20
15
15
10
10
5 5
0 0
AVS 21st FASANO EMSI ISC AUS Whole Term UL SUL VUL
# of Buyers # of Buyers
Life Expectancy Range
25
20
15
10
0
36mo 48mo 60mo 100mo 120mo 140mo 150mo 160mo 170mo 180mo 200mo+
# of Buyers
The twenty one groups who provided data are segregated as follows: two investment banks, seventeen pro-
viders, and two hedge funds. All information provided is based on current buying criteria as of May 1st, 2009.
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 7
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 8
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
Page 9
This chart shows the relationship between 10yr life settlements* and a comparative index of 10yr investment
grade corporate bonds. There is a natural correlation between the two since all life insurance contracts have an inherent
credit risk in them similar to corporate bonds. A life insurance contract is an obligation for a company to pay a claim
in the event of a death and should that carrier become insolvent then there is a risk that they may not be able to meet
that claim.
20
18
16
14
12
10
0
4/1/08 5/1/08 6/1/08 7/1/08 8/1/08 9/1/08 10/1/08 11/1/08 12/1/08 1/1/09 2/1/09 3/1/09 4/1/09
*We use an equally weighted average of 10yr life expectancies with 150% mortality impairment at the 50th percentile
from AVS, Fasano, EMSI, 21st Services, and ISC.
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
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