Life Settlements Overview

Life settlements offer potential investors the opportunity to earn great returns in an asset class that is uncorrelated with current economic markets. In order to do this, however, investors need to have two key skill sets:

  • An understanding of the insured’s mortality curve and expected survival-based cash flows.
  • An actuarial understanding of how insurance policies are priced and how to minimize insurance premium payments by utilizing key policy characteristics.

While most life settlement investors in today’s market are able to purchase life settlement policies at large 13-18% discount rates, their ability to actually earn the rates they priced at are often impaired by their lack of necessary actuarial and insurance experience. As a result, many life settlement funds face liquidity crunches when their portfolios do not earn the returns they expected and their future premium obligations are much higher than anticipated. Colva helps investors overcome these obstacles by providing unparalleled actuarial and insurance knowledge which enable our clients to do the following:

Derive accurate mortality-based future cash flows

Most life settlement investors in today’s market lack the necessary actuarial and insurance expertise to derive these mortality-based cash flows. This forces investors to value their policy solely on the life expectancies (LEs) of LE providers who often “restate” their life expectancies or actual-to-expected results in some fashion in an attempt to hide poor mortality experience. Since LE providers utilize multiples applied to an underlying table, even small errors in these multiples can have drastic effects on the value of a policy. When poor mortality experience materializes, life settlement funds struggle to find bridge loans to cover the unanticipated carrying costs that result.

Colva utilizes its premier actuarial expertise in evaluating life settlement investments, designing life insurance products, and assessing mortality risks to help clients gain an accurate understanding of these cash flows. We’ll also perform quarterly portfolio valuation to let you know exactly how well your portfolio is performing relative to how you priced it. No other servicing company offers Colva’s level of actuarial and insurance knowledge. Read more…

Account for the difference between market valuation and actuarial valuation

Market valuation practices currently utilize the SOA 2008 VBT Table based off life insurance experience. Since life settlement underwriting and experience do not typify that of the life insurance industry, the select and ultimate variations of the table artificially devalue the policy from a market and accounting perspective even when the intrinsic value of the policy has not changed. By helping investors account for these differences in their valuation, Colva helps investors avoid unnecessary accounting write-downs. This enables investors the ability to transition a buy-and-hold strategy into an actively managed market-aware portfolio.

Determine minimum premiums required to keep the portfolio in force

Life settlement investors often have very little proof that the premiums they pay are the minimum possible. Colva has helped save life settlement investors millions of dollars in unnecessary premium payments through use of its premier reverse engineering services. We’re one of the few servicing companies that also offers you proof of just how accurate we are. Read more…

At Colva we draw upon our vast actuarial experience in valuing, investing, and managing the risks for one of the largest life settlement portfolios in the world as well as pricing and designing insurance policies for one of the largest insurance companies in the world. This experience allows us to provide a number of services to life settlement investors that far exceeds what our competitors offer.

With Colva’s first-rate expertise in the industry, our life settlement clients won’t just be purchasing policies at great yields; they’ll actually be earning them too.

Click here to go to Colva’s complete life settlement article/video archive.

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