Securitization of Senior Life Settlements

Stone, Charles A.; Zissu, Anne

doi:10.3905/jod.2006.616868

Cited by 29 publications

(12 citation statements)

References 3 publications

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“…These data do not include "life settlement" transactions, where a whole-life insurance policy is sold by the beneficiary or insured for an amount greater than its surrender value, but lower than the policy's face or insured value; see Stone and Zissu (2006).…”

Section: Notesmentioning

confidence: 99%

Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector

Groome

Kiff

Mills

et al. 2011

Financial Engineering

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Section: Notesmentioning

confidence: 99%

Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector

Groome

Kiff

Mills

et al. 2011

Financial Engineering

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“…(), and Casey and Lowe () review regulatory and tax issues. Further topics that have been considered in the extant literature are the ethical aspects of life settlement investing (see, e.g., Quinn, ; Nurnberg and Lackey, ), the purchasing and due diligence process (see, e.g., Ingraham and Salani, ; Freeman, ), the challenges and opportunities from a life settlement provider's viewpoint (see, e.g., Seitel, ), and the issues involved in securitization (see, e.g., Stone and Zissu, ; Ortiz et al., ). Apart from that, some authors have examined the risk, return, and correlation characteristics of this asset class.…”

Section: Introductionmentioning

confidence: 99%

Life Settlement Funds: Current Valuation Practices and Areas for Improvement

Braun¹,

Affolter²,

Schmeiser³

2016

Risk Manage Insurance Review

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We analyze the prevailing valuation practices in the life settlement industry based on a sample of 11 funds that cover a large portion of the current market. The most striking result is that a majority of asset managers seem to substantially overvalue their portfolios relative to the prices of comparable transactions that have recently been closed. Drawing on market‐consistent estimates with regard to medical underwriting, it is possible to trace back the observed discrepancies to inadequately low model inputs for life expectancies and discount rates. The main consequences are a dissimilar treatment of investor groups in open‐end funds structures as well as an unduly high compensation for managers and third parties. To address this predicament, we suggest defining life settlements as level 2 assets in the fair value hierarchy of IFRS 13, improving transparency and disclosure requirements, and developing new incentive‐compatible fee schedules.

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“…The practice of buying and selling “viatical settlements” began in the late 1980s when a devastating medical AIDS epidemic presented a financial shock to thousands of previously healthy Americans (Stone and Zissu, ). Due to the extremely high medical costs associated with treatments for this disease and due to the difficulty for HIV positive individuals to work and maintain an active income, many AIDS patients and their families became financially tenuous.…”

Section: Introduction and Historymentioning

confidence: 99%

“…This second effect is illustrated by the collapsed value of the viatical settlement firm, Dignity Partner, and by the significant decrease in prices offered to AIDS patients for their insurance policies. With evidence that policies might take a much longer to mature, prices in the viatical market plummeted (Stone and Zissu, ).…”

Section: Introduction and Historymentioning

confidence: 99%

Incorporating Longevity Risk and Medical Information Into Life Settlement Pricing

Brockett¹,

Chuang²,

Deng³

et al. 2013

J of Risk & Insurance

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A life settlement is a financial transaction in which the owner of a life insurance policy sells his or her policy to a third party. We present an overview of the life settlement market, exhibit its susceptibility to longevity risk, and discuss it as part of a new asset class of longevity-related securities. We discuss pricing where the investor has updated information concerning the expected life expectancy of the insured as well as perhaps other medical information obtained from a medical underwriter. We show how to incorporate this information into the investor's valuation in a rigorous and statistically justified manner. To incorporate medical information, we apply statistical information theory to adjust an appropriate prespecified standard mortality table so as to obtain a new mortality table that exactly reflects the known medical information. We illustrate using several mortality tables including a new extension of the Lee-Carter model that allows for jumps in mortality and longevity over time. The information theoretically adjusted mortality table has a distribution consistent with the underwriter's projected life expectancy or other medical underwriter information and is as indistinguishable as possible from the prespecified mortality model. An analysis using several different potential standard tables and medical information sets illustrates the robustness and versatility of the method.

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Securitization of Senior Life Settlements

Cited by 29 publications

References 3 publications

Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector

Influencing Financial Innovation: The Management of Systemic Risks and the Role of the Public Sector

Life Settlement Funds: Current Valuation Practices and Areas for Improvement

Incorporating Longevity Risk and Medical Information Into Life Settlement Pricing

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