A Case For The Life Settlement Asset Class
1.
7 positive trends for life settlements
http://www.lifehealthpro.com/2013/06/25/7-positive-trends-for-lifesettlements?ref=rss
2.
ILS investors fuel collateralised reinsurance growth
http://www.risk.net/insurance-risk/feature/2281364/ils-investors-fuelcollateralised-reinsurance-growth
3.
Swiss Re Structures $240 million Insurance-linked Securities for Allianz
http://www.insurancejournal.com/news/international/2012/04/06/242389.htm
4.
INSURANCE-LINKED SECURITIES FOR INSTITUTIONAL INVESTORS 2013
http://www.leadenhallcp.com/publicdocument/51af48d9d27a930104000034/7ca0e3c89c199fc7292329777ff52161/L
eadenhall-066-ilsii-2013.pdf
5.
Developments in Insurance-Linked Securities and Alternative Risk
Transfer Pages 4-10
http://www.willkie.com/files/tbl_s29Publications%5CFileUpload5686%5C4289%
5CRecent_Developments_and_Current_Trends_in_Insurance_Transactions_and_Regu
lation_Year_in_Review_2012.pdf
6.
Empirical Investigation of Life Settlements: The Secondary Market for
Life Insurance Policies
http://www.coventry.com/assets/Marketing_Tools_Pdfs/LifeSettlementsStudy_LBS
.pdf
7.
A.M. BEST METHODOLOGY for Life Settlement Securitization
http://www3.ambest.com/ambv/ratingmethodology/OpenPDF.aspx?rc=197705
8.
Credit Suisse Insurance Linked Strategies - Life Special Report
https://chandra-poojariv9yb.squarespace.com/static/50aa438fe4b040d14210ba86/50b0d79de4b0b5c74a
6cb2c0/50b0d79de4b0b5c74a6cb2c3/1291053092036/
9.
...Biggest life settlement deal ever acquired
http://www.thelifeline.com/download/Dealarticle.pdf
http://www.michaelabraham.net/fortress-winner-in-kbc-6-2b-portfolio-auction
10.
Conventry - a leader in SL
http://www.coventry-capital.com/About-Coventry/About-coventry.asp
11.
Other SERIOUS players in this sector
http://www.kohlberg.com/Investments/InvestmentDetail.aspx?id=2
12.
Life Settlement Fund
http://www.fundinfoservices.com/supplier/Carlisle/II. Long Term Growth Fund
Presentation 2010.pdf
13.
Fortress Life Settlement Fund - actual 4-year Average Yield = 10.8% IRR
http://www.fortressinternationalfund.lu/uploads/Fortress SICAV - Class B May
2013.pdf
Fortress Winner in KBC $6.2B Portfolio Auction
http://www.michaelabraham.net/fortress-winner-in-kbc-6-2b-portfolio-auction
The portfolio expected a 15% to 22% internal rate of return with a leveraged 5x
multiple of investment capital.
14.
Investment in Life Settlements: Certainty in Uncertain Times
http://news.peninsulagroupllc.com/blog/wpcontent/uploads/2010/05/Certainty_in_uncertain_times1.pdf
15.
U.S. Commission on Long-Term Care Recognizes Life Settlements as a
Private Sector Solution to Aid in Long-Term Care Crisis
http://blog.lisainstitute.org/2013/09/20/u-s-commission-on-long-term-carerecognizes-life-settlements-as-a-private-sector-solution-to-aid-in-long-term-carecrisis/?goback=.gde_2073522_member_275380897 - !
16.
"Smart Money Continues to Bet on Life Settlements"
Source: Corey Weiss of Reliant Life Shares
On August 15, 2013 The Deal reported that Apollo Global Management LLC (NYSE:
APO), the private equity firm run by Leon Black, purchased a $600 million portfolio
of life settlements from Royal Bank of Scotland Group Plc. Bloomberg confirmed the
transaction.
In addition to their recent portfolio purchase, Apollo is raising another $700 million
earmarked for life settlements. An SEC filing dated June 24 reveals that Apollo’s
Financial Credit Investment Fund II LP is seeking minimum investments of
$100,000 to invest in the asset class.
Apollo’s previous fund, Financial Credit Investment I, raised $200 million in Q1. The
fund was also the winning bidder of the $320 million ARM Asset-Backed Securities
portfolio, beating out Centurion Fund Managers and Life Settlement Consulting.
Apollo’s flurry of activity comes on the heels of Berkshire Hathaway’s $300 million
portfolio purchase in July. Institutional investors continue to commit capital to the
asset class, validating life settlements as a vehicle offering superior returns and
insulation from both market and geopolitical risk.
Apollo acquired $600M portfolio
Apollo Global Management LLC has acquired a $600 million life settlement portfolio
from the Royal Bank of Scotland Group Plc, Bloomberg reported. The portfolio cost
Apollo $25 million, the news service reported on Aug. 8. It cited two unnamed sources.
RBS obtained the portfolio after its takeover of ABN Amro Holding NV, one of
Bloomberg's sources said. Neither Apollo spokeswoman Carolyn Sargent nor RBS
spokesman Ed Canaday would confirm the transaction.
17.
Further, the use of proprietary valuation models can change IRR calculation
methods. Despite these factors, the numbers for 2009 were in line with the
word‐of‐mouth understanding of the market–an average IRR of 14.38% and a
median of 13.93%. Three quarters of all settlements were calculated with a
purchasing IRR of between 12‐16%. Certainty In Uncertain Times: Investing in
Life Settlements http://www.finalternatives.com/node/15088
We estimate the returns investors could have expected to earn by computing the
expected annual IRR for each policy using the CP, expected policy cash flows and the
insured’s estimated survival probabilities. We find that the CP weighted average
expected IRR on the life settlements in our sample is 12.5% per annum, and it
ranges from a high of 18.9% in 2001 to a low of 11.0% in 2005,
182006 and 2007. In recent years, the expected IRR has risen substantially to 18.3%
per annum in 2011, which is 15.9% in excess of treasury yields.
Empirical Investigation of Life Settlements - June 2013:
http://home.comcast.net/~pnkatz/LifeSettlements-LBSup.pdf
“[It] is a safe prediction that, by the end of 2012, the key elements of portfolio
diversification for sophisticated investors will be equities, bonds, commodities, real
estate and longevity.” Life Settlements: Signposts to a Principal Asset Class
Should You Invest in Life Settlement Funds?
http://www.glenndaily.com/lifesettlementfunds.htm
Portfolio of similar policies with expenses
Assume a closed-end fund with a total initial investment of about $51 million.
Assume these expenses, which do not match those for any actual fund:
• The provider’s fee for obtaining the policies for the fund is 0.5% of face amount.
• Distribution costs are 2% of the initial investment.
• Other start-up expenses are $300,000.
• The annual management fee is 1.0%, modeled for convenience as 1.0% of the
policy purchase price rising at 12% per year. There is no performance fee.
• The annual servicing fee is $25,000 plus $1,500 per policy.
• Other expenses are $100,000 per year.
Here are the initial costs to set up the fund:
Policy purchase
$48,000,000
Provider's fee
1,500,000
Distribution costs
1,016,327
Other start-up costs
300,000
Total
$50,816,327
For convenience, assume no financing or reserving activities; additional money is
provided monthly by investors as required to pay premiums. Also for convenience,
assume that distributions are made monthly to zero out the fund balance when
death benefits are received.
The table below shows the probability distribution of IRRs for this base case. (I am
choosing the probability distribution of IRRs as the performance measure for the
fund because it is familiar, not because it is the most theoretically sound measure,
especially when I have ignored financing and reserving activities. For a thorough
discussion of performance measures, see Harold Bierman, Jr. and Seymour
Smidt,The Capital Budgeting Decision, Ninth Edition, 2007.)
Probability of Achieving IRR:
Portfolio With Expenses
Base Case
IRR
% of total
Cumulative
25%
0.4%
0.4%
20%
8.1%
8.5%
18%
13.5%
22.0%
16%
24.3%
46.3%
14%
28.6%
74.9%
12%
18.5%
93.4%
10%
5.9%
99.3%
8%
0.6%
>99.9%
6%
<0.1%
>99.9%
4%
<0.1%
100.0%
2%
0%
-100%
The fund’s raw material — the life insurance policies — has a median return of
about 18%