In recent years there has been such talk about how the life settlement market is an uncorrelated asset. Meaning it is not tied to any stock market, or affected by the price of oil or the happening in overseas economies. But is that really true?
While it is true that the longevity factor associated with the life settlement market is unique to this market. To say that the life settlement market is an uncorrelated asset class is not quite true. The fact is that the institutional investor monies that enable the most of the provider to purchase policies are in fact very affected by the stock markets and worldly events. Life settlement yields rise and fall fairly in sync with the rise and fall of the yields on treasury and corporate bonds. With the spread between the two being the risk factor involved (this goes back to the longevity factor of not knowing exactly when a person is going to die so that you can’t tell exactly when the investment will pay off- unlike a Treasury or Corporate bond which has a stated maturity). Another thing to look at is that many corporations and even governments are having to refinance their debt. This means the life settlement providers now have to compete with them for investor capital which can raise the price of the capital or even make it unavailable. This can affect there ability to purchase policies or service ongoing premiums.
An insurance carrier can also be affected by the same capital forces mentioned above which could affect their investment portfolios thus causing them to readjust their interest rates or mortality costs in their blocks of inforce policies (they can not do this on guaranteed type policies).
So while there certainly are parts of the life settlement market that are uncorrelated to the stock markets and world events other parts are a little more closely tied then is sometimes explained in the media buzz and marketing hype.
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