Let’s look further into how the life settlement market could benefit from life settlement securitizations by examining a couple of the obstacles that stand in their way.
Obstacle #1 – High life settlement market transaction costs. In the past, the cost of acquiring life settlement policies for securitizations has been high. Although state regulations regarding disclosure of some of these costs may help, some are concerned they have still not been reduced low enough to make life settlement securitizations
feasible.
Obstacle # 2- Inconsistent life expectancy estimates. There seems to be wide range of opinions on life expectancies. Although in recent months there appears to be more consistency among the various life expectancy providers. However, results rom life settlement portfolios that have been on the books for a number of years
indicate that the insureds are living longer than originally expected. This means investors are receiving lower returns than expected because they have to wait longer to receive payoffs from the death benefits. For securitizations to be viable, investors will need more dependable life expectancy estimates so they can be more certain of the returns they’ll receive from investing in the life settlement market. Otherwise payments to sellers will stay low to offset the longevity risk aspect of the life settlement asset class.
Lower payments will in turn restrict the supply of policies available for securitized pools. This could keep securitized pools from reaching the critical mass needed to generate stable and predictable cash flows. For life settlement securitizations to become mainstream and truly benefit the life settlement market, the life settlement industry will need solutions to the problems related to these two concerns. Only then will life settlement market sales reach the breakout levels predicted by some in the life settlement industry.
In our final post, we’ll wrap this series up by talking about some of the parties involved in life settlement securitizations. Why not try LIVEpdq while you’re waiting on the next post?