February 16, 2018

Investment Alternative – The Secondary Market for US Life Settlements

With “used risk policies”, the secondary market for US Life Settlements offers a practically uncorrelated investment alternative to the capital markets. The entire US Life Settlement market has developed strongly in recent years. Investors and policy sellers benefit equally from these transactions.

Investment in US Life Settlements

When purchasing US Life Settlements, the amount of the maturity or death benefit is specified when the contract is concluded; but the time of the occurrence of the insured event is unknown. In case of this investment, the return results from the difference between death benefit, purchase price, and premiums paid. In order to estimate the longevity risk, special experts assess the life expectancy of the insured person.

The possibility of selling a life insurance policy is existing in the USA now for over 100 years. In the 1990s, a notable secondary market for US Life Settlements was established, which is now also regulated and professionalized. The ethical question of whether this is a deal with death prevented investors, especially in Germany, from investing in this asset class. But in the meantime many investors have realized that German life insurers also use mortality tables to estimate the life expectancy of their customers, when calculating premiums.

Investment in US Life Settlements – Financing with North Channel Bank

North Channel Bank individually tailors the financing of a US Life Settlement portfolio to the term and structure of the investment. It is especially important to determine the value of the policy as precisely as possible. Insurers with strong credit ratings are preferred for extending loans. At least two life expectancy estimates are prepared to determine the value of the policies and to assess the longevity risk, of which the one with the longer life expectancy is taken into account with a weighting of 70 percent.

The US Life Settlement market has developed significantly in recent years. However, many investors in Europe are still unaware of this asset class.

More information on this asset and some practical tips can be found in the guest article of Stefan Rensinghoff, Managing Director of North Channel Bank, in the professional journal Bank Praktiker.

You can read the guest article in the issue of Bank Praktiker No. 2/2018 
Download Article, Bank Praktiker No. 2/2018 in German Only
(With kind approval of the copyright holder)