Viaticals, or life settlements “LS”, are financial products where an entity buys life insurance policies from individuals (usually around the age of 70–85) who receive a lump sum of cash for the sale. This is done many times and securitized into a Life Settlement.
“The collateral backing an LS securitization is a collection of insurance policies purchased by a transaction issuer. An issuer pools policies and securitizes the resulting cash flows stemming from the ultimate death benefits paid upon the deaths of the original policyholders. In order to receive the death benefits payable by an insurance company, the issuer must pay the associated policy premiums until the death of the insured.” – Souce: DBRS credit agency
Usually a policy holder will depart with a life insurance policy if:
Premium presents a burden
Insured has outlived beneficiaries
Key man policy no longer needed
While I understand the history and basics of LS (using actuarial tables & life expectancies), I would like some expert advice on this subject. Have any Associates, VP’s, or MD’s on WSO had any experience with these products? Are there any particular IB’s and HF’s that specialize in these products? What division of an IB would handle something like this, perhaps alternative investments? What’s the market like? If someone would like to specialize in this product, how would they go about it and what opportunities are there?
I would have thought, in the past distressed market('07-mid'09), many individuals would have been lining up to sell their life insurance policies. In addition, wouldn't Hedge Funds be dying for a product like this. Diversification with a product that has no correlation to stocks, bonds, real estate, etc. I appreciate the advice.
http://www.dbrs.com/research/218569/rating-u-s-li…
//www.wallstreetoasis.com/blog/goldman-exits-viatic…
There was a post about Goldman leaving this area of business. Viaticals used to be big in the 70-80's, but now you can by accelerated death benefit riders which really put a damper on the Viatical business.
http://www.businessweek.com/magazine/content/07_31/b4044001.htm
http://articles.moneycentral.msn.com/Insurance/InsureYourLife/SellYourL…
The Business Week article was great. Thanks. I can see pension fund, endowments, and even life insurance companies wanting these assets. How do you get involved at the IB level?
A few hedge funds do this. Very interesting business, a lot of statistics and simulations. Returns are very consistent and correlation is indeed zero to nearly anything you could imagine. PM me with questions
The reason it isn't more popular is because insurance companies lose their *sses on these sense they anticipate most policies will never be collected. Insurance companies put huge pressure on brokers to not sell these so the life settlement brokers have an enormous uphill battle finding clients because most insurance brokers hate them.
You can make a ton of money as an LS broker, usually getting paid around 7% of the deal.
Could you go into further detail. Wouldn't the Insurance Co. always pay the death benefit? Are you saying this statement in regards to Term Life Insurance? Or are you saying this because most people pay the premiums for sometime, but then forget or don't care/need the policy anymore and the Insurance Co. gets to reap all the rewards?
Another reason they did not become more popular is because the asset managers, pension funds, etc. that should be the natural buyers of this asset class did not have liquidity available to allocate cash to this strategy.
GS, CS and a handful of others started getting involved to my knowledge, but most have pulled the plug or don't see this being a big market for a few more years. I think many of the banks that got interested saw this as the "new" mortgage market in terms of creating a velocity model that encouraged rapid origination and securitization of settlement policies.
^^ its a little less like property ... the assets are known - maybe teh value is not but there's a limited quantity of assets
we wewre securitiziing shit we didnt have
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