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The Journal of Structured Finance

The Journal of Structured Finance

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Primary Article

Life Settlements

Pricing Challenges and Opportunities

Jesse M. Schwartz and Timothy O. Wood
The Journal of Structured Finance Summer 2008, 14 (2) 70-76; DOI: https://doi.org/10.3905/jsf.2008.709961
Jesse M. Schwartz
A consulting actuary at Watson Wyatt Worldwide in New York, NY. jesse.schwartz@watsonwyatt.com
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Timothy O. Wood
A senior consultant at Watson Wyatt Worldwide in Berwyn, PA. timothy.wood@watsonwyatt.com
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Abstract

Acquirers of life settlements or investments linked to them rely on medical underwriters to help assess the mortality risk for each underwritten life. However, for the non-actuary investor, evaluating potential deviations in actual experience from the underwriters' assessment relative to the investors' risk tolerance is a critical challenge. This article provides a framework for the development of a methodology for the investment community to understand potential deviations from expected experience for a life settlement portfolio. When considering an investment in an asset in which cash flows are backed by the economics of life insurance policies, the investor should consider 1) eligibility guidelines for the pool of lives underlying the investment, and 2) expected return on the investment and related risks. Because mortality risk is the primary risk, an understanding of the underwriting process for each individual life insurance policy is a key to analyzing the investment.

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The Journal of Structured Finance
Vol. 14, Issue 2
Summer 2008
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Life Settlements
Jesse M. Schwartz, Timothy O. Wood
The Journal of Structured Finance Jul 2008, 14 (2) 70-76; DOI: 10.3905/jsf.2008.709961

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Life Settlements
Jesse M. Schwartz, Timothy O. Wood
The Journal of Structured Finance Jul 2008, 14 (2) 70-76; DOI: 10.3905/jsf.2008.709961
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More in this TOC Section

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  • ABS, MBS, and CDO Pricing Comparisons
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