Life Expectancy Certificates caused a stir in the life settlement industry

In my last blog post, I gave a little bit of background information on the role and importance of life expectancy certificates in the life settlement transaction and industry. Over the past year, the life expectancy certificate has come to the forefront of the life settlement industry. Last fall a very well known and respected life expectancy provider held a major conference call with their customers. Meaning life settlement brokers and life settlement providers.

The purpose of the call was to announce a revised life expectancy table. Essentially, this form believed people were living longer and thus their life expectancy certificates would show longer projected lives of insureds. Seems pretty straightforward. However, All of the life settlement providers that had previously purchased life insurance policies based on life settlement certificates had to then reevaluate what they owned in their portfolios. It is a little bit like the banks that held several mortgages who realized the underlying home values were not as high as they once thought. This caused quite a stir in the life settlement industry as one can imagine.

For one, life settlement buyers slowed their buying to a snail's pace. They needed correctly value their existing portfolios of life insurance policies and decide what their appetite for policies would be going forward. At the same time, the famous great recession credit crunch was affecting life settlement providers' funding sources.

As credit has eased and funding has returned to life settlement providers the landscape has changed. Knowing individuals are going to live longer certainly shapes the offers that policy sellers are receiving. In addition, the LE certificate providers are being conservative and cautious with their projections. They rightfully don't want to be responsible for a life settlement provider overvaluing policies to purchase.

However the pendulum has swung to the extremely conservative side. One life settlement provider recently noted that an insured woman in her 80's with stage 3 breast cancer was recently projected to have an approximate 8 year life span. Knowing the average healthy person in the USA lives to their mid 80's, makes this 80 something woman with advanced cancer reaching her mid 90's highly unlikely.

Nonetheless, these are the life expectancy certificates that 3rd party analysts are producing and life settlement providers are basing offers on. So as the life settlement industry recovers from the capital crunch and slow pace of the great recession, it must find a way to correctly evaluate people's longevity for the sake of the industry and those wishing to access liquidity in their policies.

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