Life Settlement Index - Disspelling Myths

The Amrita Life Settlement Index has garnered more attention than anyone here at Amrita Financial ever imagined it would. Our goal was to create a tool that could be used by all market participants, such as policy sellers, financial advisors, life settlement brokers, life settlement providers, investors, etc., to more effectively understand the life settlement marketplace’s posture. It has certainly provoked thought and stirred conversation thus far. Without exception the response has been a positive affirmation that a barometer of life settlement demand was needed and is a useful tool for the life settlement industry. We’ve received an overwhelming majority of supporting comments about the first month’s data. However, we’ve also received feedback that has been somewhat surprising.

Some industry insiders felt the index didn’t closely reflect what they were seeing on the front lines of life settlements. That response raised some questions about interpretation of the Amrita Life Settlement Index itself. I want to you use this blog posting to dispel some of the myths about the life settlement index and add some context to the results themselves. Hopefully this information will enable those watching the life settlement index to better understand the data and more fully leverage the information.

Amrita Life Settlement Index – What it is

The Amrita Life Settlement Index is a relative measure of demand for life insurance policies on the secondary market (i.e. life settlements). Demand, for purposes of the index, is defined as buyer activity and sentiment. Essentially, this life settlement index tries to answer the question; what type of demand exists for someone’s life insurance policy?

Amrita Life Settlement Index – What it isn’t

The Amrita Life Settlement Index does not measure life settlement transactional volume or anything related to the tertiary life insurance market. It won’t tell you how much face value was bought or sold, the amount of policies being transacted or what is happening to policies once they’ve been purchased from a consumer.

Amrita Life Settlement Index – How does it work?

The Amrita Life Settlement Index is similar in design to the Consumer Confidence Index or the National Association of Home Builders Index. The index is based upon responses to life settlement provider surveys sent out each month. The life settlement providers answer positive, neutral or negative to the survey questions. Each question is designed to gauge the life settlement demand compared only with the previous month. It doesn’t measure anything other than month over month change. Consequently, looking at any one month’s data will only show the relative change from the previous month. For example, the 28 point increase measured in January 2010 only reflected that amount of increase vs. the demand in December 2009. However, if one looks at several months of data points the overall industry trend should be obvious.

Amrita Life Settlement Index – Why?

Many have asked if Amrita Financial is planning to monetize the life settlement index or sell derivatives associated with the index. The answer is no. We have no plans to sell anything or try to profit from the index itself. The index is our way adding value to life settlements with the belief that more information is always beneficial in a relatively new industry. On a daily a basis we are asked by financial advisors, insurance agents, policy sellers and even life settlement providers what the industry looks like? What type of demand and pricing are we seeing? Is this is a good time to sell a policy or not? The need for more than anecdotal information was obvious and the desire to provide good statistical answers to the aforementioned questions was the impetus for the Amrita Life Settlement Index. We are happy that it has been so well received and even more helpful to market participants than we originally envisioned.

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