The tertiary market for trading life insurance policies is mostly the domain of institutional investors. Hence, it is a mistake to assume that all players have the same expertise, the same approach and the same expectations.
That would be a mistake.
Recent history has witnessed “household names” entering then exiting the market quickly. Entering the market with fanfare and then exiting quickly with plenty of ignominies. Tranche after tranche of life policy portfolios seems to come and go on the market sometimes trading at pennies in the dollar while other transactions more closely resemble the traditional concept of “Willing Buyer, Willing Seller at arms-length.”
Tertiary Life Insurance Market Is Unique
The tertiary life insurance market is a very interesting animal. The skill sets required to navigate it successfully are a very diverse mix. This mix of skills also needs to be in the correct balance. Too much of some and too little of others will result in sub-optimal outcomes. Certainly, there has been evidence of this in the history of the industry.
First, it requires the traditional life insurance experience. Life insurance is above all else a personal relationship business. It requires good people skills and trust as you are dealing with people’s most personal information. In a tertiary life insurance transaction, post-acquisition, you require ongoing co-operation with the insured life and family for access to personal health information. If ignored, it will make the day to day process of managing a portfolio of policies incredibly difficult. The further you are away from the original transaction, the greater these risks become. It is very easy to miss red flags that an industry practitioner would recognise at acquisition. Thus buying substandard assets. The practitioner will also understand the documentation and quickly recognise any shortcomings. Additionally, they can make premium optimisation assumptions appropriate to the new owner.
Second, you will need the discipline and rigour of a fund management background. Modelling and analysis are essential in sorting the assets on a policy by policy basis. It considers their economic value and robustness to variable mortality assumptions and variable cash flow assumptions. This will also drive your risk appetite assumptions and strategies around managing risks like exposure parameters across the various categories. A fund management background should also help to sort out your strategy. Are you a buy and hold or a (would-be) trader? Trading these non-identical assets is notoriously difficult.
Third, Medical Underwriting. Normally, outsourced to industry recognised players. However, a tertiary market player needs to understand the benefits and limits of Underwriters. Also, there needs to be a pragmatic approach to underwriting that takes account of changing views in the industry, changing emphasis on particular issues and the changing medical environment. Thus, a sound consistent and informed approach to underwriting is essential.
Fourth, access to a little actuarial expertise is essential as you need to be prepared to do a lot of modelling to be successful and to understand and manage risks and to have realistic expectations of your portfolio.
Fifth, legal and regulatory due diligence. This has always been a hot issue in the life insurance sector. Outsource to a competent legal firm unless you have access to exceptional in-house practitioners. Picking the right firm and paying a reasonable price for the service will, of course, be the challenge.
Sixth. Structuring. If you are a Non-US investor you will need a substantial commitment to housing your new portfolio in an appropriate structure that will not result in unnecessary tax leakage. Sourcing good advice is expensive particularly if you ask a top tier accounting firm for original advice.
Using the services of an existing player is a sound cost-saving move in this regard as long as you can retain full control and full transparency of your assets at a reasonable price and you get good quality cogent reporting and service. It has been our experience that many service providers lack a “customer service” ethos and are notoriously opaque as to fees and costs.
As always we wish you well with your life settlement investment opportunities and if you want to learn more about investing in this asset class please contact us.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is an umbrella type investment company with segregated liability between sub-funds. The first sub-fund launched, GIS General Fund (the Fund), is listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors. Additionally, it provides tax clarity by ensuring there is no tax leakage. It enables a number of different investment options to suit the specific needs of our investors.
The Fund’s core activity is to actively manage a large and diverse portfolio of life insurance policies (life settlements). The Board of GISF selects those that best meet the Fund’s policy purchase criteria.
This information is intended for qualifying investors only. It was correct at the time of preparation. It has been prepared to provide general information only and should not be considered as a “securities recommendation” or an “invitation to invest” in any jurisdiction. Potential investors should consider the relevance of this information to their particular circumstances. Before proceeding, investors must obtain the prospectus and take their own legal and taxation advice. If you acquire or hold one of our products we will receive fees and other benefits as disclosed in the prospectus and relevant offering documents.