Longevity Assets

Longevity assets include life settlements and investment contracts based upon life settlements.

A Life Settlement is the purchase of an existing life insurance policy by a third party. The purchaser continues paying the premiums on the policy and collects the death benefits on death of the insured under the policy.

A Life Settlement is a zero coupon security with ongoing fees, interest expenses and policy management expenses.

Life Settlements are a growing asset class, based on US life policies. In 2008 the market was estimated to be about $12b with considerable room for growth. Research 1 has shown the potential market to be in excess of $150b.

Since 2008 the life settlement market has contracted significantly, leaving a buyers market and potential to buy good high yielding policies.

Life Settlement returns are weakly correlated to returns on other financial markets. The face amount of the policy is known at the outset and the present value is a discounted value based upon life expectancy probability and desired yield. Life Settlement returns are not correlated to the economy, share market fluctuations, bond markets or interest rates.

The primary uncertainty with Life Settlements has been when the policy will mature. Managing the longevity risk is the key to achieving high yields.

This unique asset class should form part of a well constructed portfolio.

1 Bernstein, 2005