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Life Health > Life Insurance

Life Settlement Securities Get Raters' Attention

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More investors, arrangers and originators are asking rating agencies to look at securities backed by pools of life insurance policies.

Analysts at Standard & Poor’s Ratings Services, New York, have responded to the renewed interest by publishing a discussion of life settlement securitization risks.

Organizers of a typical life settlement securitization use life policy death benefits to make payments on debt securities.

Interest in life settlement securitizations flourished a few years ago, then cooled as investors and investment banks dealt with the effects of the credit crisis.

Now, interest in life settlement securitizations is starting to recover, the S&P analysts report.

“Standard & Poor’s Ratings Services has received several requests to rate securitization transactions backed by life settlements over the past year or so,” the analysts say. “Due to the unique nature of the risks presented in this asset class, however, Standard & Poor’s has not rated any life settlement securitizations to date.”

If S&P did rate a life settlement securitization, it would use the standards described in a credit ratings principles article published in February, the analysts say.

Some of the risks the analysts cover include:

  • Mortality projection risk. Mortality might be much easier to analyze for a security backed by 1,000 or more policies than for a security backed by just 100 policies, the analysts say.
  • Whether the pool manager has the cash to keep up the life policy premium payments.
  • The ability of the pool administrator to handle tasks such as making premium payments, regularly checking the status of the insured persons, and, in the case of death, obtaining a death certificate and filing a death benefit claim with the life insurers.
  • The ability of the pool to collect the death benefits that were promised to the insureds’ original beneficiaries.
  • The stability of the life insurers that wrote the policies in the policy pool.

The S&P analysts note that, in some states, it is still not clear whether insureds can sell their policies to others.

Other coverage of the life settlement industry from National Underwriter Life & Health:


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