The life insurance industry is an old and established industry with over $4 trillion in policies outstanding and billions more coming on board every year. Like the MBS market the underlying security has little risk. Most life insurers have to have an investment grade rating in order to write insurance. In most cases the carrier is a Standard and Poors A rated or higher carrier. In the US where most policies are purchased, 46 of the 50 states have an insurance fund backing the payout of any and all insurance. As a result the credit risk or risk of default on the payout is very low. Life Settlement Pools is comprehensive reference for investors and structurers looking to enter this rapidly expanding arena. With more than $4 trillion in policies outstanding, and billions coming on board every year, it has all the earmarks of becoming the next big asset class. The book begins by introducing readers to life insurance, focussing on the different sorts of policies available and to settlement policies before moving on to actuarial science, and in particular, life expectancy vs. mortality rates. The book then goes on to look at securitization and how to structure these products within a portfolio, and introduces the capital market products such as barrier bonds and equity linked notes and how readers can create securities with guaranteed payouts, no matter what the markets or other forces do. Life settlements are almost totally correlation free. Bonds with no principal payback or principal free mortgages are just a few of the products that can be structured – all with substantially higher returns than comparably rated securities. This book will enable practitioners to structure or securitize a product with little risk and substantial returns, and even guarantee payments of principal of the underlying security and is sure to become a definitive text on the topic.
Book Details:
- Author: Geoff Chaplin
- ISBN: 9780470684849
- Year Published: 2009
- Pages: 274
- BISAC: BUS036000, BUSINESS & ECONOMICS/Investments & Securities / General
About the Book and Topic:
The life insurance industry is an old and established industry with over $4 trillion in policies outstanding and billions more coming on board every year. Like the MBS market the underlying security has little risk. Most life insurers have to have an investment grade rating in order to write insurance. In most cases the carrier is a Standard and Poors A rated or higher carrier. In the US where most policies are purchased, 46 of the 50 states have an insurance fund backing the payout of any and all insurance. As a result the credit risk or risk of default on the payout is very low. Life Settlement Pools is comprehensive reference for investors and structurers looking to enter this rapidly expanding arena. With more than $4 trillion in policies outstanding, and billions coming on board every year, it has all the earmarks of becoming the next big asset class. The book begins by introducing readers to life insurance, focussing on the different sorts of policies available and to settlement policies before moving on to actuarial science, and in particular, life expectancy vs. mortality rates. The book then goes on to look at securitization and how to structure these products within a portfolio, and introduces the capital market products such as barrier bonds and equity linked notes and how readers can create securities with guaranteed payouts, no matter what the markets or other forces do. Life settlements are almost totally correlation free. Bonds with no principal payback or principal free mortgages are just a few of the products that can be structured – all with substantially higher returns than comparably rated securities. This book will enable practitioners to structure or securitize a product with little risk and substantial returns, and even guarantee payments of principal of the underlying security and is sure to become a definitive text on the topic.
The life settlement industry evolved, among other reasons, out of the need for terminally ill patients and elderly people on fixed incomes to respond to rising medical and living costs. By entering into a Life Settlement Contract with a Life Settlement Provider, the policyholder or certificate holder of a life insurance policy agrees to sell his/her life insurance policy at a discounted rate of the face value so that he/she may obtain early access to the death benefit. In exchange for this cash payout, the policyholder or certificate holder names the Provider the new beneficiary/owner of the policy. By pooling life insurance policies, investors in cash settlements can construct cash flow representations that can match any scenario needed. In addition these products have little risk but with substantial returns. This product was initially used in tranches of CDOs because they had little or no correlation to the markets. Stocks could rise or fall, interest rates could go up or down, business cycles could dive into a recession it didn’t affect the cash flow or return of a life settlement pool. As a result the life settlement tranche dampened the correlation effect of the CDO. But in looking further into this product it was discovered that it could stand on its own with huge benefits. Today this structure can wrap virtually any capital market or structured finance product and make it better. There was even a suggestion that the Euro tunnel loan could be wrapped with a pool of life settlements thus guaranteeing the principal payout at term even if the tunnel went bust.
NO OTHER BOOK nothing else exists that covers life insurance products for the investment management industry. MARKET SIZE – the life insurance industry is an old and established industry with over $4 trillion in policies outstanding and billions more coming on board every year. COMPREHENSIVE RESOURCE will provide in depth account of how the life insurance industry works, calculations of survival probabilities, structuring life settlement policies both as stand alone investments and as part of a structured portfolio and risk management DEVELOPING INDUSTRY the industry is developing quickly this resource will provide the very latest products that have yet to ht the market
About the Author
Geoff Chaplin (Tokyo, Japan) is partner at Reoch Credit partners, an ABS, Life contingency and credit consultancy and also runs his own consultancy business, advising on complex structured credit products, training, and software related to valuation of these and structure life settlement products. Prior to this, Geoff has worked developing risk management infrastructure at Nomura International, and ABN AMRO Bank NV, where he set up the credit derivatives risk management system and traded exotic credit derivatives. He also spent time at SunGard where he built credit derivatives systems, performed independent valuation of CD products, and ran CD training courses. He has studied mathematics at Cambridge and Oxford and, after a years postdoctoral research, he trained as an actuary while working in a life insurance company. He was a visiting (Emeritus) Professor at the University of Waterloo (Canada) from 1987 until 1999. He has also published many articles (in Risk, the Journal of the Institute and Faculty of Actuaries, and many others) and speaks regularly at conferences on credit derivatives. Jim Aspinwall, (Florida, USA) is Adjunct Professor of Mathematics at Florida Southern University, and on the board of a private equity firm, an investment bank and managing member of a hedge fund. With over 30 years in the business, Jim has a wide range of experience. At Chase Manhattan Bank he was the prime developer of Chases REALM system, a risk management and derivatives pricing system, which was used, by Chase Manhattan Bank and over 200 clients around the world. While at Chase JA was involved in Project Cloud, which was a state of the art Artificial Intelligence system that could forecast changes in credit rating 2 years out with a 95% accuracy rate. He has also has experience at other major Investment Banks, including Banc One and Nomura, Japans largest Brokerage house, where he was involved in credit arbitrage trading and the creation of large credit structures. While head of quantitative research and development at Abbey National JA over saw the development, pricing and risk management of multiple structured products such as trigger swaps and power reverse dual currency bonds.