Jiahua Xu

Retirees, pension funds, and the insurance industry have all been negatively affected by the wrongful estimation of longevity. The inaccuracies in current life expectancy (LE) reports primarily result from misinterpretations of the influence of resilience factors on longevity. This study examines different and more accurate measurement metrics to minimize the risks related to biased LE calculations. By using both qualitative and quantitative research approaches, this research develops a new conceptual model: a two-factor-LE-analysis model with a telomere test as a medical basis (physiological factors) and a big data approach to filter the psychological factors to longevity. The authors suggest that the new model, together with the insights of the existing LE-projection methodologies, has considerable potential to improve LE predictions.

In the wake of IFRS 13 and AIFMD, assets are required to be held at fair value, namely their potential market price. We provide empirical evidence that the market price of the asset class senior life settlements can be conclusively predicted based on policy traits and the life expectancy of the insured. Using a series of OLS regressions with robust standard errors, we establish a parsimonious pricing model based on two variables: life expectancy and premiums. Compared to the classical actuarial approach, our model is advantageous in that it does not necessitate assumptions on risk premium and insureds' mortality rates. Our sample consists of real transaction data that underpin the model's ability to predict market-consistent prices. The model performs strongly both in-sample and out-of-sample, and, upon adequate calibration, remains stable across life insurance product types, carrier ratings, and medical underwriters. This new approach supports practitioners in the senior settlement market, who can easily implement the model as a valuation rule of thumb.

The value of a life settlement investment, which is a traded life insurance policy, is highly dependent on the life expectancy (LE) of the insured. We empirically demonstrate that LE has been the key driver in life settlement pricing, and we illustrate its relationship to the expected internal rate of return (IRR). Based on the analysis of life settlement transaction data from 2011 to 2016, we trace the patterns of LE estimates in both secondary and tertiary markets by major medical underwriters, and investigate systematic differences in their estimation.

Connecting life insurance policyholders with potential investors (called Life Settlement Providers), Ashar Group plays a pivotal role in the industry. Its current position is however increasingly being challenged by consumer-direct models, led by major providers seeking to shortcut brokers. Ashar faces a strategic dilemma in cooperating --- but also competing --- with these providers. Maintaining a mutually beneficial dynamic with policyholders, downstream intermediaries and other actors thus constitutes a balancing act. The context of this case is an underdeveloped market whose reputation has suffered from broker misconduct. In light of the market's legacy issues and competing business models, this case study explores strategies Ashar may pursue to secure and enhance its market position. Discussions emerging from this case study have the potential to illuminate directions for market transformation.

Life insurance is an asset owned by the majority of American adults (61%). Note that this 61% penetration rate is essentially at parity with home ownership (64%), and higher than that of 401(k) retirement account ownership (53%). Life settlements, or life insurance settlements, allow individuals to sell their life insurance policy in a secondary market. A life insurance policy is a tradable asset, for many individuals possibly the most valuable one in their portfolio after real estate and perhaps a retirement account. The fact that the policy is tradable, however, is hardly known to the general public. When surrendering a policy to the insurance carrier, the policyholder often incurs a substantial discount on its economic value. At the same time, the insurer keeps the difference between the policy's economic value and its surrender value. By selling a policy in the secondary market, in contrast, it is common to achieve a price markedly above the surrender value. Hence, life settlements allow policyholders to capture a much larger, if not full, share of their contracts' economic value. In this Industry Note, we lay out the basic structure of the market, the important players, and the basic economics. We also go into the potential ways to maximize returns in this market for both investors and policy holders.