Life Settlement Advantage | Why Choose Life Settlements?
Life insurance policies can be priced by projecting future mortality rates based on the insured's risk characteristics (age, gender and underwriting classification) and applying them to the projected premiums, benefits and expenses for a particular policy to create mortality-adjusted net cash flows. Discounting these cash flows at a specified internal rate of return ("IRR") results in an actuarial net present value of the policy.
Some experts estimate that a well managed portfolio typically returns an IRR of 9%-13% for an average expected holding period of 7 to 8 years. Investors seeking solid alternative investments have invested substantial amounts of capital into this market sector largely because of three key attributes of life settlements:
(1) Lack of direct correlation to the equity and bond markets
(2) Low volatility characteristic of its returns
(3) High investment grade as a financial asset.
A confluence of market forces has made life settlements an exceptionally attractive asset class for new purchasers interested in the market sector. The fallout from the recent financial crisis has dried up sources of credit upon which many life settlement portfolio holders depended for liquidity. Losses in the stock market are also weighing down on investors, making them more risk-adverse, thus reducing available capital for alternative investment assets such as life settlements. Additionally, the withdrawal of some significant and embattled financial institutions from the sector has enabled buyers to successfully demand price concessions and higher IRRs, driving down prices even further.
The net result is an unprecedented opportunity for informed purchasers, such as Pepperwood, to acquire dramatically undervalued life settlement assets in a manner and scope never before seen, and, perhaps, not expected to occur again. As sellers are forced to reposition assets and seek liquidity, such sellers will have no choice but to sell at bargain prices or else risk losing their entire investment since policies have no value once lapsed.
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