Why do banks have such a problem lending to experienced investors in a life settlement policy? They lend against property that has a secondary market which has no guaranteed base and as can be seen when looking at the returns of one particular property fund a cut in value of 25% is not unheard of!
Could that happen in the Life Settlement market? It is hard to imagine a scenario where this could occur. If you bought it today and sold it tomorrow you would certainly suffer he cost of any trading margin. But for the investor who is in for at least the short term and more properly the medium term it is difficult to see how!

Does this affect the banks anyway? They only lend a % which is not normally above 70% of the value of the policy, something they have been doing with UK & Germany traded endowment policies for many years-

I have been told that it is because of reputational risk – they could be seen to be benefiting from the death of others! Yet many of them are buying them for their own book rather than lending money to the investor in order to leverage his returns! Strange?

Another interesting conundrum!

Published on 23 Jun 2008 at 02:42 pm