In a fund or portfolio of Traded Life Policies (TLP’s) or US Senior Life Settlements the question is always how accurate are the life expectancy estimates. It is after all these estimates that provide the returns that an investor enjoys – well on paper that is!  If they are found to be too short then the returns trumpeted by the manager will be high in the early years fading away as the maturities do not arrive as anticipated.  If too long then the reverse could well be true with the long term investor being paid out significantly more than his counterpart who invested for the short term.
Though standard actuarial thinking would have you believe that deaths and therefore maturities should be happening almost from day 1 the reality that is now being recognized is that few if any deaths occur in the first 2 years. Why? Well because the life assured has been thoroughly medically examined and the symptoms creating such an early death would likely already be apparent.

Of course the other issue to consider is that the longer the average policy length the longer it is before the investor finds out which camp he falls in to!

In the real (or is it ideal) world of course the investor would get short term policies with maturities on or ahead of the life expectancy estimate!

Published on 22 Apr 2008 at 01:50 am