This paper, published by the European Life Settlement Association, begins to answer the question; what are the returns which can be reasonably expected from investments in life settlements?. There is always room for improvement in pricing and valuation to ensure the long term development of the industry. Hence, the building of robust models and maintaining efficient valuations is the key to understanding the calculation of expected returns in life settlements.
Abstract from An Approach for Estimating Market Returns for Life Settlements; “The real returns that can be realized with investments in life settlements are still a largely untapped area. The lack of respective information therefore opens a wide field for estimates, expectations and promises. The purpose of this paper is to present an approach for estimating the gross return available from life settlements that is independent of life expectancy (LE) estimates. We first estimate the actual mortality experience seen in the life settlement market relative to a standard life settlement table. We then input the survival/mortality probabilities resulting from this estimated mortality experience into an IRR calculator, assuming a transaction price that is consistent with traded policies in the secondary market and in line with the cohort underlying the actual mortality. The primary sources of information for these calculations are the Fasano Associates and AA Partners databases”1
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[1] ELSA, 2014, An Approach for Estimating Market Returns for Life Settlements, pp1
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