Life Settlements and Longevity Structures (PDF)

Recent turbulence in the financial markets has highlighted the need
for diversified portfolios with lower correlations between the
different investments. Life settlements meet this need, offering
investors the prospect of high, stable returns, uncorrelated with
the broader financial markets.

This book provides readers of all levels of experience with
essential information on the process surrounding the acquisition
and management of a portfolio of life settlements; the assessment,
modelling and mitigation of the associated longevity, interest rate
and credit risks; and practical approaches to financing and risk
management structures. It begins with the history of life insurance
and looks at how the need for new financing sources has led to the
growth of the life settlements market in the United States.

The authors provide a detailed exploration of the mathematical
formulae surrounding the generation of mortality curves, drawing a
parallel between the tools deployed in the credit derivatives
market and those available to model longevity risk. Structured
products and securitisation techniques are introduced and
explained, starting with simple vanilla products and models before
illustrating some of the investment structures associated with life
settlements. Capital market mechanisms available to assist the
investor in limiting the risks associated with life settlement
portfolios are outlined, as are opportunities to use life
settlement portfolios to mitigate the risks of traditional capital
markets. The last section of the book covers derivative products,
either available now or under consideration, that will reduce or
potentially eliminate longevity risks within life settlement
portfolios. It then reviews hedging and risk management strategies
and considers how to measure the effectiveness of risk
mitigation.