A market neutral, non correlated asset class
which is now coming of age.
A life settlement is a financial transaction in which a policy owner sells an unneeded or unwanted life insurance policy to a third party for more than the cash surrender value (cash value offered by the life insurance company) but less than the death benefit. The purchaser of a life settlement is responsible for all subsequent premium payments, but retains the right to collect any future policy benefits, including dividends, excess interest credits, persistency bonuses, death benefits and maturity benefits.
Windcroft became interested in the life settlement market for the following reasons:
Lower volatility - Life Settlements offer substantially lower volatility when compared to similar yielding assets. Equities, hard commodities and FOREX all have the potential to provide similar returns to Life Settlements, but each of these are subject to higher volatility.
Yield - Life Settlement portfolios typically contain a selection of policies with a wide range of maturity dates, and projected returns can range from 8 to 16%.
Security - The payment of the death benefit proceeds is guaranteed by the issuing life insurance company, all of whom are under the auspices of State regulation.
Non-correlation - Mortality is not correlated with financial markets and economic conditions. Mortality is market neutral, being independent of the factors contributing to economic downturns.
Diversification- As a market-neutral asset class, Life Settlements can be used by investors to help diversify their overall portfolios to reduce volatility caused by sudden negative changes in the equity or debt markets; along with political or global events.
Liability matching asset- A diversified portfolio of Life Settlements can be used in an institution’s investment portfolio to match known liabilities forecast at some point in the future, or to act as a capital protection mechanism for other more volatile strategies.
Tax efficiency - One reason Life Settlement transactions truly belong in the category of structured finance is that the related tax implications require careful planning and transaction
Windcroft Capital has been active in the life settlement market by crafting creative means of using this unique asset class both to create above average yields for private portfolio owners and reduce overall portfolio related risk.