February 15, 2009
Volume I, Issue 3
Inside this issue:
Month In Review 2
Trade Data 3
Yield to LE 4
Longevity Market 5
Spreads
Credit Watch 6
Editor & Publisher
Brian C. Dorr
Contributing Editors
Anne K. Zand
Keith M. Feldman
Carline B. Gele
Managing Editor and
Writer
David C. Dorr
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Trade Report
Month In Review
Midway into the second month of
2009 it is a relief to see IRR’s starting to fall
a bit more. It seems that when IRR’s push
up past 17-18% (on a 50/50 blend
AVS/21st) the ratio of policies that qualify
for life settlements drops to less than 1 in
10. Although our number of data contribu-
tors is down significantly vs. the last two
months our polling of brokers and providers
indicates IRR’s may be down by as much as
60-100bps. Purchase price as a percentage
of face value has dropped significantly since
the new changes in LE’s and the higher
IRR’s buyers are seeking. Average purchase
price as a percentage of face value is ap-
proximately 16% although we have heard of
several transactions that may have closed
near 10-11%.
A continued area we are monitor-
ing for 2009 is the credit ratings of carriers.
The obvious reason that this is concerning is
because it raises longer term questions about
carrier solvency. The life settlement market
is fond of quoting the well known statistic
that “an A rated carrier has never failed to
pay out on a death claim”. Yes that’s true,
however, B rated carriers have failed to pay
and many carriers are on negative outlook
watch and may see themselves get down-
graded. Lincoln and Hartford are two insur-
ers in particular to keep an eye on. A second
issue related to this is that many buyers in
the life settlement markets raise their capital
via offering memorandums and most of
these offering memorandums stipulate that
the fund will not purchase policies with
credit ratings less than A-. This means that
even more opportunistic funds may be lim-
ited from bidding for policies even if they
20
17
16
16 14
12 10
8
4
0
Jan.       Jan.      Jan.      Jan.     
1‐9 12‐16 19‐23 26‐30
Total Policies Closed and Funded
could purchase the policy at a significant dis-
count.
With the challenges the market
faces there do remain some very bright spots
in our market. The biggest one is that we
expect to see the largest resurgence of tradi-
tional (i.e. non premium financed) policies
enter the market that we’ve seen in the last
two years. There are two large driving factors
for this. The first is that many top producing
agents have been making a fortune thanks to
premium finance and have become accustom
to income levels that have been much larger
than probably any other period in their ca-
reers. Premium finance programs are cur-
rently very limited and there are not too many
news ones lining up on the horizon. This
means that agents will have to return to tradi-
tional life settlements as a means to supple-
ment their income.
Continued on Next Page

Month in Review Continued
The second factor is the
overall economic situation in the
United States which is putting lots
of seniors in a squeeze for cash.
Many seniors that depend on fixed
income products and returns on
their stock portfolios are in a lot of
pain. Tapping an insurance policy
that is no longer needed will prove
to be a much more attractive alter-
native than selling a home. Addi-
tionally because of the significant
decrease in overall estate values
many insured are likely over insured.
This spells opportunity for the life
settlement market.
The average age for poli-
cies purchased is continuing to inch
up for both males and females.
Average age for males has risen to
75.2 from 74.3 and for females and
even larger move to 77.4 (this may
be higher due to smaller sampling
size this month and we estimate that
the actual average for females is
probably closer to 76.4). It is also
interesting to note that we are seeing
an increased number of policies
coming to market that are just past
their contestability period with in-
sureds issued policies below pre-
ferred and standard. After a bit of
investigation we found that it was
due to agents advising their clients
to self finance their policies for two
years and then sell them in the life
settlement market. Naturally the
agents had no problem writing poli-
cies on individuals with health im-
pairments because it simply meant
larger commissions. We’ve re-
viewed several batches of policies
that were written like this and less
than 15% of them have any secon-
dary market value. The face value
that was issued on individual lives is
astonishing and even some of the
policies that have economic value
Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
are too large for the life settlement
market to currently digest. We hope
to see more institutional buyers enter
the market this year to help absorb the
steady stream of jumbo policies com-
ing to market with no homes. Life
insurers as participants would be a big
help in this arena and for more than
one reason.
It’s important to see life in-
surers get involved in the life settle-
ment process. Their history of under-
standing longevity and mortality risk is
significant and more importantly life
settlements offer them interesting op-
portunities that investment funds are
not able to capture.
One benefit of having the
carriers involved would likely be the
reduction in regulatory battles that our
industry faces. This is costly for the
entire market and ultimately doesn’t
help anyone. Another benefit of hav-
ing carriers involved is there large bal-
ance sheets. We have all experienced
the frustration of funds “running out
of money” as they place the last of
their investors capital and then look to
raise new funds. This has led to an
erratic cash flow problem for our mar-
ket. Granted having more investment
banks in our space is helping to
smooth that out a bit, having carriers
involved would help much further.
Last but not least it is important to
recognize that when investment funds
purchase life settlements it is still a
speculative asset class. This means
that many funds that are in our market
today may be swayed to other asset
classes as their risk/reward profiles
change. In fact we saw this happen
last quarter as hedge funds stopped
looking at life settlements to chase
market distortions in other areas. Af-
ter all why buy a pool of life settle-
ments that are bulky and not very liq-
uid yielding 17% when you can pur-
Page 2
chase senior secured leveraged loans
yielding 22%+ in a much more liquid
environment? It is for this reason
that we should as an industry encour-
age the participation of the life insur-
ers. Life insurers can use life settle-
ments as a hedge against their existing
book of business. This helps carriers
balance out longevity risk or even
cancel out existing liabilities on prod-
ucts that may have been mispriced.
For long term viability of our market
it is critical to have participants with
legitimate hedging needs otherwise
our market will continue to be influ-
enced by the flows of hot money. In
our March issue we will begin the
first of a series of columns covering
some of the more interesting legal
aspects of trading in life settlements.
Many legal articles that currently cir-
culate in the life settlement market
focus on regulatory issues rather than
legal issues as they relate specifically
to transactions. We hope to fill that
void with a series contributed by
some of our industry’s top legal
minds.
Also as a reminder we are
always looking for new sources of
data and feedback from our sub-
scriber community regarding the
types of data and charts you find
most useful for conducting your life
settlement operations. In addition we
are always interested in alternative
valuation methodologies. While we
provide data and analyze it based on
industry preferences we by no means
believe that this will stay static and in
fact predict that there will be many
more changes and improvements
over the next couple of years. If you
feel you have something unique to
contribute or a perspective that isn’t
being heard in the marketplace please
feel free to get in touch with us.
 Page 3

Number of Avg Purchase

Cases Gender Avg Age of Avg Cash Suren- Price as % of
State Closed Male Female Insured Total Face Value Avg Face Value der Value Face
Alabama 3 3 0 74 $4,260,000 $1,065,000 $70,290 13.6%
Alaska 0
Arizona 0
Arkansas 0
California 4 3 1 77 $7,073,008 $1,768,252 $124,500 15.3%
Colorado 1 0 1 75 $1,356,850 $1,356,850 $100,824 14.8%
Connecticut 3 1 2 74 $6,856,350 $2,285,450 $170,589 14.2%
Delaware 3 2 1 74 $6,301,500 $2,100,500 $186,524 16.4%
Dist. of Columbia 0
Florida 7 5 2 75 $13,267,835 $1,895,405 $148,789 16.3%
Georgia 4 2 2 73 $8,800,000 $2,200,000 $143,880 16.4%
Hawaii 0
Idaho 0
Trade Data January 2009

Illinois 0
Indiana 1 1 0 77 $1,500,000 $1,500,000 $50,196 16.7%
Iowa 0
Kansas 0
Kentucky 0
Louisiana 0
Maine 0
Maryland 2 2 0 79 $2,400,000 $1,200,000 $163,800 16.6%
Massachusetts 2 1 1 78 $4,000,000 $2,000,000 $290,400 16.7%
Michigan 1 1 0 73 $1,500,000 $1,500,000 $89,850 12.0%
Minnesota 0
Mississippi 0
Missouri 3 2 1 76 $7,350,000 $2,450,000 $188,461 15.4%
Montana 0
Nebraska 0
Nevada 3 2 1 76 $4,500,000 $1,500,000 $130,500 14.0%
New Hampshire 0
New Jersey 3 3 0 76 $6,249,999 $2,083,333 $89,934 16.1%
New Mexico 0
New York 4 2 2 74 $6,354,400 $1,588,600 $236,701 14.4%
North Carolina 2 1 1 76 $2,625,000 $1,312,500 $108,150 16.7%
North Dakota 0
Ohio 1 0 1 74 $1,750,000 $1,750,000 $198,625 13.7%
Oklahoma 0
Oregon 2 1 1 76 $2,400,000 $1,200,000 $70,800 13.8%
Pennsylvania 2 2 0 75 $3,300,000 $1,650,000 $131,010 15.3%
Peuerto Rico 0
Rhode Island 0
South Carolina 1 0 1 74 $600,000 $600,000 $42,535 13.3%
South Dakota 0
Tennessee 0
Texas 2 1 1 75 $4,917,250 $2,458,625 $211,016 14.8%
Utah 0
Vermont 0
Virginia 1 1 0 73 $1,500,000 $1,500,000 $85,025 11.5%
Washington 2 1 1 75 $4,000,000 $2,000,000 $129,800 14.3%
West Virginia 0
Wisconsin 0
Wyoming 0
Totals 57 37 20 75.17 $102,862,192 $38,964,515 $3,162,199 14.9%
Note- All gray highlighted rows are non-regulated states. The information contained herein is made available to the public by Life-Exchange,
Inc.
 Page 4

Yield to Life Expectancy

When we see policies traded in the secondary market we often see new buyers forget to take into account the
premium (in yield not payments to keep policies in force) that should be received for longer investment horizons i.e.
longer life expectancies. There are 4 reasons we think this should be taken into consideration. 1. The most obvious is
naturally the time value of money. 2. The historical trend of mortality improvements as evidenced by recent revisions
to the industry’s most widely used underwriting tables. 3. The credit risk that exists over longer periods vs. shorter
periods. 4. The currency risk associated with the long term potential decline of US dollar denominated contracts/
assets.
You can see by looking at the chart below that the yield curve flattens out in the longer life expectancy ranges.
Buyers active in the life settlement space also know that competition is limited in policies where insured’s have LE’s
beyond 14yrs so this would be an additional factor suggesting that the yield curve should steepen significantly from
where it currently is today.

Comparative Yields to Life-Expectancy Chart

January 2009 Comparitive Yields‐to‐life‐expectancy
17

16

15

14
AVS
Yield/IRR

13
Fasano
12 21st Services
ISC
11
EMSI
10

8
24
36
48
60
72
84
96
108
120
132
144
156
168
180
192
204
216
228
240

As you can see IRR’s for EMSI are by far the highest. This is due to the fact that each of the other LE com-
panies have changed their tables (AVS, ISC, Fasano, and 21st). At this time EMSI has announced a table change in
their underwriting for February 4th so naturally we expect the EMSI trend line to move back down a bit in the next
issue covering February trades.

Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
 Page 5

Longevity Market Spreads

This chart shows the relationship between 10yr life settlements* and a comparative index of 10yr investment grade
corporate bonds. There is a natural correlation between the two. The reason is that all life insurance contracts have an
inherent credit risk in them similar to corporate bonds. A life insurance contract is an obligation for a company to pay
a claim in the event of a death and should that carrier become insolvent then there is a risk that they may not be able to
meet that claim. See our Credit Watch section for more on this. We have not seen or heard of any funders pricing
credit default swaps into their purchase prices but it would be interesting to look at a comparison of CDS prices on
different carriers and the IRR’s associated with the purchase of their policies. Right now it seems the market simply
accepts certain carriers or does not. A possible explanation of this is discussed in our Month in Review section.

10yr Investment Grade Corporate Bond Yields

20

18

16

14

12

10

0
Jan‐08 Feb‐08 Mar‐08 Apr‐08 May‐08 Jun‐08 Jul‐08 Aug‐08 Sep‐08 Oct‐08 Nov‐08 Dec‐08 Jan‐09

10yr LS 10yr IG Corp 10yr IG Corp/10yr LS

*We use an equally weighted average of 10yr life expectancies based on the 50% mortality rate from AVS, Fasano,
EMSI, 21st Services, and ISC.

Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
 Page 6

Credit Watch
Credit Watch is a list of Life Insurance Carrier’s that have been placed on “Credit Watch” by the underlining
Rating Agencies. Credit Watch is when an Insurance Carrier has been downgraded or is being watched for possible
downgrade. The Ratings listed below are the latest data from the two rating agencies. All ratings listed can found on the
public Web site of the underlining rating agencies. This information is the most accurate at the time of publication.

ICR - BEST ICR - S&P State of

Insurance Carrier Long Term Long Term FSR - BEST FSR - S&P Domicile
AIG Life Insurance Co a/Negative A+/Watch Dev/-- A/Negative A+/Watch Dev/-- DE
Beneficial Life Insurance Co a/Negative A/Negative/A-1 A/Negative A/Negative/-- UT
CIGNA Life Insurance Co of NY a/Negative A/Negative NY
Cincinnati Life Insurance Co a+/Stable A+/Negative/-- A/Stable A+/Negative/-- OH
Connecticut General Life Ins Co a/Negative A/Negative/-- A/Negative A/Negative/-- CT
Constitution Life Insurance Co bbb-/Stable B+/Stable TX
Farm Bureau Life Insurance Co a-/Negative A/Watch Neg/-- A-/Negative A/Watch Neg/-- IA
FBL Financial Group Inc bbb-/Negative BBB/Watch Neg/-- NR/--/-- IA
First Central National Life Ins Co of NY aa-/Negative A+/Negative NY
First SunAmerica Life Insurance Co a/Negative A+/Watch Dev/-- A/Negative A+/Watch Dev/-- NY
General Fidelity Life Insurance Co a-/Negative A-/Negative SC
AA-/Negative/A-
Genworth Life and Annuity Ins Co aa-*/Negative 1+ A+*/Negative AA-/Negative/-- VA
AA-/Negative/A- AA-/Negative/A-
Genworth Life Insurance Co aa-*/Negative 1+ A+*/Negative +1 DE
Genworth Life Insurance Co of NY aa-*/Negative AA-/Negative/-- A+*/Negative AA-/Negative/-- NY
Hartford Life and Accident Ins Co aa-/Negative AA-/Watch Neg/-- A+/Negative AA-/Watch Neg/-- CT
Hartford Life and Annuity Ins Co aa-/Negative AA-/Watch Neg/-- A+/Negative AA-/Watch Neg/-- CT
Hartford Life Inc a-/Negative A-/Watch Neg/A-2 CT
AA-/Watch AA-/Watch
Hartford Life Insurance Company aa-/Negative Neg/A-1+ A+/Negative Neg/A-1+ CT
Humana Ins of Puerto Rico Inc bbb-/Negative B+/Negative PR
Liberty Union Life Assurance Co bb/Negative B/Negative MI
Reassure America Life Insurance Co aa*/Negative A+*/Negative IN
BBB+/Negative/A- BBB+/Negative/A-
Security Benefit Life Insurance Co bbb+*/Negative 2 B++*/Negative 2 KS
A+/Watch Dev/A- A+/Watch Dev/A-
SunAmerica Life Insurance Co a/Negative 1 A/Negative 1 AZ
Swiss Re Life & Health America Inc aa*/Negative AA-/Watch Neg/-- A+*/Negative AA-/Watch Neg/-- CT
Transamerica Financial Life Ins Co aa/Negative AA/Negative/A-1+ A+/Stable AA/Negative/A-1+ NY
Transamerica Life Insurance Co aa/Negative AA/Negative/A-1+ A+/Stable AA/Negative/A-1+ IA
Western Reserve Life Assurance Co of OH aa/Negative AA/Negative/-- A+/Stable AA/Negative/-- OH
* Denotes Ratings Under Review FSR = Financial Strength Rating ICR = Issuer Credit Ratings
BEST = AM BEST S&P = Standard and Poors

The Rating’s listed above are the latest data from the two rating agencies. All ratings listed can found on public Web site of the underlining rating agencies.
This information is the most accurate at the time of publication.

Copyright @2009 Life-Exchange, Inc │ 2001 Biscayne Boulevard Suite 2102, Miami, Florida 33137 │ (866) 907-9766
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