Policy Distribution by Carrier
Outside of credit ratings, the topic of life insurance carriers is not taken into heavy consideration in the due diligence of policy acquisition. Although it is obvious that a longevity fund would aim to diversify by carrier, this should happen naturally with a diverse origination pool. It is interesting to see how life insurance carriers are distributed in the settlement marketplace, and what this information reveals.
In looking at carrier distribution, it is interesting to consider whether the shares are reflective of the supply, or if some carriers are skewed during the pricing. The latter would indicate that some carriers’ products and their respective medical underwriting or cost of insurance projections make a case more favorable for longevity funds. The breakdown of carriers in the sample set. Overall, 56 carriers are represented in the study, with the largest 10 illustrated in the chart.
The most noticeable change in carrier distribution is the change at the top of the pool. In last year’s report, there was a ‘big four’ of Lincoln Financial, John Hancock, Transamerica, and AIG. Those four carriers accounted for almost 40% of the entire market, and the fifth most prevalent carrier (MetLife: 5.6%) was significantly lower than fourth (AIG: 8.0%). This led to a conclusion that these four carriers were far and away the most commonly closed in the life settlement market. However, in a quarterly breakdown for 2008, there was a consistent decrease in activity for AIG and Phoenix policies following credit rating downgrades. These quarter-on-quarter decreases have continued through 2009, and have pushed AIG well out of the ‘big four’. On the contrary, trades in AXA issued policies have increased every quarter, putting them just behind Lincoln Financial at the top of the pool.
There was little variation in policy sizes when broken down by carrier. The average face amounts of settled policies from each of the top 10 issuing carriers was more or less consistent across the board. However, the significant outliers in the data set were exactly the same as in previous iterations of the study. Phoenix Life policies averaged at $4.2m, a number significantly higher than the overall sample average, with most policies being $5m in value. Additionally, Aviva (range: $40k-$2m) and Mutual of Omaha (range: $150k- 1.5m) issued policies averaging in the $800k range.