Settlement Economics
The 2009 report also collected internal rate of return values for life settlement policies that closed during the calendar year. However, it must be noted that any analysis in market IRRs would be complex, since the data is coming from a multitude of sources, each with different calculation methods. The variation may be a result of factors such as different approaches to cost of insurance projections, intended future premium payments or, perhaps most significantly, the use of different life expectancy providers. Furthermore, the use of proprietary valuation models change IRR calculation methods altogether.
The frequency distributions of IRRs for the 2009 data sample are above. Despite the underlying variation in IRR calculation methodology, we find that the numbers for 2009 are in line with the word-of-mouth understanding of the market – an average IRR of 14.38% and a median of 13.93%. As the histogram shows, three quarters of all settlements were calculated with a purchasing IRR of between 12-16%.