Corporate finance professor researches Life settlements for consumers and investors

June 18, 2013 - PRLog -- Research based on study of more the 9,000 life insurances policies, shows that Americans who sold their unwanted life insurance policies received four times more than they’ve received had they given them to their life insurance companies.

Today, Professor Narayan will be presenting the study of insurance policies with aggregate death benefits in excess of $24 billion at London business school.

Professor of Finance, Narayan Naik from the London Business School, explained: “The evidence suggests that the life settlement market has helped significantly in enhancing the welfare of policy-owners who, instead of surrendering, sold their life insurance policies in the secondary market”.

The study also shown that the average expected return for institutional, qualified investors purchasing the grand sample of life settlements that was 12.5% per annum and 8.4% in excess of treasury yields. Study shows in the recent years, the average expected return had risen substantially to 18.3% per annum in 2011, some 15.9% in excess of treasury yield.

The expected return depends on the life expectancy of the insured independent and comprehensive study conducted sensitivity analysis. If you assumed life expectancy estimates has been understated by three years, investors purchase this sample of life settlements could still have expected a positive return of 3.2% per annum.

Having given the expected return and the fact that old age is largely uncorrelated with other financial markets. Professor Naike said: “The life settlement option appears to be an interesting investment opportunity for institutional investors willing to include longevity risk in their portfolio and to commit capital for the medium term.”

Study highlighted furthermore that the extra source of tax revenue that the market provides to the government could potentially be used to fund beneficial welfare programs such as Medicaid and Medicare.

European Life Settlement Association (ELSA) has welcomed the groundbreaking research.
Chair of ELSE, Simon Erritt, said “ELSA welcomes this groundbreaking research and the spirit of transparency and openness that lies behind it, and believes that further collaboration between the market and the academic community will help cement the industry’s growing reputation as a socially-responsible and financially-compelling alternative to traditional investment asset classes.”

For information on London Business school, visit: http://www.london.edu/index.html