Life settlements and the secondary market trading in life policies are becoming an increasingly prevalent insurance-linked investment opportunity for investors, insurance companies seeking to receive value for life policies held and pension firms. They’re also seen as one of the ways you can hedge some longevity risk by buying/trading in policies with a different longevity risk profile to the ones you hold yourself.
Hope Asset Management SA (which is the newly renamed Provident Capital Partners SA) has launched a new insurance-linked investment fund which will invest in the secondary market for U.S. issued traded life policies in both cash and synthetic markets. The TLP Micro-Longevity Fund is domiciled in Luxembourg for tax purposes. Subscriptions and inflows to the fund have already started and they expect to be holding a portfolio of over $500m of traded life policies.
Obviously, traded life policies are for sophisticated investors only and have an inherent longevity risk attached to them (hence some companies hedging their risk with a different risk profile bucket of policies). Hope Asset Management say they are employing a strategy which will eliminate tail risk in the funds portfolio by using a credit wrap to hedge against longevity extension risks. They say this makes their fund uniquely attractive to pension funds and investors seeking mid to long term stable and secured returns which are uncorrelated to the broader capital markets.
It’s an interesting approach to try to make traded life policy investments more attractive and if successful could gain some traction and also negate some of the bad press that life settlements and traded life policies receive.