Swiss Re Insurance-Linked Fund Management

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S&P still avoiding rating life settlement securitizations


Standard & Poor’s have released a report which details their opinion on life settlement securitizations. Despite seeing increasing interest in this asset class and being approached with inquiries from various institutions, S&P say they have no plans to start rating them anytime soon.

S&P believe there are inherent risks and obstacles in securitizing life settlements and for those reasons and until some of these obstacles are removed they intend to steer clear from getting involved in rating any transactions.

Among the concerns S&P highlight are:

  • Statistical credibility of the actuarial assumptions underlying a transaction: The pools backing transactions like this rarely contain more than 100 life insurance policies. S&P believe you need nearer 1,000 policies to get statistical credibility.
  • Limited historical data exists on projected vs actual mortality rates making it difficult to model and assess.
  • Correlation with the stock market: Insurers credit quality is correlated with the state of the economy.
  • It’s not clear how a guaranty fund would treat policies in the event of a failed insurer who backed these policies.
  • No one has a long track record in this market.
  • Insurable interest is a big question: In some States there are questions over whether you can legally own a life insurance policy if you have no insurable interest in it.

It’s interesting to see S&P stepping back from this market and perhaps shows a new maturity amongst rating agencies as they hesitate to get involved in new markets without all the facts.

You can download the full report from S&P’s Ratings Direct website for subscribers only.

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