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Trident Risk Strategies launches Longevity Shortfall for life portfolios


Trident Risk Strategies has launched a new product called Longevity Shortfall, which provides a portfolio wrap and closeout insurance cover for newly originated and medically underwritten collateralized senior life settlement portfolios.

The question of whether life settlements fit within the insurance-linked securities (ILS) universe is one we’ve covered recently here.

The life settlements asset class has been dogged by issues since its launch, but many of these have been due to risks, such as longevity risk, associated with life insurance portfolios being poorly constructed, hedged or protected.

Trident Risk Strategies, a company that provides origination, structuring, loss probability modeling and medical underwriting services among others, is aiming to remove this one risk, longevity, from investors or investment managers building or acquiring a newly constructed portfolio of life insurance policies.

As an alternative investment life settlements provide a similar low-correlated asset to the ILS space Artemis covers. By working to help investors remove the longevity risk associated with portfolios, Trident is hoping to help the asset class gain broader appeal.

Longevity Shortfall is a traditional insurance contract underwritten through a highly rated global re/insurance facility. The protection provided by Longevity Shortfall will give an indemnification to investors of life settlement policies that are enrolled into the wrap policy that do not monetize within a portfolio’s maturity duration.

Longevity Shortfall features an A.M. Best rated insurer providing a cover to limit credit risk, establishes a base internal rate of return for the portfolio and provides a closed-end portfolio close out of unmonetized policies, Trident explained.

Jeff Post, Managing Director of Trident, commented; “Trident has worked very closely with EWI Re to develop an underwriting platform that allow us to model a portfolio utilizing life policy data fields, and underwriting debt formulas to establish probability stratification on a portfolio’s likely outcomes.”

Steve McElhiney, President of reinsurance broker EWI Re, added; “We are pleased to have secured a substantial level of capacity from a global reinsurer for this innovative product offering and we look forward to continued growth in this sector. Unfortunately, the life settlement sector continues to be misunderstood and is highly scrutinized by insurance underwriters because in the early 2000’s longevity was poorly executed with attendant losses. Trident has proven to have a much better understanding of longevity risk through their underwriting, partnering with “best in class” partners, modeling, and a pricing platform which has passed the scrutiny of very bright and talented risk officers. We believe that Longevity Shortfall will reinvigorate this asset class.”

Before putting in place the Longevity Shortfall cover, Trident works with portfolio sponsors, investors and institutional investors to structure the parameters of acceptable policies that will fit within the risk profile of the coverage for an individual portfolio.

Each policy must have current medical data available and be medically underwritten, ensuring as much transparency and visibility of the risks as possible. If the life policy data is deemed to be acceptable, Trident will approve its enrollment into a portfolio.

The Longevity Shortfall protection will indemnify the investors based on the face value of an enrolled policy in a portfolio. In return for this indemnification the investors transfer the policy ownership and beneficiary positions to Trident.

Trident says it seeks portfolio sponsors, investors and institutional investor to align their interest with a minimum 10% self insured retention of a portfolio’s face value (notional value) before the cover kicks in.

Underwriting capacity for the Longevity Shortfall is finite, with $500 million life policy face value available. Capacity can be immediately bound for underwriting of a portfolio, or it can be reserved with a non-refundable deposit based on an anticipated life policy portfolio’s face value. Access to this cover is only available through Trident, a Cayman Island entity.

Post concluded; “Trident is very boutique and therefore contact with myself is where a conversation should start to evaluate if Longevity Shortfall portfolio wrap cover is appropriate for investors and pension administrators. Policy underwriting can begin as early as December 7, 2015.”

As efforts continue to mitigate the risks associated with investing in portfolios of life policies and life settlements and to create protected investments, it promises to improve the perception of this piece of the insurance-linked asset class. It will be interesting to see whether these protection and risk mitigation products can help to grow this market.

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