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Schroders: Are Life Insurance Linked Securities an emerging standalone asset class?

Life Insurance Linked Securities (Life ILS) are structured life reinsurance solutions packaged in investible form for capital markets investors. In this article we argue that Life ILS are a bona fi de alternative fi xed income asset class, given features such as long-dated cashfl ows and low correlation with other asset classes.

These characteristics differ substantially from more common forms of ILS, such as cat bonds, which cover natural catastrophe risks and other non Llife ILS. Furthermore, due to increasing demand in the life insurance industry, we expect Life ILS will develop into a more mature asset class over the coming years.

As most Life ILS are fi xed income-type transactions with medium to long durations, this asset class can be a good match for long-term fi xed liabilities such as defi ned benefi t pension liabilities or annuities.
Ultimately, the need for product, actuarial and origination/structuring expertise forms a barrier to entry into Life ILS for many managers and is a principal reason why there are relatively few Life ILS managers.

Will Life ILS become a standalone asset class?

Life ILS can bring genuine and unique value to pension funds and other institutional, long-term investors seeking longer-dated, regular cash-flows. So what is the likelihood of Life ILS maturing into an asset class sizeable enough to catch and hold the attention of sophisticated alternatives investors?

As long as there is substantial insurer and reinsurer demand for structured solutions, Life ILS investors will see a steady – and probably growing – deal flow. Risk-based regulatory regimes, such as Solvency II, are a true game-changer for the industry and force an economic view of risk, value and capital on the part of potential Life ILS sponsors.

https://www.schroders.com/en/sysglobalassets/schroders/sites/ukpensions/pdfs/2016-06-is-life-ils-an-emerging-standalone-asset-class.pdf

Jay, take a read of their CPR report, all info in their

Alpha Growth plc (LSE: ALGW), a financial services specialist in the growing Senior Life Settlement ("SLS") asset class, is pleased to announce the launch of its own Hybrid security. The completion of the security into its marketable structure was finalised this month. Alpha was advised under engagement on the structure of the security by our advisors from one of the "Big Four" accounting firms' London offices and Actuarial Risk Management of Austin, Texas.

Alpha is offering the security to insurers and institutional investors, providing an attractive risk yield over a 10-year term with minimal correlation to conventional equity and commodity markets. It is called the High Yield Return ("HYR") Security and is a debt equity hybrid investment, coupled with risk management and quality-rated collateral that provides diversity and safety in return to a range of investors and insurers.

The HYR security is expected to provide an attractive investment opportunity for insurers and other organisations with annuity-like cash flows that have Asset Backed Security allocations. Based on analysis conducted by its advisors and specifically the Big Four accounting firm, regulated insurers under Solvency II could generate Matching Adjustment compliant assets with significant capital saving compared to an equivalent BBB bond.

Https://www.investegate.co.uk/alpha-growth-plc--algw-/rns/launch-of-innovative-hybrid-product/201802060700049840D/
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If an insurer can structure its life settlements holding so that it can be treated as a negative liability under Solvency II rather than an asset, then under this regime it would be expected to:

• Improve its solvency position.

• Recognize a day one release of free assets not normally achieved with “typical” insurance company investments.

• Avoid any matching adjustment considerations. Such considerations may be relevant should the holding be structured as an asset.

The key reason for the benefits above is that internal rates of returns, relating the purchase price to the expected cashflows for life settlements assets, are usually in excess of 10%. This internal rate of return is significantly higher than an (adjusted) risk-free rate applied to a Solvency II balance sheet.

Not surprisingly, protection providers receive the greatest day one release of free assets from life settlements investment because such insurers experience diversification benefits from taking incremental longevity risk exposure.

http://www.elsa-sls.org/wp-content/uploads/pdf/valuation-and-modelling-approaches.pdf

Following this conversion, Flying Brands has £213,800 of Convertible Loan Notes outstanding and £100,000 of convertible loan notes issued pursuant to a loan note instrument dated 18 November 2015 outstanding.

https://www.investegate.co.uk/flying-brands-ltd--iqai-/rns/conversion-of-convertible-loan-notes-into-equity/201707030700047635J/

I know he is quite a large holder in these

One of the fallouts of the global
financial crisis was the realisation
that many of the more traditional
alternative, such as hedge fund of
funds, asset classes failed to provide
adequate strategy diversification.
Mercer believes investors should
continue to investigate the use of
longevity-linked investments such as
Life Settlements to gain exposure to real
alternative risk premia.

One of the fallouts of the global
financial crisis was the realisation
that many of the more traditional
alternative, such as hedge fund of
funds, asset classes failed to provide
adequate strategy diversification.
Mercer believes investors should
continue to investigate the use of
longevity-linked investments such as
Life Settlements to gain exposure to real
alternative risk premia.

https://lifesettlementsfund.com/files/news/mercer_discussion_paper_0410.pdf

in life settlements

The NZ$34.6 billion ($24.4 billion) New Zealand Superannuation Fund committed $200 million to Apollo Global Management's Financial Credit Investment III, a life settlements strategy, a spokeswoman for the Auckland-based sovereign wealth fund confirmed Tuesday.

https://www.pionline.com/article/20170606/ONLINE/170609925/nz-super-taps-apollo-to-invest-200-million-in-life-settlements

re heard the interview again, he mentioned if they closed one of their Hybrid deals for £100m they would get £500m in face value policies.

DevonS W Capital raised £50m for another Life settlments company

Targeting £10m allocation with DW Capital & will set up seperate managed accounts to operate them and take fees

They have servicers, that will be paying the policy premiums

The £65k was a buy as was the 1.25m based on prices & times it was done

swiped from Advfn, thanks

Danny's concluding remarks that (i) he's experienced in this market and is bringing a lot of relationships to the company which he has built up for many, many years; that

(ii) Alpha is a microcap stock with plenty of room for growth and that
(iii) it will have 'sticky' assets which will generate management fees for long periods of time.

Yes true, as a £10m portfolio of Life policies will be shows as a full value as £50m

The increase from £50m to £250m is the face value on payment of the NDB

Thanks for that, yes he also mentioned Devonshire W capital sourcing £10m allocations - so think they may get a few of them introduced to Alpha not just a one of deal - so may see 2 or 3 deals on that alone or £30m

also mentioned if they bought Policy book of £50m that would equal a £250m face value

Also targeting a Hybrid product sale of £100m would equal a £500m face value

Blue Horseshoe loves chip fat
‏

@BlueHorselcf
35m35 minutes ago
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#ALGW Fully anticipating TR1 to show seller gone to be out shortly. It’s said they have offloaded all! I congratulate them on profit but I’m delighted potential overhang into the forthcoming news flow is gone. Excellent news if so

PS I’m told they were never inside-Trading blind

https://twitter.com/BlueHorselcf

NEW YORK, Jan. 12, 2016 /PRNewswire/ -- BroadRiver Asset Management, L.P. has finalized the sale of its BroadRiver I, L.P. portfolio of traditional life settlement assets to an institutional buyer for an undisclosed price. BroadRiver decided to sell the 10-year portfolio in its fifth year following rigorous quantitative analysis and review of market conditions. Global investment bank Houlihan Lokey acted as investment banker for the portfolio's sale.

"Our goal is to provide our institutional clients with access to reliable cash flow and highly attractive, risk-adjusted returns from private credit investments. The wide interest shown in this portfolio by a large number of knowledgeable institutional investors testifies to the strength of our investment strategy, asset origination and proprietary research," said Andrew Plevin, Co-CEO of BroadRiver Asset Management. "Given the ongoing volatility in the financial markets, we look forward to continuing to deliver non-correlated solutions to our clients and help seniors address their retirement planning through this longevity-based asset class."

This transaction, which concluded at the end of 2015, is representative of two ongoing market trends—rising institutional interest in life settlements, and greater liquidity for high-quality portfolios dedicated to the asset class."

https://www.prnewswire.com/news-releases/broadriver-completes-sale-of-life-settlements-portfolio-300203209.html

sent you a pm in advfn,,,thanks

do you post on Advfn please?

It was also anticipated that an existing customer would vary a large licensing deal to include an additional large sum of upfront cash and a royalty stream for integrating the Company's data processing code into a customer wireless ASIC.

However, ultimately the customer has selected a different Ethernity proposal to use an FPGA SoC. This should result in significant additional revenues being received by the Company through the delivery of a complete FPGA SoC into the customer's large volume market that could not previously be served by the alternative solution. This further demonstrates the Company's vision that FPGA solutions penetrate a larger volume market than has previously been served entirely by ASIC. Ethernity is well placed to benefit from selling complete FPGA SoC solutions.

https://www.investegate.co.uk/ethernity-networks--enet-/rns/trading-statement/201801040700029072A/

The NZ$34.6 billion ($24.4 billion) New Zealand Superannuation Fund committed $200 million to Apollo Global Management's Financial Credit Investment III, a life settlements strategy, a spokeswoman for the Auckland-based sovereign wealth fund confirmed Tuesday.

https://www.pionline.com/article/20170606/ONLINE/170609925/nz-super-taps-apollo-to-invest-200-million-in-life-settlements