New mortality tables will shrink industry

The US life settlements industry is in for
an unpleasant shake-up which could see its ranks shrink, predicts
Leonard H Goodman, chairman and CEO of life settlements provider
First Equity Benefits of America (FEBA).

Goodman expressed this view following the
announcement of changes to mortality tables by a number of
actuarial firms indicating a significant increase in life
expectancy. US actuarial firms involved include ICS Services, 21st
Services and AVS Underwriting.

Indicative of changes made, ICS Services’ new
mortality tables which came into effect on 1 January 2009 reflect a
male nonsmoker aged 65 in optimum health – ICS Service’s preferred
class – as having a life expectancy of 269 months, up from 252
months in 2008.

Life expectancy of female non-smoker aged 75
in the preferred class was increased from 183 months in 2008 to 196
months in 2009.

The changes to life expectancy tables were
“inevitable,” commented Goodman. “We are not at all surprised by
these changes as we have always held the opinion that mortality
projections were understated.”

He explained that upward adjustments of life
expectancies has resulted in the portfolios of many life settlement
providers and investors now being worth much less than their
original “perceived value,” and has forced them to seek funding to
cover incremental premium payments.

Mortality adjustments will “undoubtedly result
in some providers closing their doors,” said Goodman.

“While this is unfortunate, it nonetheless is
a positive industry correction which will bring stability and move
yields more in line with what investors should expect,” he
added.

FEBA’s belief that mortality tables were not
accurately reflecting life expectancy stands it in good stead,
stressed Goodman. “We have always reviewed policies using our
proprietary statistical and mortality analysis and have priced our
offers on these projections, he explained. “Our review of each
policy has ensured that we are making fair and accurate
offers.”

According non-profit life settlements
organisation LiveSettlements.net there are 166 companies active in
the US life settlements market.