Choose life

The US life settlements sector is marketing itself to pension funds and European insurers as an easy way to add diversification to a portfolio. But how are the risks modelled and how can the banks and hedge funds that are brokering the transactions accurately measure longevity risk, a speciality of the ceding insurer? William Rhode reports

The US life settlements market has been in the mainstream press for all the wrong reasons lately, with a series of sensational articles peppered with catchphrases such as Wall Street fat cats, death bonds, Aids viaticals and ghoulish investment schemes.

The reason for the sudden witch-hunt, it seems, is that life settlements are on the brink of securitisation, with an announcement by little-known Canadian rating agency DBRS that it may be close to rating a debt issue backed by a pool of life