Longevity Trading

Abstract

The recent ability to trade longevity risk through the use of life settlements, whether for speculation, investment, or as a hedge, has far reaching implications for the entire financial sector. Currently, there are two active markets that trade in life settlements: the secondary market and the tertiary market. The secondary life insurance market is where a life insurance policy first enters the marketplace. The tertiary market is where individual policies and portfolios of policies come back into the market and are among between financial institutions. By providing the industry with secure, business-to-business trading platforms specifically designed for life settlement transactions, online platforms address many of the inefficiencies and shortcomings currently facing this industry. Online exchanges lower the fixed costs associated with brokering, underwriting, and purchasing a life insurance policy and consequently provide the opportunity for smaller policies to be brokered in the secondary market. Electronic trading platforms provide the ideal solution to monitor, update, and report upon the requlatory requirements of both buyers and sellers. Transparency and disclosure is probably the most compelling justification for the use of electronic platforms. For securitization to develop and flourish, an electronic exchange will need to be in place to facilitate trades and transactions.

TOPICS: Legal and regulatory issues for structured finance, MBS and residential mortgage loans, credit risk management