Life Risk Case Studies

Life Insurance Portfolio Analysis

Valuation Services

Situation: A top 10 investment bank and owner of a distressed pool of life settlement policies sought potential buyers in what was considered a bleak seller's market. As a first step in the sale process they retained RCP to complete a comprehensive valuation of the portfolio. After reviewing the portfolio, RCP prepared an extensive reporting package that helped position the bank's assets favorably. The client had not realized that specific portfolio attributes, if highlighted could help better position their assets versus others in the marketplace. RCP's valuation services coupled with real-time insights on buy behavior and preferences in the life settlement market helped to unlock the true value of the portfolio when presenting to potential investors.

Issue: Although the bank was successful in generating keen interest in their portfolio, in the end the bid "process" they ran did not create the desired result - an acceptable sale price.

Solution: RCP, through its extensive relationships with large hedge fund investors, helped the bank to market the portfolio using RCP's proprietary valuation report strategically. As a direct result, the bank received bids in excess of the calculated portfolio value and was able to successfully sell the assets at a price that was acceptable to the Bank and its constituents.

For more information on RCP Valuation Services, please download additional information here.

Life Risk Solutions

Contestability Insurance

Situation: Some life insurance transactions utilize premium financing to provide high net worth individuals a low-cost or zero-basis purchase of life insurance. A lending institution receives monthly/yearly interest until death, at which time principal is repaid utilizing life insurance death benefit proceeds. Furthermore there is the ability to capture the arbitrage between long-term life insurance policies and annuities. In these cases, an insurer securitizes a portfolio of life insurance policies and uses the proceeds to purchase annuities. The cash flow from the annuities pays the insurance premiums, plus interest to note-holders.

Issue: If the insured dies within the first 24 months of policy term, the life insurer has the right to contest a policy and not pay the full death benefit if it is determined that one of the following occurred: fraud; material misrepresentations were made during the underwriting process; suicide; violation of exclusionary riders; invalid contract or policy was not properly issued; policy lapse; and or death while committing a crime.

Result: RCP has developed a proprietary contestability insurance program backed by leading insurers, offering flexible terms and pricing based upon transaction requirements.

Life Risk Solutions

Collateral Gap

Situation: A leading financial institution developed a complex life transaction that promised to generate lucrative profits if life-related risks could be mitigated, risks the financial institution was not comfortable in retaining. Every aspect of the transaction had been thoughtfully engineered, and it was assumed that the basket of identified risks could easily be transferred to the insurance markets. Unfortunately the financial institution was unsuccessful in obtaining suitable coverage terms and pricing -- placing the transaction in jeopardy.

Issue: After careful analysis, RCP developed a collateral gap policy that cost-effectively mitigated the unusual basket of risks in a policy form that would appeal to many potential carriers, not just one key player.

Result: RCP’s structure and policy language met the necessarily-demanding requirements of the insurance markets; and within 8 weeks a policy was issued, enabling the transaction to move ahead.

Life Risk Solutions

Unique Hedging Strategies

Situation: A clever financial advisor developed a next generation life insurance technique that would provide clients with significant benefits and absolutely no down-side risks. However for the program to work as designed, a unique set of risks needed to be clearly identified and then transferred to an appropriate market for a risk premium that the transaction could ultimately bear.

Issue: Although the financial advisor understood the negative consequences related to the general basket of risks he needed to mitigate, he was unable to clearly define what the actual risks were, the severity and frequency, and how he should model the risks so as to create interest from either the insurance and or capital markets.

Result: RCP Life Risk Solutions group identified several risks that could potentially place the transaction in jeopardy – risks that had never before been considered. A complex model was developed to highlight the severity and frequency of the risks. 1000 scenarios were developed to demonstrate how the risks behaved under all parameters, and under what conditions the risk could generate a profit for the mitigating party. RCP concluded that only by combining an insurance and capital markets instrument could the financial advisor achieve his goal of providing his clients with an appropriate no-risk policy. The risk was divided between a property/casualty reinsurer and a derivatives provider.

After working with players in both the insurance and capital markets, a program was developed and placed.