Tel: +44(0)1244 317999
Signup to receive updates
201810 ITMTwentyFirst LE changes
ITM TwentyFirst (ITM), the Minneapolis based US underwriting
firm previously known as 21st Services, announced
changes to their underwriting basis last week.
ITM have retrospectively analysed the impact the changes would
make to their underwriting performed between 2016 and mid 2018, and
estimate the changes result in an average increase in the median
Life Expectancy (LE) of 9%.
The impact on individual cases will vary depending upon the age,
gender and smoking\health status of the life assured - and, for
some health impairments, ITM believe corrections to the credit and
debit underwriting model may actually reduce LEs.
Underwriting is unquestionably the most fundamental aspect in
assessing the value of a Life Settlement (LS) investment. Pricing
sensitivity to variances in LEs is far more pronounced than those
resulting from similar movements in the pricing IRR.
This is a dynamic that frequently goes unappreciated by
investors, who will often focus on chasing higher purchase IRRs,
without questioning the underlying underwriting basis.
From a value perspective, it is more important for investors to
assess how the underwriting is performed. In particular, how
conflicts of interest between parties on the policy supply side
(life settlement brokers and providers), and the underwriting\fund
management functions are segregated and managed.
Patrick McAdams, Investment Director at SL said, "We have always
taken a whole of market approach to both our origination of LS
assets, and sourcing of LEs from multiple underwriting firms.
"A vertically integrated model, where the policy sourcing,
underwriting and fund management functions are effectively
performed by the same company, creates dangerous conflicts of
interest that investors should pay very close attention to. This is
a view that's certainly reflected in the conversations we have with
"The changes to ITM's underwriting basis were not totally
unexpected by SL. We have used an array of independent and industry
leading underwriting firms over the years. With the volume of data
we've collated we have an excellent understanding of the strengths
and weakness of each underwriter and factor this into our market
pricing by carefully blending LEs and adjusting the risk premium
within the IRR."
To discuss the changes to ITM's underwriting basis or SL's
broader approach to LS pricing, please contact Patrick
McAdams Investment Director at SL Investment Management.