Longevity Investing in Life Settlements 2020 Alternative Investment Resource LLC d/b/a Private & Confidential 1 AIR Asset Management
The Life Settlement Fundamentals Definition: The transfer of ownership and beneficiary rights of a life insurance policy on an insured in exchange for a cash payment. Individuals typically settle their policies in order to monetize the asset because they either do not want, do not need, or cannot afford their life insurance policy . Alternatively , in lieu of a settlement, insureds tend to let their policies lapse or simply surrender them. Fundamentals of the life settlement space include: Sellers no longer pay future premiums Buyers (investors) profit based on the face value of the policy less the acquisition price and accumulated premiums Insureds, typically 70+ or older with a $100,000 or larger policy Settlement amount will usually exceed the amount of the cash surrender value Private & Confidential 2
Life Settlement Transaction Process Process Stages Four basic stages in the process of acquiring or selling a life insurance policy: Life settlement If a case passes Pricing is evaluated If an offer is providers identify initial review, further using quantitative accepted, the potential settlements analysis and medical models which factor insurance company through a brokerage underwritings are in the cash flows, life is notified and the network or direct completed. expectancies, policy settles. Sourcing Underwriting aluation/Pricing Closing policy source. premium costs, and A mortality factor for AIR Asset the standardized AIR Asset the insured is then Management pays mortality tables. Management generated. the premiums and reviews and Offers are made via manages the policy evaluates individual a bidding process going forward. cases, as well as using a discount tertiary portfolios. rate. V Private & Confidential 3
A Socially Responsible Investment We believe that investment in life settlements is sustainable, responsible, impact investing. With increased capitalization of the secondary market for life insurance: I. Retirees may use life settlement proceeds to replace pre-retirement income and help maintain a dignified standard of living. II. Frail and disabled persons may use life settlement proceeds to pay for long-term skilled nursing without placing the burden on the shoulders of family or government programs. III. The benefit from decades of premiums paid on a policy will be realized by an individual in need rather than forfeited to insurance companies. Private & Confidential 4
Life Settlement Marketplace Development Over $30bn of life settlements are in-force today (1) , and as the asset class has matured a tertiary market for settlements has evolved that allows institutional investors to effectively deploy capital within the space. This tertiary market has been growing and now records over $10bn in transactions annually , with significant potential for further growth; Life Insurance: Demographics: Established asset class: • It is estimated that U.S. seniors have over •Senior U.S. population is expected to •Life settlements are now regulated in some $3 trillion of life insurance policies (2) of double between 2000 and 2030 to 69 capacity by 46 states. (4) which we estimate a quarter are million individuals (3) •The market has matured as life expectancy structurally and economically viable for life •In recent decades, the impact of medical underwriters have developed sufficient settlements innovation on adult life expectancy has track records to make refinements • According to the Life Insurance Settlement been most pronounced in the 50 to 65 year •Post 2008, there is greater awareness Association (LISA), “An astounding $100 old population among insurers and financial advisors of billion+ in face value of life insurance is •Developing need for liquidity in retirement their fiduciary responsible to outline the life lapsed or voluntarily surrendered each due to increasing; settlements option to those considering year by seniors over the age of 65.” surrender their policy or allowing it to lapse - Healthcare costs - Pension deficits - Dependency ratios 30 25 US Life Settlement Market ($bn) 20 Projected Market 15 Volume in 2025: 10 $60bn 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year Secondary Tertiary Past performance does not guarantee future results. (1) Conning & Co, 2016, Life Settlements, Secondary Annuities, and Structured Settlements (2) Life Insurance Settlement Association (LISA) Private & Confidential 5 (3) S Census Bureau (4) Fasano eNewsletter - February 2019 Issue
The Underwriting and V aluation Process Medical Mortality Mortality Curve Policy V aluation Underwriting Multiplier • Medical history of the • Multiplier encompasses • Mortality curve created • Mortality curve results insured reviewed in assessment of health based on multiplier and in a projected cash detail life expectancy inflow, and net present value (“NPV”) calculated using premiums Note : Expected net present value allows the Fund to set a price for each settlement. The graph on the next page provides an illustration of such a curve and the resulting cash flow values. Private & Confidential 6
The Secondary and T ertiary Markets for Life Insurance Secondary • A life settlement is the secondary market for life insurance. • It provides an economically favorable alternative for U.S. citizens in possession of unwanted or unneeded life insurance policies. • The market is well-regulated offering consumers comprehensive protection under state life settlements laws. • In the U.S. it is common to hold several life insurance policies for various risk coverage and/or wealth management purposes. AIR Asset Management T ertiary • We have witnessed the growth of a “tertiary” market where settled policies are re-sold between investors. This market includes derivatives and other hedged transactions. • The tertiary market for life settlements creates liquidity and allows institutional investors to deploy capital faster within . ( 1) the space. This market now records over $10bn in transactions annually (1) Conning & Co, 2016, Life Settlements, Secondary Annuities, and Structures Settlements Private & Confidential 7
Future Outlook Expected Rates of Return: Low Correlation Asset Class: • Market Rates have been in a decreasing ”When comparing traditional asset classes against trend during recent years. the AA Partners Life Settlement Index it is becoming clear that Life Settlements have near • This represents an opportunity for life zero correlation to mainstream financial markets.” settlement investors Jose C. Garcia, CEO and Life Settlements Expert 2017 • Closed-end funds lock in today’s attractive yields prior to further drops Life Settlement Market Rates – (IRR) (1) AAP Investable Life Settlement Index (2) (1) Carlisle LTGF Presentation 2020 (2) AA-Partners Ltd. website Private & Confidential 8
AIR Asset Management is Uniquely Qualified to Manage a Fund of Life Settlements Experts in Longevity-Based Assets Our experience and expertise in longevity-based asset classes enables us to be more effective as we work to generate total return with as little correlation as possible to other asset classes. SEC-Registered Investment Advisor With over $250MM in assets under management, we have years of experience in U.S. longevity-linked markets. Positive Industry Relationships We have developed a network of business partners in the longevity-linked markets, including a strategic partnership with $2.4B fund manager the Carlisle Management Company S.C.A. (“Carlisle”). This partnership has allowed us to launch a suite of products and receive sub-advisory services from Carlisle on many of them. Meticulous Internal Standards We employ rigorous internal standards and due diligence processes that demonstrate exceptional aptitude in portfolio management and operations. Private & Confidential 9
AIR Asset Management - T eam With over 100 years of combined experience in financial services and asset management, AIR Asset Management provides investors with a wealth of expertise in the alternative investment space. We leverage the proficiency and experience of an extensive network of strategic partners. This allows us to deploy investment strategies, curated from a cross-section of fund managers, specialists, and thought leaders. Amy Boyet Besse Richard Beleutz Stephen Luongo Matt Schaefer Chief Compliance Officer & Director Chief Executive Officer Chief Investment Officer Chief Financial Officer of Operations Scott Romanek Jeff Black Andrea Hoch Managing Director of Sales & Director of Portfolio Management Marketing & Operations Associate Marketing Please click here to view the AIR Asset Management team’s bios. Private & Confidential 10
AIR Asset Management - Contact Information Main Office 333 S. Wabash Ave. 27 th Floor Chicago, IL 60604 Chicago: (773) 230-2759 Info@AIRAssetManagement.com www.airassetmanagement.com Private & Confidential 11
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