A.M. Best's Rating Methodology: Life Settlement Securitization

Business Wire, Oct 19, 2004

OLDWICK, N.J. -- A.M. Best Co. has released its methodology on life settlements, Life Settlement Securitization, which describes the criteria for rating securities backed by life settlements. In January 2004, A.M. Best issued its first rating (an indicative debt rating) on securities issued in a bankruptcy-remote vehicle (the issuer) and collateralized by life settlements. The methodology is in response to the interest by the capital markets in life-settlement backed securities rated by A.M. Best's Structured Finance Group.

A life settlement is an insurance policy sold by the owner--typically the insured or a trust--for an amount greater than the surrender value of the policy but lower than the face amount of the policy. The purchaser of the life settlement becomes the new owner and beneficiary of the life insurance policy and is responsible for making future premium payments and collecting the death benefits of the insured.

Life Settlement Securitization outlines the rating considerations and requirements such as the policy eligibility criteria; life expectancy estimates and mortality ratings provided by medical examiners; the efficacy and skill of the service providers such as policy providers, tracking agents and collateral managers; the number of life settlement policies in the transaction; the diversity of diseases; financial strength ratings of the insurance companies in the collateral pool; insurance company impairments and the recovery of death benefits after such impairments; liquidation value of life settlement policies; the modeling of the transaction by the issuer or its representatives; legal and tax opinions required for the securitization; compliance with all applicable insurance laws; compliance with state and federal patient confidentiality laws; the availability of data associated with each life settlement and other factors that may affect the rating of securities collateralized by life settlements.

Life Settlement Securitization also generally describes the data requirements for A.M. Best's proprietary life settlement securitization model, which applies the Monte Carlo simulation technique to assess the default probabilities on the securities being rated.

For more information on A.M. Best's Rating Methodologies or to download a copy of this full methodology report, visit http://www.ambest.com/ratings/methodology.html.> For a list of A.M. Best's Debt Ratings, please visit http://www.ambest.com/debtratings/.> A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.