Many life settlement servicers refer to premium optimization as the process of calculating minimum premiums. This is almost always done using an industry standard pricing model rather than accepting the insurance company’s level pay premiums as illustrated. Senior Settlements takes premium optimization one step further. They call it “Premium Minimization”. They perform a comprehensive review of each policy and break down the nuts and bolts using their own proprietary models. Certain products (as much as 25%) have complex features that can not be optimized by standard pricing software. Senior Settlements finds opportunities that standard pricing models can not accommodate and in most cases the technical analysis necessary to optimize these polices is beyond the capability of most providers and servicers. Additionally, Senior Settlements also conducts follow-up carrier calls to validate cost of insurance (COI) charges and verify that the carrier’s COI calculations are consistent with our analysis. In some instances we will request illustrations that support their internal calculations.
Most industry participants simply use an industry standard valuation model to achieve a targeted Internal Rate of Return (IRR). End of story. Senior Settlements' approach doesn’t stop there. They analyze policies using a combination of probabilistic and deterministic models to better understand each policy’s premium sensitivity and the expected effect on the IRR at different iterations. They break down the mechanics of individual policies using their own proprietary models and find opportunities that others simply miss. They can also run stochastic simulations to illustrate how a portfolio meeting an investor's parameters will perform over various scenarios. This helps to understand the tail risk of the portfolio and plan accordingly for a successful wind up. They provide multiple strategies to help their clients find better returns than the standard industry valuation.
