3. A valuation report should illustrate the weighted average portfolio value as well as the individual policy values, and their associated weights (whether updated or not, discussed above). It is customary, absent better precision which comes with portfolio size, the portfolio “fair value” ranges between the lowest and highest values and tends to be represented by the average of the LE provider results.
4. Other metrics or analyses provide insight into the assets movement from period to period. Examples include trend analysis and distribution profiles such as average age, average face amount, distributions by insurance carrier, etc.
5. Finally, there must be a written document that accompanies the mathematical output of the valuation. We suggest the assembly of a document supporting the assumptions and methodologies used for the valuation. This document should be updated each valuation period and will provide some historical perspective to the valuation of the assets.
Conclusions
In the valuation of any asset, the presence of valuators who fully understand the practical and theoretical nuances of that asset is, simply, vital. Over the years we have seen meaningful differences with life settlement valuations, and related supporting documentation, which include as part of the valuation process, either in part or full, input from a reputable third party actuarial consultant, versus those that exclude an actuarial consultant.
The objective of a valuation for financial statement purposes is to develop a reasonable estimate of the amount a third party would pay to purchase the asset. The valuation should reflect the riskiness of the investment and appropriately capture the volatility of its fair market
price. A valuation process as described above should give an investor the means to understand risk-adjusted performance better, and to make better-informed decisions about whether to maintain, decrease or increase its position in this asset class.
Muzaffar Soomro is a partner at BDO Cayman Ltd. He can be contacted at:
msoomro@bdo.ky
Corwin Zass is principal & consulting actuary at Actuarial Risk Management, an independent member of the BDO USA Alliance. He can be contacted at:
czass@actrisk.com
Muzaffar Soomro has more than 17 years of experience in the financial services industry. He has worked in various capacities in investment funds including audit, fund setup, fund administration and accounting, transfer agency, custody, liquidations, and compliance.
Corwin Zass is a US life actuary with the BDO USA Alliance firm, Actuarial Risk Management. He brings close to 20 years of insurance and risk management experience, from customisable risk transfer solutions to design of insurance- linked investments, to a global set of clients.
Private Label Funds tailored administration services Swiss roots responsive personalised independent innovative comprehensive know-how global network
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A member of the GAM group.
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