Present Value Life Insurance

[Gary]

I know this is off the beaten path, but this is my home so I thought I would approach the geniuses on this Board.

A banker/investor type person approaches me and says he wants an actuary who can provide present values of blocks of bank owned life insurance policies for investors to purchase.

I am not sure of all the details of the overall investment strategy, but it is clearly not life settlements. I even have to determine if these policies still require premiums.

Well mathematically this isn't hard based on a chosen life table and a discount rate.

The skill or challenge would be to arrive at an appropriate life table and appropriate discount rates.

Individual health of the policy holders is not to be provided so it really boils down to an appropriate life table.

And payments to the investors of course will be over a period beginning now and going perhaps thirty plus years into the future.

One thought is to consider the yield curve or some pattern much like we use for our pension obligations.

Of course another key point is how the banks will invest the money they receive as payment for the policies as they are the ones setting up the arragnement and need the return on assets to be acceptable.

From the investors perspective it is much like a bond where the lower they pay the greater the yield.

With that said any thoughts on how to research an appropriate life table and discount rate?

Thanks.

[carrots]

Gary:

I'd look at AAA, FASB and GAAP guidelines.