Longevity Risk in Fair Valuing Level 3 Assets in Securitised Portfolios&ast

Peter Macrae Mazonas (), Patrick John Eric Stallard () and Lynford Graham
Additional contact information
Peter Macrae Mazonas: Life Settlement Financial, LLC, 139 Valley Way, Larkspur, CA 94939, U.S.
Patrick John Eric Stallard: Life Settlement Financial, LLC, 139 Valley Way, Larkspur, CA 94939, U.S.
Lynford Graham: Bentley University, 298 Taylor Road South, Short Hills, New Jersey, 07078, U.S.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2011, vol. 36, issue 4, 516-543

Abstract: Fair value accounting aims to establish a three-level hierarchy that distinguishes (1) readily observable measurement inputs from (2) less readily observable measurement inputs and (3) unobservable measurement inputs. Level 3 longevity valued assets will pose unique valuation risks once securitised pools of these alternative asset classes come to market as investment vehicles for pension plans and individual retirement accounts. No uniform framework is available to assure consistent fair market valuation and transparency for investor decision-making. Applying existing international auditing standards and analytical procedures (IFRS 13) will offer a platform upon which fund managers, their auditors and actuaries can agree upon uniform valuation and presentation guidelines. Application of these quasi-governmental standards will bring future liquidity to otherwise illiquid capital market instruments. This paper presents a valuation methodology consistent with fair value accounting and auditing standards. The methodology incorporates the longevity predictive modelling of Stallard in a form that is compatible with Bayes Factor weighted average valuation techniques based on the study by Kass and Raftery. The methodology is applicable to fair valuation of life settlement portfolios where the combination of too few large death benefit policies and large variances in individual life expectancy estimates currently challenge accurate valuation and periodic re-valuation.

Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.palgrave-journals.com/gpp/journal/v36/n4/pdf/gpp201125a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/gpp/journal/v36/n4/full/gpp201125a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:gpprii:v:36:y:2011:i:4:p:516-543

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41288/PS2

Access Statistics for this article

The Geneva Papers on Risk and Insurance - Issues and Practice is currently edited by Christophe Courbage

More articles in The Geneva Papers on Risk and Insurance - Issues and Practice from Palgrave Macmillan, The Geneva Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().