TO EFFECT BIG CHANGES,

YOU NEED TO START WITH SMALL DETAILS.

How NorthStar has contributed to the success of its clients’ life settlement portfolios…

Underwriting audits are comprehensive and thorough and add value to the portfolio by identifying problematic assets prior to policy purchase. There are many reasons why a policy may present an above average risk, from document and data irregularities to missing documents to careless reporting of incorrect information to the carrier. If the risk can be mitigated, this adds to the long-term value of the assets; if not, avoiding these risky assets may reduce long-term costs.

• A broker submitted an life expectancy report that had a notation on it stating that the LE company had received additional medical records and changed their multiplier from 200% to 400%. Upon examination of the new facts, it was noted that 1) a family member had contacted the doctor to report that the insured was not taking medications; 2) a diagnosis of a stroke was reported by the insured on a medical history form but there were no medical records substantiating this fact; 3) there was a single reference in the records to dementia and sick sinus syndrome with no test results, notes, etc.; and 4) the insured had refused her doctor’s advice to go to the hospital or have additional tests completed for evaluation of reported dizziness and shortness of breath. Because these four instances involved undocumented information, the shift to the higher mortality table was disregarded in pricing the life insurance policy and overbidding was avoided.
  



• Two life expectancy reports issued ten days apart were received for the same insured.  The number of months dropped from 161 to 114 months, almost a 4 year difference in life expectancy.  Upon review of the medical records and the two reports, it was discovered that the insured had provided his physician with two additional pieces of information:  1) he had resumed smoking, having only quit for a short period that appeared to coincide with the issue of the policy; and 2) although diabetic, he had ceased following his doctor’s advice regarding medication and had decided to design his own medical program.  Because the insured had returned to the doctor specifically to add in negative information which was then submitted to the LE company, the reliability of the second, shorter LE was called into question.  As the case was not viable at the first LE of 161 months, which was probably more indicative of the insured’s true health, it was decided the policy should not be purchased.
  

Accurate life expectancy reports enable the portfolio owner to better determine the proper timing and pricing for policy acquisition. Discrepancies among life expectancies are common but must be understood if the pricing is to be correct. Identifying which LE report most clearly matches the insured’s history reduces risk of overpayment, since relying on an LE that is too short, for example, will only erode the value of the policy in the future as the insured outlives the projected expectancy.

• One of the most extreme variations NorthStar witnessed was between three companies issuing LE reports of 161, 53 and 17 months, respectively. Upon examination, it became clear that the first company had not received the full set of medical records and therefore, was too long. Upon NorthStar’s correct submission of the records, the LE dropped to 90. The second company had relied heavily on an expectation of a likely recurrence of a cancer and shortened the LE accordingly. Since the client was still technically cancer-free, this LE was most likely too short. The third company had erroneously adopted mortality statistics for a stage four cancer when the cancer was in fact stage one. This LE was therefore too short. We then notified our client that the next six months would be critical for determining whether the cancer would indeed recur and all three companies could, at that point, provide a much more accurate picture. Believing that the insured’s LE was too unpredictable at that time, the client decided to forego its purchase of the policy and revisit it in upcoming months, if the policy was still available for purchase.




• A case was submitted for NorthStar’s pricing that involved three LE reports; the first was 90 months at 290%; the second was 73 months at 666% and the last projected 96 months at 250%. NorthStar’s in-depth review of the medical records observed documentation of a recent heart attack with stents placed, and two subsequent visits to the emergency room for chest pain and dizziness. The cardiac tests performed in the ER consistently documented probable ischemia. When the question was raised whether the insured had followed up with his cardiologist, we were provided with previously unseen records from a well-known cardiologist indicating his review of a test and conclusion that no further treatment steps needed to be taken. Using the cardiologist’s expertise instead of the ER records, we were able to determine that the previous LE reports given to us were probably inaccurate and should be adjusted to a slightly lower multiplier. Not knowing if the more positive cardiology records were simply overlooked or deliberately withheld to impact the pricing, we informed our client of the situation, allowing them to make an informed life settlement decision.