Milestone Managers & Providers

Founded in 2003, Milestone Providers, LLC, and Milestone Managers, LLC, were formed as life settlement provider and management companies for the life settlement market. Their main offices are located in Pennsylvania.

Milestone is licensed as a life settlement provider in Arkansas, Colorado, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, Montana, North Carolina, North Dakota, Pennsylvania, Tennessee, Texas, and Virginia.

Milestone is also able to transact business in the non-regulated states such as Alabama, Arizona, California, Idaho, Michigan, Minnesota, Missouri, New Hampshire, New Mexico, New York, Oregon, Rhode Island, South Carolina, South Dakota, Vermont, Washington, West Virginia, Wisconsin, and Wyoming and has been involved in pro-consumer regulation in a number of these states.

While the focus of Milestone’s business activity is in the life settlement market, transactions involving viatical settlements have been considered where duly licensed.

History

The founders of Milestone performed early market analysis beginning in 2002 by evaluating market trends and initiating discussions with potential institutional capital, relative to the alternative, uncorrelated and fixed-income nature of the asset class known as life settlements.

Milestone was established as limited liability companies in early 2004, and began acquiring life settlement and viatical provider licenses in regulated states at that time, while continuing their efforts of guiding institutional capital into the marketplace. Recognizing the need for greater efficiencies in the life settlement market, Milestone designed and built an efficient and scalable platform by which to trade and monitor life insurance policies.

Many institutional investors and pension funds have been attracted to life settlements [1]. Milestone facilitates purchase transactions for these institutional investors, including one of the worlds leading asset management groups.

Innovations

Milestone is constantly examining the market to stay ahead of the curve. This has become evident as Milestone continues to set industry standards with their market innovations.

Interactive Purchasing Platform. Designed to provide greater transparency to institutions, and allow the investor to receive and track information on files as they are underwritten, this innovation has greatly shortened the life settlement process and provides a highly efficient means of market communication for the investor.

Full Transactional Transparency. Milestone requires full disclosure of all commissions in a life settlement transaction and was the first life settlement provider to do so. All transaction costs and expenses of the agent, broker and provider are disclosed to the seller at or before the time of settlement. In its November 13, 2008 daily newspaper, The Wall Street Journal stated that the life settlement industry has attracted criticism for high fees and the lack of transparency as the market grew very rapidly ^[1]. Full disclosure is one of the most important things to consider when pursuing a life settlement[2]

Small Policy Purchases. The “No Policy Left Behind” program was launched in 2006. This program allows consumers, agents, and brokers to submit smaller life insurance policies as lows as $50,000 for evaluation and purchase. Prior to this program, many senior policy owners of smaller policies had no other option than to surrender unwanted policies to the insurance carrier, or simply allow the policy lapse.

Innovations to Pricing Models and Policy Evaluations. Milestone has developed a life settlement pricing model which implements a real return analysis, verses an internal rate of return analysis. This effective pricing model determines the purchase price based on discount rate applied to the purchase price and the funds used to pay the premiums. Pricing methodologies such as this align with the needs of the capital market.

Statistical Analysis. The life expectancy (LE) of the insured is the single most important component in the pricing of a life insurance policy to be sold as a life settlement. Milestone was one of the first life settlement providers to incorporate statistical analysis into its pricing models, reviewing actual to expected ratios of major life expectancy providers and comparing those values to those of their own analysis and review. The pricing sensitivity of life settlements can be extremely volatile compared to other asset classes due to the negative cash flows (premiums) associated with a life insurance policy. This is particularly true in the early years following policy purchase, or in the acquisitions stage of a portfolio of policies, where positive cash flows are traditionally not realized. Milestone was the first life settlement provider to statistically analyze the accuracy, and consistency, of life expectancy providers, and incorporate this data into its pricing models.

Actual to Expected Ratios of Life Expectancy Providers. Actual to Expected Ratios reported by a given life expectancy provider represent what the actual mortality experience is, or has been, relative to the analysis and prediction of the life expectancy provider. This value is an indication of the accuracy of the life expectancy determination and the mortality tables which the life expectancy provider uses, as well as the methodologies used in underwriting the health status of an individual.

Using the statistical analysis of thousands of life expectancies and the reported Actual to Expected Ratios of several leading life expectancy providers, Milestone was the first to detect that there were severe discrepancies in the life expectancy estimates of several LE providers. These LE estimates by a majority of the industry were, on average, found to be too short. As a result, investor groups using these shorter estimates unknowingly extended higher offers for life insurance policies in the secondary market, thereby decreasing their own return on investment.

Being mindful of these problems and recognizing that LE estimations were too short, Milestone made the requisite adjustments to their pricing model(s). In late 2008, several life expectancy providers revised their mortality tables, effectively lengthening their life expectancies, thereby confirming Milestone’s statistical analysis [3]. After these revisions, many secondary market purchasers which purchased life settlements using unadjusted life expectancy’s began to realize that write downs were imminent and that lower than expected returns were to be expected. This realization, coupled with the credit crunch, led to many market participants to pull their offers from the market, or exit the market altogether[4]. Having already recognized the problems with LE’s assumptions, and having pro-actively made the appropriate adjustments to their pricing model(s), Milestone remained in the market, and continues to be a leader in life settlements.

Outlook

Milestone continues to channel capital from various institutional investor groups to this asset class. With the current state of the economy, many institutional funds are looking for alternative investment strategies outside of the traditional stock and bond markets. The life settlement market can offer a consistent 10-14% IRR if the appropriate pricing models are used along with accurate estimations of life expectancy and portfolio diversification[5].

Many third-party research firms including Conning Research and Lehman Brothers predict that the life settlement market will reach an estimated $160B in face amount being transacted annually within the next 10 years[6][7]. Milestone is well positioned in the market and is poised for continued growth as the industry continues to mature.

References

1. ^ 1

1. ^Page, Scott. "Time For A Second Look At Life Settlements." October 13, 2008.

2. ^Jones, R. Marshall. "Life Settlements: Essential Information To Know Before Selling Your Policy" Palm Beach Daily News January 13, 2008.

3. ^Granieri, Vince. "21st Services Presentation: A/E Analysis and New Mortality Tables" September 9, 2008.

4. ^Tergesen, Anne. "Cash For Seniors Is Drying Up." The Wall Street Journal November 13, 2008.

5. ^Franklin Templeton Institutional "Franklin Templeton - Fixed Income Investment Insight" November 2006.

6. ^Conning Research. "Strong Growth for Life Settlements in 2007 and Favorable Forecast through 2010" October 8, 2008.

7. ^Berg, Eric N. and Michael J. Levy. "Lehman Brothers Equity Research - Life Settlements" November 17, 2005.

External links

• http://www.milestonesettlements.com