OVERVIEW OF LIFE SETTLEMENTS

The past decade has seen the emergence of life settlements as a viable financial instrument to be used in a variety ways by the mainstream investment community. Large financial institutions such as Berkshire Hathaway, AIG, HSBC, Credit Suisse, Merrill Lynch, UBS and numerous hedge funds, among many financial institutions, have used the attractive characteristics of life settlements to enhance performance and to facilitate the completion of other transactions. Many have used life settlements as an alternative to coupon based investments with enhanced returns. Only since 2004 has the pure securitization of these assets been used.

CDOC believes the securitization process using life settlements is in its very early stages of utilization by the financial community. Previously, zero coupon bonds and “junk” bonds were used successfully to create new financial vehicles. Life settlements provide a component of certainty that does not exist with “junk bonds”, and a level of return that does not exist with zero coupon bonds. The attractive characteristics of life settlements yield a method of providing above market returns and safe collateral for use in financing transactions that should be more effective than available alternatives. The proper use of the “mortality gain” component of the asset class gives a certainty to transactions without being subject to endemic market risks or the external volatility of other financial instruments.

The conversion of the raw life insurance assets to a securitized transferable instrument, which can be quoted as any other yield instrument, permits investors to participate in the asset class without the burden and hazards of participating in unknown markets in individual lots. The single asset nature of the underlying pool of life insurance instruments is cured in the CDOC instrument through broad diversification of all variables and characteristics.

CDOC uses a laddering of all characteristics including life expectancies, policy underwriters, residence locations as well as a minimum standard of credit rating of policy underwriters by established rating agencies. Statistics play a critical part in the successful use of life settlements. CDOC always carries a statistically sound number of policies in relation to the total dollar amount of the securitized pool and avoids all statistically unsound concentrations of policies. Generally, the principle risk in securitized life settlements is longevity risk. CDOC manages longevity risk by taking a sophisticated approach to “timed” investments and by always matching leverage to risk and timing. CDOC does not purchase policies, known as “Viaticals”, on terminally ill persons.

CDOC is unique in that all structures are created using an actuarial model designed by the United States Treasury Department and used by all governmental agencies including the Social Security Administration. This model is considered the most data driven, conservative and “neutral” available today.