Valuing Life Insurance Policies
Axiom carefully reviews the facts and circumstances associated with each policy. Consistent with IRS Revenue Ruling 59-60 and
the fair market value standard, Axiom considers multiple valuation methods including but not limited to the income (DCF) and the
market transaction method when appropriate. Unlike valuing other instruments, the fair market value of a life policy is based on
a set of contingencies (death or policy lapse), and associated probabilities, as well the credit risk of the premium payer and the
insurance underwriter. Therefore the standard DCF model needs to be amended to incorporate these factors before it can be used to
establish the fair market value of a life policy. This requires a skilled team of valuation professionals that have valued life
policies using contingent claims model structures.
The life settlement market is a potential source of market transaction information. However, given the structure of the life settlement market, settlement prices may not come close to reflecting fair market value. The facts and circumstances of each situation will determine whether this source of value information should be incorporated.
Fair Value of GICs for Financial Reporting
GICs promise to pay a fixed interest rate and make periodic interest and principal repayments over the life of the contract. Interest and principal payments are backed by the earnings power of the issuing life insurance company. This means that the investor's risk associated with receiving expected contractual cash flows is essentially the credit risk of the GIC issuer. Axiom uses its Insurance Credit Rating Model to evaluate these risks as of the valuation date.
Axiom has the experience and expertise to undertake custom valuation/pricing assignments in the insurance industry.