Investments in life settlement contracts and related revenue recognition: Prior to 2002, the Company purchased investments in life settlement contracts. A life settlement contract is a contract between the owner of a life insurance policy (the policy owner) and a third-party investor (investor). Under a life settlement contract, the Company obtains the ownership and beneficiary rights of an underlying life insurance policy.
The Company accounts for its investments in life settlement contracts using the fair value method. Under the fair value method, each life settlement contract is carried at its fair value at the end of each reporting period. The change in fair value, life insurance proceeds received and periodic maintenance costs, such as premiums, necessary to keep the underlying policy in force, are recorded in Other revenues on the Consolidated Statements of Operations.
The fair value of the Company's investments in life settlement contracts were $88 million and $100 million at December 31, 2013 and 2012, and are included in Other assets on the Consolidated Balance Sheets. The cash receipts and payments related to life settlement contracts are included in Cash flows from operating activities on the Consolidated Statements of Cash Flows.
The following table details the values for life settlement contracts. The determination of fair value is discussed in Note D.
|
| | | | | | | | | | |
December 31, 2013 | Number of Life Settlement Contracts | | Fair Value of Life Settlement Contracts (In millions) | | Face Amount of Life Insurance Policies (In millions) |
Estimated maturity during: | | | | | |
2014 | 60 |
| | $ | 13 |
| | $ | 39 |
|
2015 | 60 |
| | 11 |
| | 35 |
|
2016 | 50 |
| | 9 |
| | 32 |
|
2017 | 50 |
| | 8 |
| | 29 |
|
2018 | 40 |
| | 7 |
| | 26 |
|
Thereafter | 364 |
| | 40 |
| | 217 |
|
Total | 624 |
| | $ | 88 |
| | $ | 378 |
|
The Company uses an actuarial model to estimate the aggregate face amount of life insurance that is expected to mature in each future year and the corresponding fair value. This model projects the likelihood of the insured's death for each inforce policy based upon the Company's estimated mortality rates, which may vary due to the relatively small size of the portfolio of life settlement contracts. The number of life settlement contracts presented in the table above is based upon the average face amount of inforce policies estimated to mature in each future year.
The increase (decrease) in fair value recognized for the years ended December 31, 2013, 2012 and 2011 on contracts still being held was $(2) million, $11 million and $5 million. The gains recognized during the years ended December 31, 2013, 2012 and 2011 on contracts that settled were $15 million, $42 million and $28 million.
