Looking ahead into 2020 it appears the life settlements market growth will continue. The market is gaining popularity amongst policyholders and investors.
Conning & Co. released an independent study of the market in October 2019. The annual study on the life settlements market that saw the market was still in a growth cycle. With the third consecutive year of increasing annual volumes giving it a foundation for continued market expansion going forward. 1
“Several life settlement funds announced the launch of new funds or the successful closing of funds which reflects the continued interest of capital in the asset class,” commented Scott Hawkins, a Director, Insurance Research at Conning.
“Looking beyond 2019, key drivers are favourable for continued growth in the life settlement market. Life settlements remain an appealing alternative asset class to investors seeking higher potential returns, relative to the current low-interest rate environment. In addition, this year’s study examines the positive impact wider consumer marketing could have on growth.”
Life Settlements Market Growth Predicted
The continued growth of the asset class is expected. Amazingly, these predictions have seen a consecutive increase over the last three years.
By 2028, Conning expects the market to have a gross market potential at approximately $212 billion in face value. While the volume of new life settlements is to be roughly $6.4 billion.2 (Conning pp.39)
Life Settlements Market Drivers
Economic and Capital Drivers
When is the best time to invest in this asset class? What about now?
For investors, the continued low-interest rate environment makes life settlements a favourable option to generate returns. Additionally, the US life settlements market continues to be well regulated. As a result, investors have become more confident in the market as the regulatory landscape for life settlements has stabilised.
Furthermore, the US government treasuries are at historical lows and thus continue to slow the growth of retirement funds growing at bond yields. With less money than expected, retirement money for those risk-averse US retirees with no affinity to the stock market. As a result, these retirees will look to monetise other available assets. Those assets will include their unneeded life insurance policies.
Consumer Demand
There is organic growth in the market through the education of consumers as an alternative to the lapse or surrender of a life insurance policy.
In addition, the demographic trends are very favourable for the industry, with 10,000 Americans turning 65 every day. As that generation increases there is a concern about how they will fund their long-term care (LTC). Therefore, these demographic drivers have the potential to grow the life settlements market.
Even more concerning is the population projection for the next couple of decades. The year 2030 marks an important demographic turning point in U.S. history according to the U.S. Census Bureau. In a 2018 press release, it was announced that “The aging of baby boomers means that within just a couple decades, older people are projected to outnumber children for the first time in U.S. history.” 3
Additionally, between 2020 and 2050, the number of deaths is projected to rise substantially as the population ages. As a result of a significant share of the population, the baby boomers, age into older adulthood.
The growth of the life settlement industry is, overall, a positive trend for policyholders. It is giving them an alternative to accepting an insurance company’s cash surrender value, if any, when they lapse or surrender a policy.
Anything Interesting for Life Settlements in 2020
The second half of 2019 proved to be very interesting. We wonder how this will carry on to 2020.
Mortality Estimates Impact
Life expectancy extensions at the end of 2018 by ITM TwentyFirst and AVS that caused some portfolios to fall in value. As a result, the market still seems to be digesting the effects on updates to mortality tables.
For a Hold to Maturity investor, the change in the value that they could sell the policy for between purchase and collection of the death benefit is entirely irrelevant as they don’t intend to sell. Fair value is different depending on your strategy, a trading fund should update LE’s regularly but with our Hold to Maturity fund, the opposite is the case. Hence, our argument has always been that continually refreshing underwriting creates a lot of noise/volatility around an Asset Class. Considering that this asset should be almost set and forget if your strategy is to hold until maturity.
Time will tell if these apparently conservative new estimates will prove effective. However, it represents the best buying opportunity presenting to new capital that the industry has seen for some time.
New Changes in Legislation
Following a decision in the state Supreme Court last year, a bill that would ban stranger-originated life insurance has been introduced in New Jersey. 4
Thirty states have laws explicitly banning STOLI policies, but New Jersey is not among them. Still, state law requires someone taking out a policy on another person’s life to have an “insurable interest” in their wellbeing.
The Market is Shifting to Smaller Face Policies
Data collected by The Deal Life Settlements report concludes that the size of policies has been decreasing for the past 11 years.5
Although the life settlement market appears to be growing, there is a trend that providers are focusing more on smaller face polices. The average policy face size has fallen sharply in recent years. Additionally, the amount paid per face also has begun growing again, reflecting higher prices paid for policies in a competitive market.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is incorporated in Ireland. An umbrella type investment company. The fund permits segregated liability between sub-funds. The first sub-fund launched is GIS General Fund (the Fund). Listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors. It provides tax clarity by ensuring there is no tax leakage. It enables a number of different investment options to suit the specific needs of our investors.
The Fund’s core activity is to actively manage a large and diverse portfolio of life insurance policies (life settlements) issued by companies in the USA. The Board of GISF selects those that best meet the Fund’s policy purchase criteria.
References
[1] Conning Inc, 2019, Stronger Life Settlement Growth Forecast Over Next Decade, URL: https://www.conning.com/about-us/news/stronger-life-settlement-growth-forecast-over-next-decade, Accessed 24.01.2020
[2] Conning Inc, 2019, Life Settlements a Market Takes Off
[3] United States Census Bureau, 2018, Older People Projected to Outnumber Children for First Time in U.S. History, URL: https://www.census.gov/newsroom/press-releases/2018/cb18-41-population-projections.html, Accessed: 24.01.2020
[4] P. Sullivan, 2019, Don’t gamble on grandma, N.J. court says in life insurance dispute, URL: https://www.nj.com/politics/2019/06/dont-gamble-on-grandma-nj-court-says-in-life-insurance-dispute.html , Accessed 24.01.2020
Disclaimer
Disclaimer: This information is intended for qualifying investors only and was correct at the time of preparation. It has been prepared to provide general information only. It should not be considered as a “securities recommendation” or an “invitation to invest” in any jurisdiction. Potential investors should consider the relevance of this information to their particular circumstances. Before proceeding, investors must obtain the prospectus and take their own legal and taxation advice. If you acquire or hold one of our products we will receive fees and other benefits as disclosed in the prospectus and relevant offering documents.
