The latest Conning Inc. research, “Life Settlements, Secondary Annuities, and Structured Settlements: Rate Increases Squeeze Returns”, suggest plenty more opportunities still exist in the life settlements market. The alternative asset class continued to attract investors into the market in 2015 and heading into 2016. Why? The prolonged low interest rate environment is forcing investors to embark away from traditional assets as they seek above average rate of return. We have outlined a few key findings from the 2016 edition.
Life Settlements Market Size
The latest report found that $29.3 billion in life settlements remained in force, a steady decline from $36 billion in 2010. However, Conning has noted that, “as the insured individuals seek to monetize their unwanted life insurance policies the, consumer demand is likely to remain strong.” [1]
Based on analysis of the life settlements market:
- Over the period of 2016 through 2025, we forecast the annual gross market potential for life settlements will average approximately $185 billion.
- We forecast that an annual volume of new life settlements will average approximately 1.8 billion per year.
- The total face value of in force U.S. life settlements at year-end 2015, available for resale in the tertiary market, was just over $29 billion.
Although life settlements remain the smallest market, amount the alternative asset space investors have shown and increase interest and this is likely to translate to steady growth. The Towers Watson Global Alternatives Survey found that global alternatives AUM reached USD $6.2 trillion at the end of 2015, Real Estate having the largest portion of AUM at USD1.2 trillion [2]. In comparison life settlements was the smallest at USD$29 billion for 2015 as per Conning’s estimates.
Although, the market has not peaked again since its pre-crisis period the environment remains positive. However, investors are not committing to higher levels of capital in the secondary market. Scott Hawkins, a Director, Insurance Research at Conning said, “New settlements will not be sufficient to offset the decrease of in force life settlements as the large block of older policies files death claims and the amount of in force life settlements will decrease, reducing the supply of policies available in the tertiary market.”[3]
Interestingly, some market participants estimate the tertiary life settlements market at around USD$100 billion or three times the Conning estimate of the secondary market. This will be the subject of a later blog post.[4]
Anything Interesting?
The advisory firm has been studying the market asset class since 1999 and have seen the stabilisation of activity since the early days and has noted some very interesting opportunities.
One concern in the insurance space was how the life settlements market affected the potential returns for the insurance companies. “Scott Hawkins, director of insurance research at Conning, said he couldn’t find “any clear indication” that the life settlement market has negatively affected lapse rates or death benefit payouts of life insurers. Life settlements have not cut into profits of the life insurance companies whose policies are targeted by secondary market investors. That’s the conclusion reached by Conning Inc. in its latest report on the life settlement market. ”[5]
Along with the current market performance and forecasts this edition focuses on a number of key and relevant issues:
- They review the effect on performance, lapse rates of death and benefit payouts of insures whose policies are in the life settlements market
- They analyse the drivers of the COI increase by a number of insurance companies in 2015 and 2016.
- They review the German, UK, and Medicaid settlements market.
- They also provide and an analysis on the annuity market and structured settlements
As always we wish you well with your life settlement investment opportunities and if you want to learn more about investing in this asset class please contact us. All Life Settlements studies conducted by Conning Inc are available for purchase on their website www.conning.com.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is incorporated in Ireland as an umbrella type investment company with segregated liability between sub-funds. The first sub-fund launched, GIS General Fund (the Fund), is listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors and 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. Policies are sourced by licensed U.S. Provider companies and the Board of GISF select those that best meet the Fund’s policy purchase criteria.
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 and 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.
[1] Conning Inc, 2016, ‘Life Settlements, Secondary Annuities, and Structured Settlements: Rate Increases Squeeze Returns’, pp. 11
[2] Willis Towers Watson, 2016, ‘The Global Alternatives Survey 2016’, Accessed 21 February 2017, https://www.willistowerswatson.com/en/insights/2016/07/Global-Alternatives-Survey-2016
[3] Conning Inc, 20th October 2016, ‘Conning—Life Settlements Industry Margins Pressured by Cost of Insurance Rate Increases’, Accessed 21st February 2017,
https://www.conning.com/products/insurance-research/new-studies/press-release-article/Life%20Settlements%20Secondary%20Annuities%20and%20Structured%20Settlements%20%20Rate%20Increases%20Squeeze%20Returns/14845
[4] Donna Horowitz, 23 November 2016, ‘Tertiary market is about $100B, three times higher than Conning’s estimate’, The Deal Life Settlements, Accessed 21st February 2017, http://pipeline.thedeal.com/article/13904513/index.dl
[5] Donna Horowitz, 20 October 2016, ‘Life Settlements aren’t impacting life insurers’ profits, Conning analyst says’, The Deal Life Settlements, Accessed 21st February 2017, http://pipeline.thedeal.com/article/13861837/index.dl
