Looking ahead it seems that life settlements market is forecast for growth in 2019. Coupled with large-scaled direct marketing campaigns and the socio-economic trends are continuing to aid in the growth of the market.
Conning & Co. released an independent study of the market in November 2018. This is titled ‘Life Settlements: Continued Growth, Positive Outlook’. The report indicated that “The volume of new settlements continues to increase, a positive indicator for growth in the number of in-force life settlements.”1 Subsequently, we did a review highlighting three positive trends in the life settlements market.
Another independent market study, conducted by The Deal, published in May 2019, reported a 28% increase in life settlement transactions during the prior year. 2
So how does the life settlement market look in 2019?
Life Expectancy and Mortality Tables
Life expectancy is a statistical measure of the average time an insured is expected to live. It is a crucial measurement in the life settlements industry due to its important role in measuring the value of a policy.
Recently, there has been a major shakeup in the life settlements market. U.S. life expectancy providers are updating their older age mortality tables. ITM 21st announced its revised mortality tables in November 2018, updating its last revisions done in 2013 and lengthening life expectancy. In relative terms, the median LE change was a 9% increase3. AVS Underwriting soon followed, increasing its older age life expectancy by an average of approximately 13%.4 The American Academy of Actuaries and the Society of Actuaries also published various revised life expectancy tables to the same effect in 2018.
One key frustration has been that firms often come up with wildly different life expectancy forecasts. Accurately predicting the lifespan of one individual is impossible. Additionally, the mortality tables are based on a much different population than the life settlements market. Candidates for life settlement transactions are typically older, sicker insureds.
Observation of recent events
Several industry participants appear to hold the view that the latest round of updates, by ITM 21st and AVS, appear to represent a significant lurch to the conservative side of estimates. This is particularly evident in the very elderly age groups. These cohorts have seen the largest percentage moves in increased life expectancy predicted. This is interesting as previous underwriting changes in past years have seen the very elderly categories either decline or show little improvement.
Time will tell if these apparently conservative new estimates will prove effective.
They may, however, represent the best buying opportunity presenting to new capital that the industry has seen for some time.
Assessment Trends for Life Settlements
One trend that is taking shape is the need for instant and real-time assessment of health and risks. There is a move away for traditional methods of assessment. Players in the market are seeking instant data mining for risk selection. Consequently, this could mean a more technology-focused process. New ways of collecting health data beyond the traditional review of medical records, questionnaires and interviews.
However, accurate profiling of insureds’ health is key. As an asset manager, we believe there is a need for a deeper review of the health of the insured during the diligence stage. The health of the insured can take on many combinations. It requires an experienced evaluation of the morbidity risks that underpin the development of a statistical survival calculation. However, we appreciate that that over-diligence does incur significant cost. Investors need to find an efficient balance.
For the time being the traditional process for assessment, which includes access to full medical records, is still effective for most policies. However, time will tell if technology can save costs but also allow for more accurate profiling. It’s an exciting time we live in.
Capital in the Market is Returning
The volume of transactions in life settlement policies has increased dramatically. According to a 2018 Conning report,1 this positive surge seems set to continue. The face value of total life settlements has increased for the second consecutive year. Consequently, this is signalling a promising landscape for the settlement market. Additionally, the report reviewed a 10-year forecast, and it spelled continued growth.
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, GIS General Fund (the Fund), is 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. Policies are sourced by licensed U.S. provider companies. The Board of GISF selects those that best meet the Fund’s policy purchase criteria.
[1]Conning Inc, 2018, Life Settlements Continued Growth Positive Outlook
[2]D. Horowitz, 2019, ‘Market Grew 28% Last Year Due to Consumer-Direct Business’, The Deal, 30th May 2019, accessed 16th June 2019
[3] Hill.J, Cates.C and Pobuda.C, 2018, ‘ITM Twentyfirst 2018 Life Expectancy Model Update’, ITM Twentyfirst, Section 4.2, pp.3.
[4] AVS Underwriting, ‘AVS2018 Table and Underwriting Manual Adjustment Details’, pp.5.
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.
