The European Life Settlement Association (ELSA, publisher of Life Risk News) produced an update to its Licensed Provider Matrix (LPM) recently, with the headline being that providers at the smaller end of the market continued to exit it in the past 12 months.
ELSA’s now annual exercise to map the landscape of licensed life settlement providers – the buyer on record of life insurance policies in the secondary market – identified 31 firms that were licensed in at least one state at the beginning of this year, down 7 from 38 last year, or 18%.
That is a reasonably sized decline of market participants by any standard. But that does not tell the full story, because all but one of those providers which exited the market held only one licence. Indeed, there was an increase in the collective total number of licenses to 710, up from last year’s 705.
The life settlement provider landscape has been in consolidation – generally – for many years.
Back in 2010, the United States Government Accountability Office (GAO) published LIFE INSURANCE SETTLEMENTS: Regulatory Inconsistencies May Pose a Number of Challenges, a deep dive into the market in which states were asked to provide a considerable amount of information about their life settlement markets, including the number of providers currently licensed in their state: Texas alone had 62 firms (p.89) and four other states – Connecticut, Hawaii, Kentucky, North Carolina – each had more than 40.
Times were different back then. Secondary market activity was much higher (in 2009, the total face value transacted in the secondary market was $7.6bn, according to the annual life settlement report published by Conning) – so it makes sense for there to have been more providers purchasing policies.
But in the past 15 years, there has been something of a maturation in the space.
“I think there has been something of an institutionalisation of the life settlement market in the last half decade or so,” said Rob Haynie, Managing Director at Life Insurance Settlements.
“Most of the firms that are active in the space now are larger and more experienced than they were before, and as they have grown, they have taken more market share. There has been some M&A but some of the smaller firms probably either just stopped, or retired, as the larger, institutional firms grew.”
The reality of exactly how many providers are truly ‘active’ depends on how it is defined, but in some circles, the number of firms in the market on a weekly basis could be even less. Indeed, 10 firms are licensed in 10 or fewer territories, hardly enough to be considered a national player. Indeed, The Life Settlements Report, part of The Deal, publishes an annual league table of transactions completed by life settlement providers and only 15 firms completed more than 10 deals in 2024.
Buying a life insurance policy on the secondary market is more akin to buying real estate than it is to buying stocks. The process is involved, and often lengthy. So, it could be argued, therefore, that the reality of the life settlement provider market is that there are around 20 firms participating in it in a meaningful way; that is the number of firms in the LPM this year that are currently licensed in 20 or more states. And it may be that the market is even more oligopolistic than might appear on the surface.
“It is fairly common knowledge for anyone who is active in the life settlement market now to know which provider is purchasing more policies than another. I’d say that probably 70% or so of all deals in the secondary market are transacted by just a handful of companies,” said Haynie.
So, what does this all mean for the investors in life settlement funds? Some might see a shrinking list of active providers and become concerned that fewer participants might mean fewer opportunities for their asset manager to buy policies.
Not necessarily. The life settlement market likes to say (with some justification) that it delivers uncorrelated returns to its investors, and there is a similar lack of correlation here, too.
“Buying opportunities are only created when policyholders learn about the option to sell and begin the sales process, which itself is driven by consumer awareness, broker and provider marketing, and adviser education. Capital allocators rely on their asset managers’ relationships with active providers and brokers, not the sheer number of licensed names on a regulator’s list. As awareness grows, volume can rise even if provider count falls,” said Rainer Gruenig, CEO at Plenum Investments.
Another nuance to this year’s LPM is that the 20 providers that are licensed in 20 or more states is actually one higher than last year. Add to that the fact that the other 19 have maintained at least 20 licenses in the 3 years since ELSA launched its LPM, the argument that the licensed provider market has matured over the years seems to hold water.
What will happen next year is anyone’s guess. Some states license life settlement providers for multiple years, so it is possible that some firms that appear in the LPM this year have not completed any transactions recently and the market may see a further contraction in future editions of the LPM. And a regulator might throw in a curveball – good or bad.
That is nothing more than speculation (at present). But for Gruenig, the current market infrastructure provides – pun intended – plenty of opportunities for asset managers to build a diversified portfolio of policies.
“There is deal flow in the market from a variety of providers, and they bring a wide range of them to market, whether that be life expectancy, state domicile, health status, and/or face value. The fact there are less of them now than 15 years ago does not necessarily have to be a disadvantage for investors, because what is more important is their professionalism.”