Summer tends to be quieter for many parts of the alternative investment industry as people take their foot off the gas a little bit to enjoy the nicer weather and head out on holiday.
But this year, two categories within the broader longevity and mortality risk markets did not get the memo.
The life settlement and insurance-linked securities markets saw four deals announced publicly in July – three M&A deals and one management buyout.
Whilst alternative asset classes such as private equity, real estate and private debt see four deals announced most days, for these industries, this was something of a busy month.
In the ILS space, on 23rd July, UBS announced that it is selling Credit Suisse Insurance Linked Strategies Ltd, which the firm inherited as part of its acquisition of Credit Suisse in March last year, to CSILS’ management team, which is led by Niklaus Hilti.
“We are incredibly excited about this strategic transaction for us which marks another significant milestone in the journey of the CSILS team. It reinforces our commitment to our clients and marks a pivotal moment that allows us to build on our strong foundation and focus on our mission and innovation, while maintaining the highest standards of excellence in everything we do,” said Hilti in the press release.
And then, just two days later, Switzerland-based ILS asset manager Twelve Capital announced a merger with UK asset manager Securis Investment Partners.
“We have always recognised Securis as an innovative and hugely respected business in the ILS market, and the combination of our two businesses presents an exciting opportunity to create a leading ILS franchise, and one of the largest independent ILS asset managers globally. The coming together of our businesses will unlock significant innovation potential and enable a wider range of ILS solutions to be delivered to a truly global investor base, building on existing client coverage in North America, the UK and Europe, as well as Asia Pacific,” said Urs Ramseier, Executive Chairman & CIO of Twelve Capital in its press release.
In terms of the number of participating asset managers, this corner of the alternative credit market is small. Numerous reasons abound for this, but the main three are that high barriers to entry exist in the form of the need to have a large and established network of connections at insurers, the space requires significant and specific expertise/experience in the actuarial and insurance industries, and the availability of deal flow is lower when compared to other alternative investment markets, such as the traditional private SME lending market, or even other complicated structures such as the CLO space.
The ILS market can be broadly categorised as life and non-life, the latter of which includes catastrophe bonds, which received significant media coverage at the beginning of this year as the space enjoyed stellar returns in 2023. CSILS, Securis and Twelve Capital all have ties to both spaces, but the outlook for further M&A in the life ILS space specifically – at least, to any significant extent – will be muted.
“With only a handful of ILS managers with a dedicated life ILS franchise within the business it feels unlikely that we’ll see M&A activity to specifically consolidate those capabilities,” said Dan Knipe, Chief Investment Officer at Kilter Finance.
Things might be different, however, in the life settlement market. The first of two deals announced in July in this space saw provider Lighthouse Life acquiring the assets of Harbor Life Settlements, an SEO lead generation business, at the beginning of the month.
“Acquiring Harbor Life’s assets, including their go-to-market consumer brand and all underlying intellectual property, enhances Lighthouse Life’s lead generation capabilities,” said Michael Freedman, CEO of Lighthouse Life at the time.
And then on 19th July, provider Abacus Life acquired asset manager Carlisle Management Company, the latest example of vertical integration in the life settlement market.
“The acquisition of Carlisle is a strategic move aligned perfectly with our commitment to client-centric solutions and our continued growth as a global alternative asset manager,” said Abacus Life CEO Jay Jackson in its news release.
Whilst its life ILS cousin may not be expected to continue to see significant M&A activity, that might not be the case for life settlements.
Life settlements is a larger market than the life ILS one. The transaction structure in the secondary market features numerous intermediaries, such as providers, life settlement brokers and insurance agents, whereas there are significantly fewer in the life ILS market, where transactions are generally bilateral (with the odd syndicated deal thrown into the mix).
Part of the reason for the presence of intermediaries is how the regulatory regime for life settlements has developed, given that the secondary market always works with a consumer – life insurance policy holders, generally those around retirement age and above – who bring deal activity to market at the beginning of the process.
This nuance means that the outlook for life settlement M&A has potentially more legs than its life ILS cousin. And, according to Rob Haynie, Managing Director at life settlement broker Life Insurance Settlements, there is a benefit to found here as well.
“I’m not surprised to see some evidence of consolidation in the life settlement industry,” he said.
“It’s a sign of a maturing market generally, but also, a sign that some industry players see opportunity in the space in the medium to long term. I think that M&A activity shows confidence in our industry on the part of the firms participating in these deals and that confidence is well founded – life settlements is a growth industry and it’s natural that some firms would want a larger slice of the pie.”
