Life settlement industry group the Life Insurance Settlement Association (LISA) has recently published the results of its latest Market Member Survey, in which its licensed provider members supply anonymised data to the organisation that it then aggregates to provide a view of what it says is the positive impact of the life settlement market on American Seniors.
LISA’s headline is that the average multiplier paid to policyholders in the secondary market remains strong: the average cash surrender value of policies purchased by LISA members last year was $33,493 and the average payment of $222,807, good for a 6.5x multiplier.
“LISA’s latest Market Data Collection Survey once again illustrates the value that our industry brings to the American Senior,” said Neal Jacobs, Senior Managing Director, Capital Markets at Coventry, and current LISA Chair.
“A six and a half times multiple is higher than either 2023 or 2022, reflecting a strong demand from institutional investors for this asset which in largely uncorrelated to other asset classes. The impact of our market on the personal finances of policyholders and their families is significant and sometimes life changing.”
LISA’s reason for launching this initiative three years ago was to highlight the benefits that it says the life settlement market provides to American Seniors as an alternative to lapse or surrender. The life settlement market has been trying to illustrate what policyholders are leaving on the table due to what it says are unnecessary policy terminations for many years.
Industry group the American Council of Life Insurers (ACLI)’s annual Life Insurance Fact Book provides lapse – policies where the policyholder stops paying premiums – and surrender – policies where the seller is up to date on their premium payments but opts to surrender the policy back to the insurer – data for the previous 12 years and this rate jumped in 2023 to 8.5% from 6.7% in 2022.
The ACLI does not separate out Universal Life insurance – the main type of policy seen in the life settlement secondary market – from Term Life, Whole Life, or others. But the data is indicative of a broader trend, and while it remains to be seen as to whether the increase seen in 2023 sustains, a rising lapse rate means extra frustration for life settlement types, especially given that it might seem logical that an increased need to sell a policy by the consumer would lead them to the life settlement market.
“Many factors influence termination rates, such as affordability, a perceived lack of need for the policy for empty-nesters, or other investment options. But for many Seniors with Universal Life or Convertible Term Life policies, they are quite literally throwing money away by just surrendering or lapsing,” said Rob Haynie, Managing Director at Life Insurance Settlements.
“This apparent paradox continues to be a source of frustration for our market, but this just reinforces the need for us to continue to educate wealth managers, accountants, lawyers and independent insurance agents about the availability and benefits of the life settlement market.”
That increase in policy terminations likely had an impact on the number of deals completed in the life settlement secondary market last year. For the first time since this effort began in 2022, the transaction numbers are lower when compared to the previous year. In 2024, LISA licensed life settlement provider members completed 2,699 transactions, compared to 3,213 in 2023 (3,079 in 2022 and 2,998 in 2021).
While inferences can be made as to the reasons – awareness being just one – other macroeconomic factors could have been behind the drop.
“It is important to understand how lags impact private assets like life settlements,” said John Welcom, CEO at Welcome Funds.
“The higher interest rate environment of 2022-early 2024 had the effect of reducing fundraising across a range of alternative assets, life settlements included, and so less capital was available to be deployed in the secondary market last year. That made asset managers’ buy-box narrower. But you have also seen deal activity contract in private equity, real estate and venture capital in the past 18 months. A pull back in transaction activity is not unique to life settlements.”
The reduction of the Federal Funds Rate by the US Federal Reserve that began in the autumn of last year provided welcome news for a range of alternative assets, life settlements included. Like private equity and venture capital funds, some life settlement funds tap into the debt market to optimise the cash management function of their portfolios as well as to buy additional policies, so the market will be hoping that a lower cost of capital is supportive of increased activity going forward.
Time will tell, of course, But still, the bottom line for LISA is that, regardless of whether the number of transactions is up or down, the underlying message remains.
“Our market is influenced by many factors, some idiosyncratic, others macroeconomic. It is not reasonable to expect the life settlement market to increase the number of transactions every single year,” said Bryan Nicholson, Executive Director at LISA.
“But the point of the exercise from LISA’s perspective is to reinforce our position, which is that the life settlement market is a force for good for the American Senior. That position is reflected in the data – those that sell their life insurance policy on the secondary market receive significantly more than they would by simply lapsing or surrendering it to the carrier.”
