A new report asset manager, Conning, suggests that the outlook for growth in the life settlement market is generally positive.
Life Settlements: Steady Growth Ahead is the 18th annual report the Hartford, CT -based company has published covering the life settlement market. The report covers a range of factors relevant to the life settlement market, including drivers of demand for life settlements among consumers and investor interest in asset classes such as life settlements. Conning’s bullish view is supported by trends in each of these areas.
“Conning’s analysis of the factors driving life settlement growth are mostly positive. Consumers are likely to seek additional sources of income to offset economic pressures. Investor demand for alternative assets remains strong. Both factors are positive for life settlement growth,” said Roberta Lauria, an AVP, Insurance Research at Conning.
Conning’s new report suggests that $4.5bn worth of face value was transacted in 2022, compared to $4.0bn in 2021. It’s the second highest amount since 2010, which saw the end of premium finance programmes that created a glut of policies that were sold in the secondary markets before the global financial crisis. Only 2020, when $4.6bn of face value was transacted, has delivered a greater amount.
The rising interest rate environment of the past 18 months or so has had an impact on the life settlement market in the sense that the spread of returns over the risk-free rate has compressed, making liquid fixed income investments more appealing.
“You can get a four-week US treasury bill for around 5% at the moment. It’s had a big impact on asset raising in our space,” Jonas Martenson, Founder and Sales Director at life settlements investor Ress Capital, recently told Life Risk News.
But, whilst the macro environment is having an impact on capital raising for asset managers, Scott Hawkins, Head of Insurance Research at Conning, says that it is providing other tailwinds.
“Economic factors are favorable for continued growth as higher interest rates improve UL (universal life) crediting rates. In addition, the combination of inflation, equity market volatility, and potential recession may lead to greater life settlements as policy owners consider opportunities to reduce their costs or generate more income. The strength of the insurance companies whose policies have been settled continue to be above the industry average,” he said.
Also supporting Conning’s view that growth should be sustainable is the amount of in-force life settlements – those owned by asset managers – in the market. In 2021, that figure was $25.1bn, having grown from a low of $21.6bn in 2018. This years’ report says that this figure continues to grow, which is an encouraging leading indicator for the industry’s tertiary market, which has endured a challenging 2023; Alejandra Limones, a Partner at Demeter Capital, told Life Risk News that there had been a drop of approximately 25% in paper auctions so far in 2023.
Perhaps the most-watched section of the report is that of the forecast of what the market looks like in the next 10 years. Conning defines the net market potential as those policies that meet the criteria for investors but whose owners are willing to sell. Last year, the upper limit was $187bn, which, when considering that the total face value transacted in 2022 was $4.5bn, shows the opportunity that life settlement bulls frequently discuss.
Conning didn’t disclose this year’s figure to Life Risk News, but Hawkins says that, overall, it’s a good news story for the industry.
“Given the favorable nature of the drivers of life settlement market growth, our forecast for the life settlement market is steady growth in both the annual face amount of new policies settled and the gross market over the period of 2023 through 2032.”
