The life settlement industry’s tertiary market is an opaque one, with many of the transactions being conducted on an over-the-counter, bilateral basis. Greg Winterton caught up with Martin Kramer, Managing Partner at Ceptar Consulting, to find out what’s been happing in this part of the life settlement world.
GW: Martin – let’s begin with a look back on the start of this year. Has the first quarter of 2025 delivered more activity in terms of deal flow in the tertiary market, or less, and why?
MK: Greg – thanks so much for having me. In terms of market activity, I have seen more transactions so far in 2025 compared to the first quarter of last year, with a few large capital sources that are deploying money into the space. But I would also say that since it is still early in the year, we don’t know for certain if some or all of the portfolios that are being shopped at the moment will transact. Last year (2024) saw at one notably large portfolio transacting, which is something that, in terms of size, we haven’t seen this year yet, but there is, of course, plenty of time left and we’ll know more as the year progresses. But the tertiary market is definitely off to a busier start than it was in Q1 2024.
GW: What’s your view on the ‘health’ – pardon the pun – of life settlement portfolios in the tertiary market when it comes to up-to-date LE’s? Are sellers bringing blocks of business that have better information for the buyer(s)?
MK: I don’t really see life settlement portfolios with really stale LEs anymore. The market has gotten much better in that regard. Most portfolios in the tertiary market now have at least one LE that is only a few years old – years ago, it was easier for sellers to sell-on really old LEs and still achieve competitive IRRs but not anymore. In terms of origination quality, there is still a considerable number of cases with origination risk floating around in the market, and market participants need to form their own view on whether to accept this risk in exchange for a more aggressive discount rate or not.
GW: ELSA has developed its Master Agreement for Tertiary Transactions (MATT) but aside from that there is a lack of standardisation in terms of policy documentation – and valuation methodology – in the tertiary space. How much of a roadblock is this to getting more deals done here?
MK: First of all, I would like to commend ELSA on creating the MATT and making it available to all its members – ELSA is the only organization that has managed to produce a standard document for parties to transact on and that should be applauded. As for whether more standardization is a good thing, I would like to play the devil’s advocate here, and argue that standardization, in general, would pose more risks than benefits to our industry because the difference in valuation methodologies between asset managers/policy buyers, and market participants taking different views on origination risk, LE underwriting etc., is what the tertiary market thrives on. With more standardization – such as in policy valuation, for example – there would likely be a much lower level of activity as fewer firms would be able to differentiate their offering and create some kind of edge.
GW: What is the ratio of ‘distressed’ portfolios – where the seller needs to sell – to non-distressed (where the seller is just shopping around) in the tertiary market? I assume distressed blocks see opportunistic bidders looking for a bargain.
MK: This year (2025) is only a few months old and it might be a little too early to tell what the exact ratio is. However, I am fairly certain that the number of distressed sellers will increase this year compared to 2024. Interest rates in the US haven’t come down yet this year, which means that the cost of capital (and with it, the borrowing cost) remains relatively high. If interest rates were only temporarily high, some investors might try to ride it out by restructuring debt or raising capital. However, if rates stay at or around their current levels for an extended period, the financial strain accumulates, making distress more likely, forcing more sales into the tertiary market. Add to that those that have suffered from subpar mortality performance, or capital redemptions, and you might see some managers finding that there is an increasing gap between their bookmarks, and where the market is currently trading at.
GW: Lastly, Martin, what’s the outlook for the rest of the year? What are the chances that deal activity increases or decreases, and why?
MK: I am fairly certain that transaction volume in the tertiary market will go up in 2025, in part due to what I said about the likelihood of more distressed portfolios. There is sufficient capital in the market looking for a chance to deploy so there is no demand issue, it’s a supply one. The challenge will be whether the seller’s expectations in terms of price align with where the market is actually trading in 2025.
Martin Kramer is Managing Partner at Ceptar Consulting