Life Equity CEO, Scott Willkomm, concluded his tenure as Chair of the European Life Settlement Association last month. Greg Winterton spoke to Willkomm to get his thoughts on his time as Chair at ELSA, and his views on the life settlement market more broadly.
GW: Scott, your term as ELSA Chair concluded at the end of December. You’ve been Chair for a number of years: what will you look back on with pride the most when you hand over the reins?
SW: When I became chair of ELSA, one of the main things I noticed was that we needed a full-time Executive Director. At the time, we had a part-time executive director, but I, along with others, felt that we required a more dedicated resource. We were looking for someone who had experience in the industry and could lead us in the right direction. That’s why we decided to hire Chris Wells for the role, given his previous experience in the industry.
It was crucial for us to hire a full-time staff member as, at the time, we were representing an asset class that was plagued by historic baggage. Therefore, a lot of work had to be done to elevate ELSA’s reputation as an ambassador for the industry and our membership. To reach a broader audience, we launched the Life ILS conference and the Life Risk News magazine. As a result, we have doubled our membership and increased engagement from ELSA members. It is important to note that these accomplishments took time and effort. Although there is still room for progress, we are proud of what we have achieved so far. Everyone who has been involved in this journey deserves recognition for their contribution.
GW: As ELSA transitions to a new leadership, what are some of the challenges – and opportunities – facing the organisation?
SW: It’s been a challenge to expand the universe of active participants in the market. Having been around the ILS space, it always struck me as funny that life settlements and structured settlements side of the life risk market was always well developed before catastrophe bonds, but for the life side, it’s been a case of it ‘not going to the right school’. That will continue to be a challenge, but the market has changed and evolved quite meaningfully in the past six or seven years and while there are still some vestiges of the unsavoury elements remaining, they are largely in the past, they’re yesterday’s news. But we have to be willing to confront those sentiments that people who are not particularly well informed about the space throw out at you every so often.
Also, everyone talks about how much potential there is in this market, the raw numbers, the universe of policies be purchased and why hasn’t some of that happened. One of the challenges is a lack of competition and that in turn is because the investment necessary to compete is large. That’s the biggest impediment to near term growth in this industry. But I see challenges and opportunities as being somewhat similar in our market, and ELSA will be able to keep itself quite busy taking the level of engagement to the next level in the next few years.
GW: Moving onto something at the industry level now. At the beginning of the year, you said that you would like to see more investment in market expansion from the broker channel, and that supply issues are still a challenge in the secondary market. Is this still the main hurdle that the industry must negotiate? If so, is there any low hanging fruit that could be picked to make a difference here?
SW: When we spoke a year ago, my thought was that in a market where there is a large direct to consumer component – and one that is growing rapidly – brokers need to carve out a niche. That’s not getting the average seller to fill out the forms and shoot it out to the market as a whole. Brokers can add real value for either the higher end, highly advised people who have their insurance embedded in a estate plan or a wealth plan. They can do what they do best, which is in-depth education.
I also think the registered investment advisor space is largely an untapped opportunity for life settlements – more so from an origination standpoint, than an investment standpoint – although that should not be overlooked. I’ve spoken with RIAs about life settlements, but it’s something that isn’t presently in their day-to-day lexicon. But it requires work and effort to go after them.
GW: In terms of the broader life risk universe, we’ve seen upheaval in the life ILS market in recent months, and a general pull back in terms of institutional investor appetite for alternative investments like life settlements and life ILS. What’s your message to investors about life-linked investing generally?
SW: The message hasn’t changed. The context as to that message being delivered has changed. We started talking to the ILS folks because they are cousins to the life settlement industry. In terms of who we might consider engaging with, I think the credit space makes a lot of sense because the smarter, more insightful folks who have been ILS practitioners approach the business like the credit business. The great benefit is limited correlation to other segments, which dovetails well with the ILS guys. We’ve gone through a weird interest rate environment in the past couple of years, but it may be settling out in 2024 and returning to some degree of normalcy which will make the case for investing in life settlements more competitive than it has been in the past year when compared with the cat bond market. But we see sector rotations in the broader markets all the time, and that we’ve experienced that shouldn’t be all that surprising to us. Sometimes you go out of favour, and that’s nothing to do with the underlying fundamentals of the investment. But I’m hopeful that before too long, we’ll see sector rotation back into our market.
GW: Finishing up with life settlements again, Scott. Fast forward to this time next year. What would need to happen in 2024 for the life settlement industry to consider it a good one?
SW: If we only see single digit growth in the secondary market, I think that will have been a disappointment. Despite what I said earlier about competition, if the yield curve becomes more rational and positively sloped this year, then we probably have less excuses to put up if we’re not able to achieve growth in double digits.
And we clearly need to expand the universe of investors. A big win would be a meaningful commitment from a major institution, like a household name. But I don’t mean an investor that gets into our space at 30 cents on the dollar; I mean one that likes it at 100 cents on the dollar. A big firm making a splash would be a big win.
Scott Willkomm is CEO at Life Equity and Past Chair of the European Life Settlement Association
