2010: Life Settlements - The Market Stabilizes as Insurer Impact Grows
After the perfect storm that hit the life settlement market in late 2008 and early 2009, a buyer’s market emerged. Annual transaction volume decreased as capital retreated from the market. A prolonged delay in the return of capital could affect the future size of the life settlement as a viable asset class. As the life settlement industry adjusts to these changes, its participants continue to confront several key challenges that could influence the return of capital. This study reviews the life settlement market and looks ahead at the challenges and opportunities it faces.
1. Introduction
2. Executive Summary
3. Market Review and Forecast
- Life Settlement Market Review
- Key Long-Term Drivers
- Conning’s Life Settlement Market Forecast
- Summary
4. Emerging Risks to Premium Optimization
- Universal Life—First Among Equals
- Universal Life Product Design and Premium Optimization
- The Challenges to Premium Optimization
- Summary
5. The Life Settlement Impact on Insurers
- Identifying the Life Settlement Impact on Insurers
- Historical Data Analysis of Average Death Claims per Policy
- Potential Impact of Current In Force Life Settlements
- Summary
6. A New Level of Regulation Emerges
- Evolving State Laws
- An Emerging Federal Landscape
- Emerging Regulatory Issues
- Summary
Introduction
After the perfect storm that hit the life settlement market in late 2008 and early 2009, a buyer’s market emerged. Annual transaction volume decreased as capital retreated from the market. A prolonged delay in the return of capital could affect the future size of the life settlement as a viable asset class. To date, life settlement investors have concentrated on universal life as their product of choice. This concentration provides some flexibility in the amount of premiums needed to maintain a portfolio of settled policies. However, it challenges the ability of some investors to calculate accurately those premiums.
During 2010, concerns that life settlements may be affecting insurer mortality expectations began to emerge. When we last examined the question of insurer impact, we did so only at the industry level. At that time, we stated the impact on the industry might be negligible. However, some insurers may be at greater risk than others. With a clearer understanding of an investor concentration on universal life, on a comparatively small number of insurers, and a significant block of settled policies, the question of insurer impact is worth revisiting.
By mid-2010, the majority of states have implemented model regulations concerning the settlement of a life insurance policy. At the same time, federal and international attention on life settlement regulation is beginning to emerge. This multi-level regulation holds both opportunities and challenges for life settlements as capital returns.
This study reviews the life settlement market and looks ahead at the challenges and opportunities it faces.
- We review the current market and provide our forecast of how the life settlement market may develop over the medium-term.
- We examine the challenges life settlement funds may face because of a concentration on universal life.
- We analyze what the impact life settlements has had on insurers, both to date and over the medium-term.
- We explore the current and emerging regulatory landscape and consider its impact on life settlement providers, policyholders, and investors.