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It should never be surprising when participants in a specific industry express optimism about the future growth prospects for their own market. But when professional analysts conduct independent research and produce unbiased forecast reports on that market, it behooves outside observers to sit up and take notice.
Last month, Conning — a leading investment management firm with a long history of serving the insurance industry — released “Life Settlements: Growing Through Turbulence,” its 17th annual review and forecast of the life settlements market. Their findings and projections are eye-opening for anyone tracking the industry or seeking to learn more about an attractive alternative investment asset class.
The Conning analysts concluded that, in spite of rising interest rates and a projected economic slowdown in the year ahead, a number of key forces are likely to fuel steady growth in annual life settlement transactions over the next decade.
“Consumers are likely to seek additional sources of income to offset the economy pressures and investor demand for alternative assets is forecast to remain strong,” said Roberta Lauria, AVP of Insurance Research at Conning. “Both factors are positive for life settlement growth. In addition, the development of a broader, direct-to-consumer life settlement market is likely to widen the number of consumers who can access life settlements.”
The Conning report reviewed the current market for life settlements and presented the firm’s forecast for 2022-2031. The analysts reported that the favorable nature of the drivers of life settlement market growth portends an average annual volume of new life settlements of approximately $5.2 billion over the next decade.
This optimistic forecast is in spite of the market turbulence in 2020 and 2021, including the high-inflation period that has accompanied the emergence from COVID-19 lockdowns and the uncertain economic environment heading into 2023. In fact, the Conning analysts believe the coming years represent a very attractive opportunity for investors in the life settlement asset class.
“For investors, the insurance companies whose policies they purchased continue to be financially strong,” said Scott Hawkins, the Head of Insurance Research at Conning. “The rising interest rate environment is favorable for the premium optimization strategies used by life settlement investors to improve their returns.”
The Conning report identifies four “key long-term drivers” of continued growth in the life settlement market for 2022-2031:
- Economic and capital drivers
Conning forecasts that the increase in interest rates set by the Federal Reserve will improve life insurer portfolio yields, which should ease pressure on crediting rates and cost of insurance charges imposed on in-force policies. This is good news for life settlement investors who own portfolios of acquired policies. Another important factor noted in the report is that capital flows to alternative assets (including life settlements) are forecast to continue, as investors look for investment returns that are non-correlated with the volatile equity markets. - Consumer drivers
The Conning analysts note that “the aging Baby Boomer generation represents a growing pool of potential policy owners who could be interested in settling their policies.” Moreover, this demographic shift is creating an increased need for sources to fund expensive long-term care services for seniors. Those costs have been rising but the number of insurance coverage options has been shrinking, creating a challenge for seniors to find creative sources of liquidity to pay for care. The report also notes that “long-haul COVID-19” patients may contribute to an increase in consumer demand for life settlements as these individuals seek cash to pay for medical expenses. - Insurance industry drivers
The report acknowledges there are some mixed impacts on the life settlement market when it comes to the overall life insurance environment. On the one hand, life insurance applications declined in 2022 and “cash value” policies (the type of policies that investors prefer) have remained soft for several years, creating a challenge for the overall addressable market of in-force policies. On the other hand, the number of lapsed and surrendered policies remains high — creating a sales opportunity for life settlements, which are often an attractive alternative — and face amounts of new policies continues to increase, which is an encouraging sign for life settlement investors. - Life settlement industry drivers
The Conning analysts believe that industry drivers remain “mostly favorable” for the continued growth of life settlements, primarily because life settlement industry regulations are boosting consumer and advisor confidence in marketplace. This stability of the regulatory landscape raises the comfort level of investors as well. In addition, the report notes that direct-to-consumer marketing by leading market participants is likely to increase consumer awareness of life settlements and increase the number of policies brought to the market.
The bottom line to this new independent research report is that rising consumer and investor demand for life settlements over the next decade signals a robust market for life settlement transactions. Conning’s new life settlement industry research report is available for purchase from Conning by calling 888.707.1177 or by clicking here.
The U.S. life settlements industry offers seniors a potential solution to their immediate cash needs with a simple transaction that is safe, ethical and well-regulated. They can quickly obtain a no-obligation fair market appraisal of their life insurance policies and then compare that option to the cash surrender value offered by the insurance company. The life settlement option may be attractive for specific consumers who no longer need or can afford their life insurance policies.
For more information about how to construct or review your investment strategy in the life settlement asset class, click here.