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One of the bellwether annual reports that tracks activity in the U.S. life settlement industry was published last month and the data is encouraging for market participants.
Life settlement transactions returned to steady growth in 2022, according to a special report in The Deal, a leading business intelligence and news service. The publication reported that 3,057 life insurance policies were settled last year, a 4% increase over the number of policies sold in 2021.
Other key highlights in the report included:
- Life settlements in 2022 resulted in a combined total of $823 million in cash payments to consumers, a sharp increase from the $715 million in settlements paid in 2021;
- The total amount of combined face value of those life settlements last year grew to $4.5 billion, compared to the $4 billion in face amount that was sold in 2021; and
- In addition to this growth in the life settlements market in 2022, leading players in the industry experienced “very strong” transactional activity in the first five months of 2023.
This data was collected and reported by The Life Settlements Report, our industry’s leading media source, which is owned and published by The Deal. Their annual transactions report has appeared each year since 2010 and is “based mainly on data obtained through public records requests to state insurance departments.”
The report is consistent with the forecast for steady market growth issued last year by Conning, a leading investment management firm with a long history of serving the insurance industry. As we blogged about previously, Conning analysts concluded that 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 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, which represents a very attractive opportunity for investors in the life settlement asset class.
One of the primary drivers of this market opportunity is a demographic trend that continues to strengthen in the U.S. More than 10,000 Americans turning 65 every day, according to the U.S. Census Bureau, and the youngest Baby Boomers are now reaching their mid-70s, an age that is approaching the most attractive for the life settlement option.
Many of these seniors need access to cash flow in order to supplement their retirement savings and/or Social Security income. This retirement funding shortfall has become more acute in light of the bear market for equities and historically bad year for bond returns in 2022. Where can these folks turn for immediate financial assistance without having to spend any money out of pocket or take on any debt?
This is where our industry can offer hope to consumers and opportunity to investors. More than 9 million life insurance policies worth approximately $640 billion in face value were lapsed or surrendered in one recent year — according to data collected from the American Council of Life Insurers — and these policy owners may have been able to obtain five times more cash by selling their policies in life settlements.
The U.S. life settlements industry offers these 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. It’s a powerful alternative that is fueling consumer demand for life settlements and is likely to sustain the steady growth in our industry for the coming years.
At the same time, the life settlement asset class has become firmly established as an attractive investment vehicle for institutional investors who are seeking appropriate exposure to alternative investments. That’s because life settlement funds often deliver double-digit returns that are uncorrelated to the performance of traditional asset classes, such as stocks and bonds. In the case of life settlements, a transaction that can be good for consumers can also be good for market participants and investors.
For more information about how to construct or review your investment strategy in the life settlement asset class, click here.