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Indications of Capital Returning to Life Settlements Market

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HARTFORD, Conn., Sept. 29, 2014 /PRNewswire/ — Early indications of renewed interest in the life settlements market are focused on existing pools of policies, according to a new study by Conning.

“The life settlements market continues to show signs of recovery,” said Scott Hawkins, analyst at Conning. “Life settlement transactions increased in 2013 for the second year in a row, and indications are that 2014 will likely continue that trend. The all-important institutional investor interest is focused on the tertiary market of existing settled policies.”

The Conning study, “Life Settlements: Growing Unmet Need, Increasing Opportunity” provides Conning’s annual Life Settlements Market Review and Forecast, along with market guidance. The study analyzes the challenges of aligning interests in this market and building a diversified portfolio. This study is the eleventh such report on the market published by Conning.

“While our long term forecast for life settlements over the next ten years is for growth in new settlements, that growth will not be sufficient to offset the decrease in in-force life settlements through claims,” said Steve Webersen, director of research at Conning. “The resulting reduction of the in-force market will intensify tertiary market competition. We will be watching for above-forecast indications of new market initiatives building volume through smaller face value and long term care policy settlements.”


Originally published September 2014, compliments of Conning Finance

Term-to-perm profit with life settlements

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For your clients in their 70s with maturing convertible term policies, time is running out to exchange these policies, and a life settlement might just be the best available option.

Life insurance settlements offer the opportunity to help clients evaluate the dwindling asset value of convertible term life insurance policies nearing expiration. In the right situation, a policyholder can cash in by first converting to a whole or universal life policy, then selling the permanent policy to a life settlement provider.

In such a case, the term policyholder avoids the higher premium costs associated with most convertible policies and receives cash proportionate to the value of the new asset.

Life settlement funding companies, recognizing this trend in the market, are now offering annual valuation programs to help with the decision-making process. Illustrations and projections, provided free of charge, help determine the viability of a conversion, costs and ultimately what a life settlement payout may look like. The tools are in place for agents to make easy, annual evaluations of policies for possible “term-to-perm-to-life-settlement” transactions.

Here’s how you do it
In the last 20 years, the life settlement industry has grown substantially and now purchases billions of dollars’ worth of life insurance policies annually. Agents are the key to this success, as they hold a wealth of information about policyholders and their personal and family situations.

Settlement providers receive the applications, process and underwrite them. And they prepare settlement offers with sources of capital prepared to purchase the policies for cash. Term policies are particularly attractive if you draw up a strategic plan.

Know your clients
The first step is to review your client portfolio for customers whose convertible term policies are nearing maturity. In particular, people who purchased large face-value policies a decade or more ago may encounter increased premiums in order to renew or convert.

In today’s economy, coverage may appear less attractive than the cash. The temptation is strong to simply let the policy lapse at maturity without perceiving any potential asset value at all. Your advice can make the difference between a customer selling their policy and receiving a cash payout, and them simply letting the policy lapse.


Originally published September 2014, compliments of Life Health Pro

Supply and Demand for Life Settlements Growing

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While some speak about the quantity of policies decreasing from its former highs, the truth is that we are seeing more policies that are eligible to purchase since the decline of 2008. In my view, the market is robust and getting stronger. The quantity of manufactured paper and other “junk” that has no value to life settlement investors has become near non-existent and the quality of the policies in the market has dramatically increased. Thus the percentage of policies that can be purchased has actually increased. This is due to the market players becoming more sophisticated and understanding what policies have the highest probability of being purchased. It is also the result of increased consumer awareness. Several states now require life insurance carriers to notify policy owners about the life settlement market, when they are about to lapse a policy and Medicaid statutes in several states have proposed to use life settlements to fund health care. These measures and concerted efforts by the Life Insurance Settlement Association and the industry is raising the awareness of policy owners of the life settlement option.

Investor demand is also quite high. RIAs continue to allocate to life settlements in an effort diversify into an alternative asset class that has little correlation to the equity markets. Institutional investors also appreciate the potential for outsized risk-adjusted returns. When one considers the normally high credit ratings of insurance carriers, the potential returns of life settlements can be attractive, particularly in today’s low-interest environment where fixed income returns are difficult to come by. While returns are a leading driver for investors, they also see greater regulation providing protections for consumers and more certainty for the assets themselves.

In short, both the supply and demand for life settlements is growing. To continue this trend, the industry needs to change the discourse. Life settlements have changed. Regulation protects sellers. Institutions have brought consistent capital and best practices all the fire to the market. States have recognized the value of life settlements through disclosure laws and Medicaid statutes. Consumers can look at life settlements as a viable option to consider.

As the life settlement message becomes clearer, more policies will come to the market. As investors continue to see the potential for outsized risk adjusted returns with low volatility, more capital will come to the market, driving up the price of policies. Higher prices for policies will encourage more sellers. This virtuous circle will drive the growth of the life settlement market.


Originally published October 2014, compliments of the Life Insurance Institute Association.