The life settlements market is growing at a significant rate, but it is difficult at present for anyone to say much beyond that.
Because the market is still relatively young, many of the tools typically used to gauge insurance markets have not been developed for life settlements, leaving observers to get by with their best estimates.
In a report released earlier this year, George McKeon of Conning Research estimated that the life settlement market involved the transfer of roughly $3.3 billion in 2004 and grew to $5.5 billion last year.
“It’s big and it’s growing,” he said, adding that the market is “probably” going to double itself this year.
Ramiro Rencurrell, president of the Life Insurance Settlement Association, echoed McKeon’s sentiments, offering what he cautioned was a rough estimate that the life settlement market would see $15 billion to $17 billion in settlement amount in 2006.
But, Rencurrell added, the life settlement industry is “extremely hard to quantify” because it has no standard measurements in place and informal polling can fall on the high side, as the same policy marketed to a number of life settlement firms are often counted by each one.
Additionally, McKeon’s estimate includes only what he considers “true life settlements.” That category includes only those policies “not taken out with settlement in mind.”
Rencurrell said LISA is working to establish a process to better gauge the industry using a confidential survey that tracks which policies are being sold and asks how much face value is being transferred, at what price, and how much greater than the surrender amounts.
Additionally, Rencurrell said the industry is making efforts to offer a clearer picture of current conditions by working with rating agencies. Already, he said, 2 rating agencies are looking at the securitization of life settlement company portfolios, and he added that a more in-depth tool is in the works. The rating agencies are working with settlement companies, he explains, to establish a system that would thoroughly examine the policies being purchased by investors in terms of how much face value they have, how much they were bought for, and even the rating of the life insurer that issued the policy.
“If we can set up a process and track the individual policies being sold, then we can get a good snapshot” of the market and which policies are most attractive to investors, he said.
Rencurrell believes the life settlement market’s potential for growth remains strong, saying the industry is “very far from plateauing.”
Another example of the growth in the life settlements market, Rencurrell said, can be seen in the increasing number of players. Over a 2-year period, he observed, LISA membership has increased from between 30 to 40 members to roughly 140 currently. That increase, he added, “mirrors the growth of the industry.”