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August 12, 2007 at 04:00 PM
The secondary market for life insurance policies expanded significantly last year, reaching a record high for the total value of policies involved in life settlement transactions, according to the Life Insurance Settlements Association.
Policies totaling about $12 billion in face value were sold on the secondary market in 2006, showing a “significant” increase over the prior year, LISA reported.
The $12 billion figure, explained LISA executive director Doug Head, is essentially a “score” kept by LISA “based on a lot of anecdotal evidence” given by the group’s members. Head said LISA members generally reported their business doubling in 2005 after increasing roughly 50% in 2004.
“It’s an ongoing scorecard,” he said, adding “we’re growing in fits and starts.”
One factor contributing to the “fits and starts,” he said, has been the influx of institutional money. As an example, Head said that 2005 saw money come in from German institutions looking to invest in the secondary market. “Everyone had a surge” at that time, he said.
In its announcement, LISA also said it expected that the market will continue to grow. Although a record, LISA noted that the market in 2006 is “still a fraction of what some predict will be the size in 10 years.”
“I keep listening and trying to figure out where we’re at,” Head said. Some reports have said the life settlements industry has only achieved a 10% penetration of the potential market. Head, however, said “we try to be conservative” and offered his own estimate of 20%.
