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Feature: Despite life expectancy changes, settlement execs see rebound

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When all major underwriting firms recently increased their projected life expectancies, life settlement investors grew concerned about returns on some transactions.

People in the industry say they have been seeing a number of adjustments by investors in what types of policy they accept, to maintain the profit margins they expect. But brokers and producers see this as part of the maturing of the life settlement industry and predict the settlement marketplace will return to its recent pattern of strong growth.

The changes in life expectancy projections has meant there are fewer investment groups making offers due to the reduction of expected returns, says Robert Settlow, managing partner, Life Settlement Company Of America, Livingston, N.J.

Longer life expectancies “have had an effect on purchasers,” he says. “It has reduced demand, because there’s only so much of a supply of the kinds of policies buyers are looking for. Lower offers are being made.”

At the same time, the market is simply returning to where it was when the industry began 10 years or so ago, with older policyowners becoming the prime target, Settlow says. He notes there are fewer bidders on policies owned by healthy 72-year-old males, where once the policyowner could get 10% to 12% of the policy’s face value. He says some buyers will make exceptions, however, for older policies where the cost of premiums is low.

Other than that, “the market has gone up by 10 years” Settlow says. “Now the market starts at age 75.”

As a result, short-term investors, such as hedge funds, have gotten out of the market as they search for relatively fast returns, he notes. But large investment banks have begun to return to bid on packages of policies, he notes.

“At the end of the day, I still completely believe in the industry,” he says. “The industry will continue to grow, because the big players are still there.”

Sean McNealy, co-president of Advanced Settlements Inc., Orlando, Fla., noticed a decline in numbers of investors in November 2008, coinciding with changes in life expectancy projections.

“It has changed what qualifies for life settlements, and what offering price you can receive from the ones that do qualify,” McNealy says. “Having said that, we do see it getting better. March 2009 has been the best month this year so far, and the month before that was better than January.”

Advanced Settlement is now getting 3 or 4 offers per case versus just 1 or 2 in December 2008, he reports.

“Probably, the biggest change has been for the standard 70-to-73-year-old male,” he says. “It’s more difficult to get offers on that group. But for those 75 and older, it’s still an active market place.”

Although there are few shoppers for life insurance settlements right now, he adds, “there are still some strong buyers with consistent money.”

McNealy says he thinks that like a lot of companies in the financial services industry, life settlement brokers are going to see business open up by the end of year. “There will be more competition, more offers, and we are seeing that now compared to January. A lot of buyers say they expect to have new money this year.”

The biggest question is whether policies on individuals in their early 70s with standard health characteristics are going to have a market, he adds.


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