This is a good time for investors to acquire life settlements at very aggressive rates, according to Mickelson Capital Consulting Inc. in a market commentary.
The San Diego registered investment advisory company is active in the life settlement market.
The firm attributes its upbeat projection to several factors.
The fallout from the financial crisis in late 2008 caused capital to evaporate at major institutions while banks tried to shore up balance sheets, and this reduced purchase of life settlements, says Mickelson.
More recently, average life expectancy projections increased, impacting calculation of investment returns for settlements, the firm says.
Today, many funds and investors have insufficient capital to maintain their settlement policy premium payments, and this is happening at a time when the supply of life policies available for sale is exceeding demand, it says.
So it’s become a buyers’ market for life settlements, the firm says. “With less money available, investors have become much more selective and are in a position to ‘cherry pick’ the best policies.”
Some European institutions are developing new insurance and longevity linked asset classes and synthetic products, Mickelson notes. The synthetics allow investors to invest in products whose return is driven by the underlying asset class without actually taking ownership.
Such derivatives remove the need for extensive due diligence and the expert life insurance knowledge needed to evaluate a policy, making the asset class accessible to a wider audience, the firm says. This impacts absolute return, but is a “good potential option” for investors primarily interested in diversification or consistency, Mickelson says.