The life settlements market was hit hard in 2008 by an increase in the number of policies available for settlement and a decrease in the number of buyers, according to Conning Research and Consulting.
Policies settled in 2008 carried a total face value of $11.7 billion, down from $12.8 billion in policy face value settled in 2007, Conning, Hartford, estimates.
The total amount of in-force coverage involved in settlement deals totaled $30.7 billion at the end of 2008, compared with about $22.6 billion the year before, Conning reports.
Although the amount of capital available for settlement deals held steady at about $2.5 billion, the increase in the number of policies available and the effects of the economic turmoil helped bring down the average offer, says Scott Hawkins, a Conning analyst. In recent years, offers for policies have averaged about 20% of face value, but the prices being offered now are probably lower, he says.
This year, economic turmoil has reduced the amount of credit available for life settlement deals, and it has led some potential investors to have concerns about the long-term viability of U.S. life insurers, Hawkins says. Meanwhile, more policies have become available for sale.
Another factor affecting the market was a shift toward firms lengthening the estimated average life expectancies of policy owners, Hawkins says.
“We believe capital will return” in the next year, allowing the life settlement market to rebound, Hawkins says.
Conning estimates the total face value of all policies suitable for life settlement transactions is about $160 billion. Buyers could end up offering about $30 billion to $35 billion of that total through the life settlement market, firm says.