The continuing effects of the economy’s implosion in 2008 are being felt in the life insurance settlement business, industry experts say.
For instance, the Life Insurance Settlement Association (LISA), Orlando, Fla., says that its membership roster has shrunk by about a third in the past two years.
Another measure of the downturn has come from the Amrita Life Settlement Index for July, which stood at 460 points, down from 500 in December 2009.
The index by Amrita Financial Inc., Oceanside, Calif., tracks buying activity among licensed life settlement providers.
But in a sign the settlement market may have bottomed out, the Amrita index for July was essentially unchanged from June. And it had actually reached its high point in April, when it stood at 537 points.
So the market is still in flux.
“My guess is that you are not going to see $13 billion in sales this year” for the settlement market, said Clark Troy, an analyst with the Aite Group L.L.C. Aite had forecast that volume for the secondary life market in January. While Troy still believes the industry will attain $13 billion in sales in the years ahead, earnings for the time being will continue to be suppressed, he believes.
Much of the industry’s future growth will come from policies purchased from the mass affluent, Troy predicts.
“The high-net-worth market of people who need to use their assets to finance needs, particularly for long term care, is still very much operative for this business,” Troy says.
Doug Head, executive director of LISA, says the recent decline in his organization’s membership reflects a considerable amount of consolidation in the industry as capital sources dried up.
“More and more, it is a buyers’ market,” he says.
Head believes a big impediment to the industry continues to be state regulation. Some states have been so restrictive as to have effectively killed the market for settlements within their borders, he says. He specifically cites New Hampshire, which requires that settlement brokers be appointed by the provider of a settlement. That provision has proved so unworkable that not one broker has applied for a license to sell settlements in New Hampshire, he says.
“They effectively regulated it out of existence,” Head says.