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Returns Up But Sales Still Down for Settlements: ISI

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The internal rate of return on life settlement investments has risen to 15% to 20% from 9% to 10% in previous years, but there is still a lack of investors in the market, a research group notes.

Transaction volume recently reported by the U.S. General Accountability Office for the life insurance settlement market (LISM) has fallen 40% to 50% since 2008, the Insurance Studies Institute (ISI), Keystone, Colo., says in a new report on the market.

Part of the problem may be that mortality estimates increased by as much as 30% in 2008, lowering the expected rate of return for settled policies, ISI states.

“But more likely, it is because capital markets are still uncertain of economic trends and government actions,” it said.

There is still ample potential for the market to grow, ISI believes. But a number of issues need to be resolved first, it says, such as whether life settlements should be treated as securities, whether the federal government should replace state regulation of the market and whether insurers should be allowed to change the terms of life insurance policies after they are sold in the secondary market.

-Trevor Thomas