Life settlement sales decreased for the fourth straight year in 2011, partly due to investor nervousness about the asset class itself coupled with a preference for acquiring distressed portfolios rather than purchasing new policies.
The findings come from a study published by Conning, Life Settlements, Weak Investor Supply Despite Growing Consumer Demand.
As the name of the study suggests, there is still a healthy demand on the part of consumers to sell their unwanted or unneeded policies and, there always will be, as long as life insurers are unable to provide cash surrender amounts that reflect a certain policy’s mortality adjusted economic value. However, because life settlements are transactional to a certain extent there has to be a strong interest by all the parties involved, not just one.
Life settlements, when looked at as an asset class, were thought to be an opportune investment because of their immunity from the equity markets and their relatively competitive returns. However, investors are still dipping their toes in the water and as they chase higher yields, the growth challenge for the asset class will be attracting enough capital to purchase new policies.
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Fewer new policies being settled coupled with death claims and lapses on previously settled policies has resulted in a decrease in the amount of in force life settlements for the first time since Conning has been following the market.
Conning found that in 2011 policyholders settled $1.2 billion worth of U.S. life insurance face values while investors held $35 billion of in force U.S. life settlements at year end.