Life settlements drop 9%, but poised to pick up, Conning says

While the life settlement market broke its five-year winning streak in 2022 – down 9% compared to the previous year, attributable to COVID-19 disruption – researchers predict a decade of higher sales, according to Conning’s annual review of the market.

Although 2020-21 was a banner 12 months with $4.4 billion in sales while COVID was top of mind, Conning’s researchers said that in 2021-22 more consumers chose to hold onto their policies partly because of COVID concerns, reducing sales to $4 billion. (The researchers used a fiscal year from June to July.)

The researchers predicted the market will bounce back to reach an average of $5.2 billion over the next 10 years. Although the firm attributed the drop in 2021-22 to COVID disruption, researchers said that current flavor of disruption might benefit life settlements.

“Conning’s analysis of the factors driving life settlement growth are mostly positive,” according to the report. “Consumers are likely to seek additional sources of income to offset the economic pressures. Investor demand for alternative assets is forecast to remain strong. Both factors are positive for life settlement growth.”

A main factor in growth is the burgeoning cohort of aging boomers needing more retirement income or means to pay for long-term care. Another factor for expansion is the growth in the direct-to-consumer market broadening consumer access.

Alternative to alternative investing

Husch Blackwell, a national law firm, agreed that besides COVID’s fading impact, the investment market might be turning in favor of life settlements, according to an article published last month by the firm.

Not only have equities and bond markets been rocky, but even the hot real estate segment has lost its allure because of rising interest rates. Alternative investments have also been affected by market turmoil.

“This predicament partly explains the increasing interest in life settlements from the private fund industry,” according to the article. “Life settlements as an asset class can provide investors with equity-like yields and a superior risk profile, and importantly, they are not correlated with financial markets.”

Court decision Oks intent to sell

Another spot of good news for the industry was a recent decision by the Supreme Court of Georgia that it is acceptable for a person to buy life insurance with the intent to sell it to a third party.

In the case, a $500,000 was purchased in 1999 by a man who hid his HIV-positive status during the underwriting process. The policyholder sold it within eight months, when an account was set up to pay the premium until the end of the two-year contestability window. Then the investor paid the premium directly.

The insured died in 2005 but the investor was unaware of it until 2017, when he filed a claim with Jackson National. The carrier refused because the beneficiary did not have an insurable interest in the life of the insured.

A federal court had agreed with Jackson National, which argued that the deal was “life-wagering.” But the state’s highest court overturned the ruling, saying that the insurable interest is whatever the insured says it is, as long as a third party was not involved in the purchase of the policy. People have “unlimited insurable interest in his or her own life,” the court said in its ruling.

There were investors colluding with HIV-positive patients in the 1980s and 1990s when AIDS was akin to a death sentence, but that was not the case with the policy in question.

Even though the insured bought the policy with the intent to resell, the court said he was free to do so: “We have already explained (and again, no one disputes) that the statute’s language on its face does not contain the intent-based limitation that Jackson asks us to recognize — that is, that a policy taken out by someone on her own life with the intent to sell it to a third party who has no insurable interest in the life is void as an illegal wagering contract.”

Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at stevenamorelli@gmail.com.

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at steve@innemail.com.