Our Industry
The senior secondary life insurance business is reaching its 10th anniversary and turning over a new level of growth and maturity. The secondary market for life insurance policies first developed in the late 1980's and early 1990's as a response to the international HIV/AIDS epidemic. There were suddenly a substantial number of terminally ill policy holders needing liquidity to meet their healthcare and daily living expenses. In thousand of instances, life agents and trusted advisors helped their clients monetize their unwanted or unneeded life insurance for an immediate cash settlement payment. These initial "viatical" settlements provided proof of concept while helping to meet an urgent need for many terminal insureds.
A senior life settlement market (focused on non-terminal insureds), emerged nearly a decade later in the late 1990s. The agent, broker and provider infrastructure created to serve AIDS and terminally ill insureds began to create life insurance liquidity for a much larger population, senior insureds. Life settlement is an ongoing revolution to the static and well established life insurance market. The secondary life market is developing into a combination of both life markets and capital markets. The convergence of these markets creates a remarkable level of liquidity for insurance contracts, and provide senior insureds an alternative exit strategy for costly life insurance policies and premium payments.
This new secondary market has been a paradigm shift for estate and financial planning advisors, life agents and tax professionals as they realize that life insurance assets have a measurable economic value. Because of the liquidity available from a growing secondary marketplace, the primary life insurance market has more value. Life insurance assets can now be moved from a footnote on an individual's financial statement and recognized as an asset that can be valued and monetized.
Many of the world's largest financial institutions have recognized that the robust size, stability and regulatory controls of the life insurance industry make Life Settlements an attractive investment. At this moment there is nearly $20 trillion of permanent life insurance in force in the United States. During the past decade, financial institutions such as Deutsche Bank, Credit Suisse, Goldman Sachs, JP Morgan, Barclays, Mizuho and AIG have each acquired Life Settlement portfolios having billions of life insurance benefit value. Investor research reports by both Franklin Templeton and Russell Investments have recommended an allocation to Life Settlements for their investors' portfolios.
The life settlement market has grown from a de minimis amount in 1999 to a forecasted annual market of US $9 billion in 2010. As mentioned earlier, more recent figures from both Conning and Cantor Fitzgerald suggest that $60 billion of life settlements have been transacted in the past decade. Based upon assumptions from the Life Policy Dynamics Life Settlement Market Report, it appears that nearly 24,000 individual senior insurance consumers were served by the life settlement market in the past 10 years.
Because of a lack of liquidity and the limited availability of credit, market volumes were reported to be down in 2010. The $9 billion projection for the market in 2010 is down from $10 billion in 2009 and a market high of $12 billion in 2008. While capital was difficult to source during the recent credit crisis, the Conning Report contains a prediction that capital will return to the life settlement market "because of the inherent appeal of the product to some investors," because of its "low correlation to equity market returns and because of its yields relative to other fixed income, or other investment options at this time." The size of the potential life settlement market has been estimated by Conning in the range of $500 billion.