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Betty's Corner


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Settle For More

The life-settlement market may provide opportunities for institutional investors

Worth roughly US$12 billion dollars at its peak in 2007, the life-settlement market is rebounding as more financing becomes available, particularly from Asian pension funds and European hedge funds. The industry has regrouped after disappointments starting in 2008 that were linked to frozen credit markets, the economic decline, and revised life-expectancy tables that caused a sudden downward revision to the value of life-settlement contracts. (For more background, see “A Brief History of the Life-Settlement Market” on page 30.)

The prospects in this subset of the longevity market could be promising for institutional investors because experts say the market is likely to remain a buyer’s market for some time. An increasing number of individu- als in the U.S. who own policies with a high face value are interested in selling their policies in order to finance their retirements or pay for medical care, and the amount of capital chasing those deals is still less than at peak times as a result of some investors taking a more conser- vative approach. “We’re able to generate better yield and be more effective in our life-settlement portfolio construc- tion at the moment,” says Sam Rosenfeld, the chief oper- ating officer of the Atlanta-based, longevity-focused investment firm Carolus Capital Advisors.

A life settlement takes place when an individual sells his policy onto the secondary market via life-settlement “providers,” such as the Coventry Group or Magna Life Settlements. The policy owners receive more than the sur- render value of the policy but less than the face value to be paid out upon death. The investor becomes the owner and beneficiary of the policy and continues to pay policy premiums, keeping the policies in force and assuming the longevity risk. If the insured lives longer than expected, the investor’s return will decline. If the opposite is true, the returns will go up.

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