The life settlements industry felt some of the ill effects of the economic crisis last year, as purchasers of settlements ran into difficulties financing new premiums and policyholders showed more interest in selling their coverage, according to a report from Conning Research.
The life settlements industry felt some of the ill effects of the economic crisis last year, as purchasers of settlements ran into difficulties financing new premiums and policyholders showed more interest in selling their coverage, according to a report from Conning Research.
Late 2008 and the first three quarters of this year were a buyers' market for life settlements, as policyholders became more willing to sell their insurance amid tougher times — thus raising supply — according to the study “Life Settlements: A Buyers' Market for Now.”
However, the frozen credit markets slowed demand, making it harder to finance premiums and buy policies on the secondary market.
As a result, $11.7 billion in U.S. life insurance was settled in 2008, down slightly from an estimated $12 billion in 2007.
At the end of 2008, some $31 billion in U.S. life settlements were in force.
According to the report, three major challenges led to slowing demand for insurance policies on the secondary market:
›A seized-up credit market made it difficult for buyers and investors to pay for premiums.
›Buyer confidence in U.S. policies was dampened by worries of insurer solvency,
›Changes to underwriter methodologies raised concerns regarding the accuracy of purchase prices and portfolio evaluations.
The report predicted growth potential as investors become more confident in the market and bring some capital back. Developments such as policyholders' increasing awareness of life settlements as an option could also help increase policy supply, it said.
“The life settlements market must shake off profitability concerns and general market concerns about life insurer solvency before it will return to growth,” Stephan Christiansen, director of research at Conning, said in a statement. “The buyers' market of late 2008 and 2009 should help buyers re-establish profitability in their portfolios. More policyholders want to sell, and more agents now understand life settlements — the near-term challenge is all about buyers and investors' capacity.”
