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Life settlements forecast for double-digit CAGR over next decade: Conning


The life settlements market could experience a double-digit compound gross market annual growth rate (CAGR) over the next decade, according to a forecast from investment management consultancy Conning.

There are a number of insurance-linked securities (ILS) fund managers who allocate to life settlements through their life related ILS funds, however as we’ve said before there are still some hurdles that need to be overcome before broader adoption of life settlements is seen across the ILS market.

One of those hurdles has always been the availability of investment opportunities, being a niche market where specialist origination is likely a requirement.

But Conning is bullish on the prospects for growth of the largely longevity focused life insurance-linked opportunity posed by settlements investments.

The company said in its annual study on the life settlements market that 2018 saw the it building on recent year’s of growth, with the third consecutive year of increasing annual volumes giving it a foundation for continued market expansion going forwards.

“Several life settlement funds announced the launch of new funds or the successful closing of funds which reflects the continued interest of capital in the asset class,” commented Scott Hawkins, a Director, Insurance Research at Conning.

“Looking beyond 2019, key drivers are favorable for continued growth in the life settlement market. Life settlements remain an appealing alternative asset class to investors seeking higher potential returns, relative to the current low interest rate environment. In addition, this year’s study examines the positive impact wider consumer marketing could have on growth.”

In fact, Conning is particularly bullish on the prospects for the life settlement market at this time, giving a ten-year forecast that calls for an impressive double-digit CAGR in the annual gross market volume of settlements.

By 2028, Conning expect the market to have seen an impressive $212 billion of life settlements, while on an annual issuance basis the average of its ten-year forecast for the annual volume of new life settlements is roughly $6.4 billion.

However, because of life policies maturing or lapsing, the CAGR for the size of the market is just 1.3%.

“There are several other drivers that favor continued growth in the life settlement market,” explained Steve Webersen, Head of Insurance Research at Conning.

“The increased supply of investors will have a larger number of policies to select from because of the increasing number of retiring baby boomers. Additionally, the broad regulatory environment surrounding life settlements has stabilized and an increasing supply of settled policies supports the continued development of the tertiary market.”

Which all bodes well for life settlements remaining a growing piece of the overall life insurance and reinsurance linked investments space.

While not for all ILS investors, particularly some pension funds that avoid anything with ties to longevity risk, they do serve a valued source of low correlating investment return for a growing segment of investors seeking alternative sources of yield and contributing asset to life ILS fund strategies.

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