The life settlements market will not be immune to the effects of the global COVID-19 pandemic, according to investment management consultancy Conning, but this won’t hinder it from achieving continued growth the company said.
There are a number of insurance-linked securities (ILS) fund managers who allocate to life settlements through their life related ILS funds.
In addition, the life settlements investment fund market has been expanding with new options and managers coming to the fore.
Being a life insurance policy focused investment product, of course the life settlements investment market will feel the effects of the COVID-19 pandemic on the risk side, with the potential for higher death claims and increased incidences of lapse in premium payments.
On the investor side, the life settlements investment market will also feel the effects of the pandemic, with the potential for some third-party investors to be concerned over the link between the market and potential pandemic driven mortality rates which could affect inflows for a time.
In addition, investors are pre-occupied with capitalising on market movements right now, which means alternatives like a life settlements fund may not be at the top of their agenda.
But all these factors aside, Conning continues to predict double-digit compound annual growth for the life settlements market.
In 2019, the life settlements market experienced a fourth consecutive year of growth in the amount of face value settled, Conning explained.
The consultancies ten-year forecast calls for a double digit CAGR in the annual gross market for life settlements, which would see it expand significantly over this decade.
On COVID specifically, Conning sees both the challenges we listed above, but also potential opportunities for the life settlements market as well, as the pandemic changes motivations for life policy buyers and holders.
“Investors continued to show interest in life settlements in 2019. Several life settlement funds announced the launch of new funds or the successful closing of funds,” explained Scott Hawkins, a Director, Insurance Research at Conning.
“Looking ahead, the combination of a prolonged low interest rate environment, continued investment allocations to non-correlating alternative asset classes, and the stability of the life settlement landscape points toward a continuation of that trend. Of course, any forecast has to take into account the current and potential impact from the COVID-19 pandemic.”
“There are several other drivers that favor continued growth in the life settlement market,” added Steve Webersen, Head of Insurance Research at Conning. “Investors will have a larger number of policies to select from because of the increasing number of retiring baby boomers. In addition, the economic disruption from COVID-19 may increase the appeal of life settlements to those retirees. The caution for investors, however, is the potential impact on cost of insurance charges due to increased pressure on insurers from extremely low interest rates.”
Life settlements continue to be an insurance-linked investment that not all ILS investors want to allocate to, particularly some pension funds that avoid anything with ties to longevity risk.
But, for the end-investor community, especially those for who longevity exposure isn’t such a concern, they provide a valuable source of low-correlating investment return for those seeking alternative sources of yield and as a result we expect settlements will continue contributing to certain life ILS fund strategies as well.