Policies entering the secondary market could be up by 40 per cent in the next few years with potential enhancements to investment returns as a result.
SL Investment Management, one of the largest life settlements investment managers in Europe, is predicting a market increase similar to that seen by the TEP industry when UK life insurance providers were forced to inform consumers about the secondary market; SL predicts this will happen in life settlements following adoption of similar laws in the US.
The US National Conference Of Insurance Legislators (NCOIL) adopted legislation requiring life assurance companies to provide alternatives to lapsing or surrendering a life policy and this model has now been implemented in a number of US states.
According to a survey by the US Government and Accountability Office, consumers who chose to sell their policy in the secondary market received seven times more on average than if they had chosen to sell the policy back to the insurer for the policy’s cash surrender value.
Furthermore, a recent survey by industry commentators Dealflow revealed that USD5.04bn worth of life policies were traded in the secondary market in the US in 2011 – up 18.5 per cent on 2010.
SL predicts the trend will continue if further states adopt the NCOIL model and this may drive a similar market increase in the US as was experienced in the UK when disclosure requirements lead to a 40 per cent increase in secondary policies being brought to the UK secondary life policy market.
Patrick McAdams, SL’s investment director and ELSA chair, says: “More policies entering the secondary market in the US is good news for investors. Life Settlement managers will have greater choice in terms of the quality and price of policies they wish to buy for their portfolios. This is continuing good news for the surge in interest from sophisticated investors that the asset class is enjoying at the moment.”
