Life Settlement Industry Update: Notes from the Field, January 2010
After a bleak 2009 in the financial services industry many are looking to the dawn of 2010 filled with renewed optimism. This certainly holds true for the niche life settlement industry as well. While we’ve seen a number of indicators that buying activity is poised to strengthen in the life settlement industry this year, it looks to be a measured and incremental return of activity rather than an exuberant return. As one industry insider put it, "the buying freeze affecting the life settlement industry is definitely thawing, but is far from melting due to an overheated frenzy."
Many life settlement providers are reporting their funding sources have returned and they now have money to buy policies. However, the lack of capital was only one of the contributing factors in the life settlement slow down last year. Other issues that affected the industry may not change with an improving economy and continue to weigh on the marketplace.
Life expectancies still trend upward which makes insureds with ages once deemed attractive to buyers much less so now. A couple of years ago a person in their mid 70s was a decent candidate for a life settlement. Today, insureds in their early 80s are far from a sure thing. Life expectancies and insureds' health are being scrutinized and analyzed now more than ever before.
Regulation and compliance are also heavily influencing the buying activity in the marketplace. This is particularly apparent in cases that fit the buying parameters of only a small number of providers and settlement offers are consequently discounted heavily.
Typically the presiding jurisdiction of a life insurance policy is based on the state in which the owner is domiciled. Broad regulatory interpretation has begun to dissuade providers from working with policies merely listing insureds in some states such as Florida, even if their owners' domiciliary state is more favorable to the life settlement industry. So the remaining providers in heavily regulated states can obtain policies at a relative discount.Continued on the next page