Life settlements will have an important role to play in 2021 and beyond. COVID-19 has had a destabilising effect on many financial markets but has not had a dramatic impact on life settlements. However, it may still become a driving force for the life settlements market. We have outlined several potential driving forces in the life settlements industry.
1. Source of Capital for Retirees
When evaluating retirement budgets, Life insurance premiums are often the first expenses to be cut. Preserving capital is essential especially for those hesitant to make withdrawals from retirement portfolios in a down-market. For more than 20 years, the secondary market for life insurance has been an option for policy sellers seeking to optimize the cash value of unwanted life insurance policies.
Evidently, many retirees are worried about the impact on their investment portfolios, as financial markets around the globe react to the spread of the COVID-19. The current environment may spur more policyholders to sell their policies. One thing is certain, the global pandemic has shined a light on the social good that life settlements represent by providing a significant new source of liquidity for retirees.
2. The Trend to Smaller Face Polices
Life settlements investors have traditionally focused on higher face policies more commonly sold by wealthier insureds. The preference has traditionally been due to the large acquisition costs associated with the industry. Although traditionally we have seen a small number of funds focused on smaller face policies, we are now starting to see some of the main markets participants also entering this space.
Legislative changes may encourage growth in the smaller face market. In 2020, the ‘Senior Health Planning Account Act’, was introduced. Its purpose is to help millions of seniors generate billions of dollars for their healthcare needs through the sale of their life insurance policies by permitting them to use the proceeds, tax-free, to pay for their healthcare costs. As a result, this may increase the supply of smaller face life policies into the market.
Socially, the life settlements market is primed to assist these insureds to supplement their retirement nest egg. Those with smaller face amount policies have experienced a greater probability of COVID-19 effects. Additionally, they are also faced with lingering health impacts.
3. Should I Invest in Life Settlements?
Global investments are continuing to feel the impact of a low-interest rate investment environment, and thus pressure on meeting return targets. And whilst many investors waited to see what the impact might be at the beginning of the pandemic, 12 months on GI Asset Management is confident that the characteristics of life settlements investments continue to benefit investors.
Investors globally are turning away from fully priced bonds and equities. The reliable returns offered by life settlements are highly attractive to investors. Additionally, in the current economic climate, many are searching for not just low volatility but also a low correlation to traditional markets.
This asset class has real diversification qualities. Investment performance is primarily derived from the mortality of the insured. It is reasonable to accept that someone’s death does not link to the rise and fall of the financial markets. Mortality is, therefore, deemed a minimally correlated risk.
There will be plenty written about how the pandemic has affected society and global investments. For the life settlements asset class, it appears to have weathered the storm. Contrary to early predictions, the market has not seen a significant upswing in mortality events, but at the same time has not either been negatively affected. Time will tell whether there are long term health consequences.
About Global Insurance Settlements Funds PLC (GISF)
Global Insurance Settlements Funds PLC (GISF) is incorporated in Ireland. An umbrella type investment company. The fund permits segregated liability between sub-funds. The first sub-fund launched, GIS General Fund (the Fund), is listed on the Irish Stock Exchange.
This structure is aimed at Sophisticated / Institutional investors. It provides tax clarity by ensuring there is no tax leakage. It enables a number of different investment options to suit the specific needs of our investors.
The Fund’s core activity is to actively manage a large and diverse portfolio of life insurance policies (life settlements) issued by companies in the USA. Policies are sourced by licensed U.S. provider companies. The Board of GISF selects those that best meet the Fund’s policy purchase criteria.
Disclaimer: This information is intended for qualifying investors only and was correct at the time of preparation. It has been prepared to provide general information only. It should not be considered as a “securities recommendation” or an “invitation to invest” in any jurisdiction. Potential investors should consider the relevance of this information to their particular circumstances. Before proceeding, investors must obtain the prospectus and take their own legal and taxation advice. If you acquire or hold one of our products we will receive fees and other benefits as disclosed in the prospectus and relevant offering documents.
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