The Market

Since it’s inception in the late 1980’s, the life settlement industry has gained increased awareness and interest in the investment community and seen exponential growth. Independent researchers estimate the size of the industry to have been roughly $16 Billion in 2008. According to Conning Research & Consulting, the annual face amount of life insurance policies settled in the secondary market is expected to average $21 Billion over the next ten years, reaching $31 Billion by 2017. The market is projected to grow at 11.5% annually in the next five years and then slow to 8.2% annually the following five years. Other market analysts estimate that the industry could grow more than 10-fold in the next several years to over $125 Billion.

The supply of life settlement assets required to satisfy this demand is being perpetuated by strong socioeconomic factors. Two of the driving forces behind the increased supply of the asset which drives the investment are: (i) untold numbers of seniors impacted by the recent market collapse are recognizing the value of their life insurance policies and are using them to help fund their retirement; and (ii) baby boomers (over 79 Million in the United States) historically maintaining lower savings rates and destined to live longer than their parents, will find themselves under-funded for retirement and seeking additional liquidity.

Another factor increasing the present supply of policies and creating a “buyer’s market” is the current relative inactivity of the banking sectors’ participation in the acquisition of these assets due to the credit issues seen recently. This overall retrenchment is creating a highly competitive pricing environment with policy providers, with the result being lower acquisition costs for buyers. This current dynamic further enhances the appeal of the life settlement asset class.

Despite the recent crisis in the financial markets, interest from investors in acquiring life settlements has actually escalated. This is due primarily to the understandable and measurable risk of life settlements, with the asset class being largely non-correlated to the capital markets and having low volatility and relatively stable returns. Universal firmly believes that given the current investment climate of low interest rates and volatile stock markets, well-informed investors will continue to pursue investment opportunities within this sector, knowing that the life settlement asset class offers a particularly attractive option for the diversification of their investment portfolios.