• Green8Capital

Life settlements still going strong

What are Life Settlements?

Life settlements are an investment vehicle where investors purchase life insurance policies on seniors with a life expectancy of 3 to 15 years for an amount higher than cash surrender value and less than the policy face amount. During the AIDS crisis in the 1980s, the market for life settlements flourished as individuals sold their life insurance policies for cash to pay for medical bills and improve their living condition. With the discovery of the cure, the market started to shift towards mortality among elder people. Until the end of the 1990s, major Wall Street firms started to focus heavily on life settlements, given their uncorrelated nature and returns which could reach levels up to 20%.

During the financial crisis in 2008, investments into life settlements suffered a slow down due to lack of capital and inaccurate medical underwriting of expected remaining living time. However, in the past years several factors contributed to an increased popularity of life settlements. Among these factors we find a longer average life span, with senior US population expected to double between 2000 and 2030 to 69 million individuals, as well as increasing healthcare costs. Also, a greater accuracy in life expectancy predictions, which increases demand for policies, and new tax rules incentivizing policy owners have supported the trend.

The life settlement industry has been gaining steam, growing at a 34% rate over the past few years and the total volume of settlements is expected to surpass the $3bn mark this year.

Source: Magna 2018 Industry Report

Why do we like Life Settlements investments?

Among the main benefits and risks of life settlement investments we have the following:


· Low volatility: the volatility of life settlements is independent of macroeconomic factors and depends mainly on the life expectancy, premium schedule, pricing and size of the policy

· Uncorrelated returns: life settlements are not correlated to the global stock market, fixed income investments and interest rates, thus enhancing diversification of the portfolio

· High returns: buyers can expect returns ranging between 12% - 18% gross IRR.


· Long Holding Period: Since life settlements have a typical holding period of 7-10 years, investments in life settlements have a higher than average lock-up period than other asset classes.

· Valuation risks: The risks involved in an accurate valuation are very real and not always easy to mitigate. This has been a key driver of disappointments in the past.

In conclusion, we believe that when selected carefully, life settlement investments still provide a compelling opportunity to investors looking for double digit returns, a low level of volatility, as well as returns uncorrelated to the broader market


(1) Prime Alpha Research Report: Life Settlements

(2) Magna 2018 Industry Report