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May - June, 2006 |
Vol. 1, No. 1 |
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By Larry Simon, founder and CEO,
Life Settlement Solutions, Inc.
Welcome to the inaugural edition of Life Settlements Market Watch. This quarterly newsletter will provide insight into the ever-changing life settlement industry and serve as a valuable resource for industry experts and those new to the field.
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As our company changes to meet the needs of the life settlement industry, we will provide readers up-to-date news regarding Life Settlement Solutions, as well as information on all aspects of the industry, including the outlook for the life-settlement market and tips of the trade for industry professionals. We are excited to announce that Life Settlement Solutions will host the first annual life settlement awareness month in June, offering top-of-the-line marketing support, training and industry expertise. For details, visit the “Tips of the Trade” section of the newsletter.
Each section of the quarterly newsletter will contain links to industry news and articles we believe will serve as a valuable resource for brokers and investors.
In 2005, the industry experienced a banner year, with estimated transactions of $10 to $12 billion in benefits; 2006 will see a significant increase in market activity, with expected transactions of $15 billion in benefits.
In 2006 and beyond, the huge population of baby boomers will enter retirement, fueling the growth of the life-settlement industry. U.S. citizens over 65 – the target age group for life settlements – will continue to grow by more than three times the rate of growth for the entire population. As this population enters its retirement years, it is estimated there will be about $100 billion in life insurance coverage in the marketplace. With the increase in the retirement age population, life settlements will continue to grow as a viable means of financial planning. More brokers and financial planners will realize they have a fiduciary duty to their clients to disclose the benefits of life settlements to clients with unneeded policies.
We also expect to see an increase of premium-finance paper in the market in 2006. The premium-finance paper will have difficulty being placed in the secondary market due to ownership and insurable interest issues, as well as the structure of the underlying premium finance programs.
Industry competition will run parallel with industry growth, and advisers should insist on working with market players who are reputable. They should perform due diligence by gathering information from several competitive life settlement companies, targeting those whose senior management has had the most life settlement experience, that work solely with institutional investors and have no history of regulatory or customer complaints.
With institutional investors’ increasing appetite for life settlements as an asset class, funding will likely shift from German private equity sources to large banks, hedge funds, pensions, derivatives and fund of funds. In the next few years, the major source of capital will come from term securitization. So far, though, we’ve seen unrated securitization around the world, and there is no term securitization rating by Moody’s or Standard & Poor’s Register of Corporations. We see this occurring within three years.
Investors’ confidence was also recently bolstered by the Financial Accounting Standards Board’s recent change in its accounting rules, allowing investors to carry the asset value of purchased paper at purchase price rather than the much lower cash-surrender value.
Finally, regulation of the industry will continue to impact the growth of the life-settlement industry – boosting the confidence of eligible policyholders and investors alike.
We thank all of our loyal customers and financial institutions that have made us one of the largest and most-respected life settlement providers in the industry.
Of course, your feedback is always welcome. If you have any comments or suggestions regarding items featured in this newsletter, please feel free to e-mail me at info@lifefirms.com.
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