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What to expect from today's life settlement market.

Depending on your point of view, this could be either the worst or best time the life settlement market has ever seen.

Evidence for the worst of times has already been documented. The global economic crisis created by the freezing of capital markets has not spared the life settlement industry, and market participants are now experiencing its effects. Institutional investors who have depended on experts who, in turn, have counted on inaccurate actuarial tables and life expectancy assets are now experiencing life settlement asset write-downs. As a result, all too many are countering declining asset values with less-than-sterling offers.

So what are the new expectations, and how should today's agent be prepared to adjust? To answer that question, it's important to gain an overview of where the life settlement industry is heading.

Understand the ramifications of the marketplace

Up until 2004, traditional life settlements made up close to 100 percent of the market. But about five years ago, entrepreneurial agents and institutions began creating and taking advantage of whole new types of life settlements, such as non-recourse premium-financed structures and beneficial interest programs, which some say may have doubled or even tripled the volume of life settlement transactions. As a result, all too many buyers are foreclosing and selling policies for less than they had originally invested in each policy, which further adds to the burgeoning market supply. It's a classic "too much supply, not enough demand" scenario.

Learn which policies buyers want

Gone are the days when buyers competitively bid on a policy of a 68-year-old experiencing a slight health problem. Today, policyholders tend to be older and sicker, offers are smaller, and everything is more complex.

For the most part, buyers invest in policies of those who are between 68 and 80 years old-the older the better-with a minimum case of $500,000. Ratings need to be standard or preferred, and all policies must be in force and past the contestability period. It is best to concentrate on policyholders who meet these criteria to obtain optimal settlements.

Determine the best strategy for a faster closing

Even if the ideal policy is presented to institutional buyers, too often, offers have been pulled at the last minute or have taken months to close. So it sometimes makes far more sense to take a slightly smaller offer from a capital-rich institutional buyer than to take a chance on a higher offer with a buyer that has had questionable closing issues in the past.

Be prepared to deal with the intricacies of the market

During times like this, many opportunities still exist in the life settlement industry for those who understand it.

The agent must be aware, for instance, of mortality increases and buyer availability changes that are currently occurring. In the past year, the switch to new valuation basic tables (VBTs), along with modified methodologies, have resulted in increases of approximately 20 percent by life expectancy underwriters.

Equally important, the agent must be able to navigate the intricate market, know which buyers are actively purchasing policies, and, ultimately, negotiate a stronger bottom-line offer for clients.

The closing process in the life settlement market has become complex as well, demanding life settlement specialists who understand and can meticulously review legal documents, financial underwriting requirements, and multi-page contracts. As a result, some agents choose to build consultative relationships with brokers who can move the process forward.

Position yourself for the turnaround

If you only look at the challenges, it is easy to reach the wrong conclusion: that a once stable product is losing its appeal. But the life settlement industry is positioned to expand again soon. Life settlements are still a solution that makes sense to a potential $14 trillion market, including the rapidly aging boomers.

As with any industry facing early maturity, changes will be made, simplification will occur, and the economy will eventually right itself. Those who are positioned to weather this temporary market glitch with patience, fortitude, realism, and communication will benefit from an industry that will once again thrive.


Robert Settlow is managing partner of the brokerage firm Life Settlement Company of America. He can be reached at
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Title Annotation:Products
Author:Settlow, Robert
Publication:Agent's Sales Journal
Date:Aug 1, 2009
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