Each year, Conning releases a detailed report recounting the year in review of the life settlement industry. Prompted by the impact of Covid-19 on the life settlement industry, Conning analyzes how new economic factors such as higher interest rates, inflation, and recession will affect its development, and what industry leaders like Abacus Life are doing to combat these factors.
The annual volume for life settlements in 2021 was $4.0 billion. According to Conning, there is still consumer interest in life settlements and capital looking to invest in life settlements. The amount of in-force life settlements continues to grow, which is positive for the tertiary market. Given the favorable nature of the drivers of life settlement market growth, Conning’s analysis of the life settlement market is that the average of their ten-year forecast of the annual gross market potential for life settlements is approximately $220 billion, while the the average of their ten-year forecast of the annual volume of new life settlements is approximately $5.2 billion.
Headlining the “2022 Key Participant Announcements” section of the report, Conning notes 3 crucial market updates regarding advancements made at Abacus Life Settlements:
– Abacus Life Settlements: Merger to become a publicly listed company
“At the end of August 2022, Abacus Settlements, which does business as Abacus Life, announced that it will become a public company, following a pending merger with Longevity Market Assets, LLC, and special purpose acquisitions company, East Resources Acquisition Company. The deal is said to be approximately $619 million. According to CEO Jay Jackson of Abacus Life, the goal is to attract more institutional capital and expand efforts to educate consumers. Abacus Life hopes to complete this merger and go public by the end of 2022,” Conning reports.
– Abacus Life Settlements: Granted additional life settlement provider licenses
“In February 2022, Abacus Life Settlements announced that it was granted life settlement provider licensing in Nebraska, Wisconsin, and North Dakota. With these three states, Abacus is now licensed to purchase life insurance policies in 49 states. According to managing partner, Scott Kirby, “Abacus can purchase policies as little as $100,000, and offers multiple settlement solutions including cash and/or retained death benefits.”
– Abacus Life Settlements: Utilizing blockchain technology
“In July 2022, Abacus Life announced that it will work with BlockCerts to utilize blockchain technology. This collaboration intends to help eliminate paperwork, giving life settlement players a complete view of a policy or contract, including all transactions involving the policy or arrangement. According to Jay Jackson, Abacus Life CEO, the new system will support annuity and life insurance policy sales.”
In the report, Conning conducted an extensive dive into how the life settlement market could be affected by looming economic factors like higher interest rates, inflation, and recession. With higher interest rates, insurers should experience an improvement in portfolio yields and spread margins, meaning crediting rates may improve. For life settlement investors, those crediting rates are key factors in determining how much premium they need to apply on universal life policies. As a result, higher interest rates are a positive factor for the forecast for life settlement growth. Additionally, capital flows to alternative assets are forecast to continue, which is also a positive for further growth of life settlements because they are classified as alternative assets.
To the extent that inflation is relatively short and low, compared to the 1980s, and helps moderately increase interest rates, inflation may be a positive factor for life settlements because it contributes to higher portfolio yields. For the settlement industry, the biggest impact of prolonged high inflation may be on the tertiary market where investors may lower their purchasing price because of a reduction in purchasing power. Conning notes that equity market volatility also contributes to changes in consumer retirement savings and investments and is said to be a positive factor in the forecast for life settlement growth.
As the Federal Reserve continues to increase interest rates to reduce inflation, a potential recession may be emerging in the United States. At the time of publication, Conning notes that forecasts are for a relatively shallow and short recession, yet one that could potentially still be painful enough to increase consumer demand for life settlements. As a result, a recession could also be a positive factor in the forecast for life settlement growth.
Source: Life Settlements – Growing Through Turbulence 2022 | Conning