I was reading through some life settlement industry journals and articles and came across a few reports that I thought were interesting. One came from Bloomberg and cited a report from a Washington based consultant. It stated the following:
- In the year 2008, the average death benefit face value of a settled policy was $2,300,000.
- The average annual premium for a $2,000,000 policy was $98,440 and the policyholder in 2009 would have received about $263,818 for selling it rather than receiving the $36,700 of cash surrender value for surrendering the policy to the insurance company.
- The life settlement industry reported that they purchased policies in 2009 with a total face value of $7.01 Billion compared to $12.95 Billion purchased in 2008.. They cited the credit crunch for the decrease in demand.
Looking at these numbers it kind of told me the truth as to what I had been witnessing over the past year and a half. However, I was shocked to see that the life settlement industry went down by 54%. I knew the funding sources were drying up but I had no idea that the market would actually be cut in half. In addition, due to the decreased number of funding sources, those that did stick around began to really focus on the low hanging fruit. They only made offers on those policies that lined up perfectly with their rating systems. They didn’t stretch their limits and take gambles.
One thing I do know that affected these numbers was the fact that funding companies were no longer interested in larger face amount policies. The $30M, $20M and even the $10M policies no longer had a market. The funding companies really started to focus on the purchase of $1M and $2M policies. So the big drop in total face value purchased can be blamed somewhat on the lower faced policies being purchased. The volume of sold policies did not go down by 54%. It was only affected by about 24%
So as the life settlement industry rebounds, you’ll start to see these larger policies reentering the market once again. Keep that in mind when watching the market recover. You may see some huge percentage upswings in the life settlement industry. Don’t get too excited. A lot of it will be the inventory of larger policies revisiting the market. Make sure to read between the numbers.
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