Feature: Many investors in holding pattern, settlement managers say

Although the current economy is making life settlements more attractive to many seniors who have lost asset value in the equity markets, it has also made it harder to find investors who want their policies, executives in the industry report. Meanwhile, lengthening longevity estimates have also put a crimp in the settlement marketplace, they agree. "On the capital market side, we've had the same issues as a lot of marketers–lack of liquidity," says Scott Kirby, a co-president of Advanced Settlements Inc., a broker in Orlando, Fla. Although many large institutional capital investors are still in the market, others are on the sidelines for now, he says. Kirby adds, however, that his company is starting to see some signs of improvement. "Some groups are tip-toeing back to the market, and we hope to see more come back in," he says Seniors seeking to sell their life insurance policies are not exactly being overwhelmed by investors, Kirby says. But neither does he see any rush from seniors anxious to use their policies to raise cash. "Our typical client is a high-net-worth individual who often has assets in more conservative accounts," he says. "Everyone has lost money in this economy, but if you are 75 or 80 years old, I don't think the last asset you have left that still has value is your insurance policy." Russel Dorsett, managing director of Veris Settlement Partners, Rockville, Md., maintains a sturdy conviction that the settlement market will rebound. "It will come back this year, absolutely," says Dorsett, who works in the company's Houston office. "We're very optimistic this is a great asset for investors and a great solution for people who own life insurance. We have high hopes that come mid-2009, we'll be able to provide policyholders with investors to bid on their insurance." Dorsett doesn't see many distress sales of policies due to the current economy. As for settlement investors, "there's no question the combination of the credit market freeze and changes in life expectancies threw the market for a loop," he adds. "But the money is out there. The money managers are not deploying it much now, but ten, they don't get paid for sitting on cash, so they've got to go into the market at some point." The combination of a buyer's market and uncertainty about policy valuations has reduced the number of offers brokers are getting, he concedes. "On the other hand, what hasn't lost value in this environment?" he asks. "Life settlements certainly held up better than equities. Life settlements (as an asset class) are going to be more attractive in this economy. My advice for seniors interested in selling their policies is to pay another quarterly premium and see if the market thaws." Rob Haynie, managing partner of Life Insurance Settlements Inc., Fort Lauderdale, Fla., describes himself as "very optimistic" and says he sees "a bright future" for the business, "once the dust settles" from the economy's crash. Ultimately, he sees a shakeout of weaker life settlement firms but believes that would be good for the industry. "It will get rid of the unnecessary players, and the strong will survive," Haynie says. "Obviously, the world economic conditions, credit crisis and lack of capital have prevented some investors from buying. This has limited the playing field, but the playing field still exists." He notes that a number of life-expectancy reporting services have recently lengthened their estimates. He points out, too, that the typical life settler is quite different than the average individual. "They have a higher net worth and higher education, better access to medical care and are far more likely to follow medical care instructions, and they have the ability to go beyond what the average person can do in seeking treatment, therapy, and so on. That's why life settlers will live longer." As insureds are perceived to live longer, purchasers of settlements are becoming more cautious, he notes. "That may take a deal that looked like it was going to happen to where it's no longer acceptable," Haynie explains. Some seniors, on the other hand, are looking at market conditions and seeking more liquidity from available resources. "If their stocks or their house is at the market bottom, they will probably not sell those," says Haynie. That leaves life insurance, especially where the senior is hard pressed to pay premiums.
"I think in 2009 we will see more and more people coming to the market place," he concludes. For their part, financial advisors and planners also will begin to see life settlements as advantageous to certain clients whose financial circumstances have diminished, he adds. His company "will continue to throw its net into the water" this year, Haynie says. "What didn't sell five to six years ago could sell today. Fewer policies are being sold than, say, 12 months ago, but on the other hand there are more buyers than five years ago." The business slowdown has taken a toll on at least one settlement firm, according to a recent report. J.G. Wentworth & Co. Inc., Bryn Mawr, Pa., in December laid off 120 of 200 employees and announced it will close its Las Vegas office, according to the Philadelphia Business Journal. The cutback was made because of an "inefficient securitization market and the increase in the cost of funds," according to a Wentworth spokesman quoted by the Journal.

By press time, Wentworth, which is owned by JLL Partners, New York, had not returned calls seeking comment.