Life Settlements offers retail investors an alternative asset that leverages life insurance plans in a completely new way.
Focusing solely on the US life settlements industry, it buys up unwanted individual life policies and offers them to investors as capital stable investments non-correlated to equities, property, cash and fixed interest.
According to Life Settlements fund manager Chris Renouf: “It’s alternative because it doesn’t fit in the normal equity, bond, fixed interest [asset] … people can’t see any similarity to those classes, so they say it’s in the alternative class.”
The products are structured as unit trusts, whereby investors receive quarterly distributions and also benefit from unit price appreciation.
“Some researchers are happy to [describe it] as being like a fixed interest product, the difference being though that a fixed interest product has a fixed maturity date … life policies, they mature, but we obviously can’t tell you the date.”
Renouf stressed that it only buys-out life policies from the US because of the country’s ‘non-contestability clause’.
“In most states … if you’ve paid the premium for two years minimum and you make a claim, the insurance company cannot contest the clause regardless of any extraneous factors, and it is the only country in the world to include this clause.”
He also emphasised that it only buys policies from those individuals who have been referred by a financial adviser.
“It’s a financial transaction where the original policy holder has put his policy into the market; he cannot go and just sell his policy, he has to go to the life settlements market, it has to be a recommendation from a financial planner that the person no longer needs the policy and it can then go into the market.”
Renouf said Life Settlements does not simply identify individual policy holders and buy their policies separately, but bids in tranches of between $10 million and $50 million, paying policyholders significantly more than they would receive via the standard policy surrender value offered by insurers.
“It’s a financial transaction which is a win-win situation for the person that took out the insurance, and it’s a win for our investors,” he said.
The asset class has grown funds under management from $10 million to around $150 million within the last 12 months, comprised of predominantly retail investors from 12 countries across the Asia Pacific, the US and South America.
