This is the detail that actuarials live on...Life Settlement Industry Overview
Following the theme of older adults and the growth of the group as a percentage of the population, the Company is entering the Life Settlement market. The exact size of the market is difficult to accurately quantify. In 2005, Sanford C. Bernstein & Co., LLC, a research unit of Alliance Bernstein L.P. estimated the market to be approximately $13 billion in face value of policies purchased from 1998 through 2005. Data from the American Council of Life Insurers shows that the voluntary termination rates for individual policies has dropped steadily from 6.6% in 2002 to 5.1% in 2007. Because the decline in the lapse rate coincides with the increasing number of reported life settlement transactions, we believe this indicates that more policyholders are choosing to sell their policies in life settlement transactions rather than voluntarily terminating these policies. We also believe this corroborates predictions that the life settlement market will continue to grow in size as these transactions become more familiar to policyholders.
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The growth is expected to continue in the next few decades with the increase in the number of older Americans. American seniors consider selling their policies in the secondary Life Settlement market for a variety of reasons including:
Living Longer… Seniors must have more liquid capital during retirement to support themselves. Additionally, parents of seniors are also living longer which some will have to financially support.
Income… Many companies have encountered financial trouble and therefore pensions have been reduced or wiped out. In 2003, 1,197 companies eliminated their pensions reported the American Federation of Labor jeopardizing the retirement of thousands who presumed these funds were guaranteed.
Debt Crisis… Many seniors do not adequately save or plan financially for retirement. USA Today, Jan/07 “seniors are becoming the face of the indebted and the fastest population group seeking bankruptcy , many are having extreme difficulty paying mortgage, food and medical costs… we are just seeing the tip of the iceberg”.
Social Security in Trouble… A looming large risk for seniors is government social security -- a critical source of income – which could go bankrupt and not be able to support the growing seniors market. At a minimum, social security benefit payments are estimated to be reduced.
Skyrocketing Medical Costs… As reported in Business Week “Seniors Pushing Medicaid to Breaking Point” (Feb/05) “as 70 million baby boomers age, their demand for care threatens to crush Medicaid”. In 2004 alone, medical insurance payments, co-pays and deductibles increased 40%. Medical costs are estimated to continue to rise and fixed income seniors will have to find some way to pay for this large, unbudgeted but essential cost of retirement.
The Company recognizes that it needs to be innovative and pioneer new avenues for business development. New opportunities have encouraged the Company to expand and position itself for entry into the Life Settlement market.
