- What are life settlements? Life settlements are life insurance policies which have been sold to an investor who pays the premiums and eventually collects the death benefit.
- When did the investment option come to Australia? Laureola Advisors has been managing this asset class since 2013 and established a unit trust in Australia in October 2020.
- Who is it suitable for? An allocation to life settlements could be considered by family offices, HNW SMSFs, university endowments, pension funds and sovereign funds.
- What returns should investors expect? Laureola sets investor expectations at between 8-12% per annum.
What are life settlements (part 1)?
In the United States it is both legal and encouraged for seniors who no longer have need of a life insurance policy to sell it to an investor such as the Laureola fund which will pay the senior a cash sum, usually three or four times more than the contractual surrender value offered by the insurance company. The fund will then pay the premiums on the policy and eventually collect the death benefit.
What are the drivers of performance?
Performance is driven by mortality which is self-evidently not correlated to traditional markets but the timing of which is of course unpredictable. Investors need to have an investment horizon of at least 3 years to benefit from this kind of return. Funds which generate returns from accounting or valuation adjustments will find that they are reliant on liquidity and in times of financial stress will correlate with traditional markets.
The quality of returns is critical in life settlement funds – the more generated from realised gains, the better. Over 80% of the returns of the Laureola Fund since inception have been realised and in 2020 and 2021, 100% of the Fund’s returns were generated by realised gains. Cash profits (i.e. realised gains) are the highest quality returns from any type of investment.
Laureola sets investor expectations at 8% to 12% per annum.
What are life settlements (part 2)?
Life settlements are heavily regulated in the US and can be suitable for ESG-biased investors. The US government recognises the social good that life settlements provide. Life settlements provide better financial outcomes for seniors and promote better corporate governance within insurance companies. To that end, regulations are introduced not to limit life settlements transactions but to promote and encourage responsible behaviour amongst participants.
Nathan Wares
Managing Director
Australia & New Zealand
nathan.wares@laureolaadvisors.com
Laureola Advisors
Level 1, 60 Martin Place
Sydney NSW 2000
+61 419 542 646
John Swallow
Director
Laureola Advisors
john.swallow@laureolaadvisors.com
UK