ESG principles respected by life settlements industry


Alex Lee

ESG principles have become mainstream in funds management and the Laureola life settlements fund, now in Australia, is no exception.

“We follow the principles behind ESG in our dealings with insureds who wish to sell us their life insurance policies in the USA. Typically, Laureola and other investors offer a 2-4 times higher payout for a person’s life policy compared to the issuing Life Company,” said Alex Lee, Laureola Advisors.

“How can an investment in life settlements where returns are made when the insured dies be a social good? This must sound contradictory to people outside the insurance industry.

“We believe that the life settlements are a social good because the existence of a secondary market for insurance policies provides insured persons, usually seniors, with more choices in obtaining liquidity. In other words, life settlements give the individual policy owner more control and promotes equality amongst participants in the life insurance industry. With control come the chance for more liquidity options for insured persons,” said Laureola’s Mr Lee.

The US Government seems to agree, as one of the most recent laws is a bill introduced earlier in 2020 (the Senior Health Planning Act) providing better tax incentives for seniors to sell their policies to the life settlement market.

Life settlements provides more liquidity options to insured persons

  • A person with a life policy might want liquidity as life circumstances change. This might be especially true for a senior who might have to pay for healthcare in the US. Note that participation in the life settlement market is initiated by the insured. Sale of insurance policies on unrelated parties is illegal.
  • In the absence of a secondary market for life policies (i.e. the life settlement market), the insured can either surrender the policy back to the insurance company or let the policy lapse. In both cases, the insured would realise none or a fraction of the death benefit in the policy.
  • A life settlement market will give the insured additional options in realising a higher percentage of the face value of the policy. Researchers from London Business School estimated in 2013 that the value unlocked by the life settlement market is about four times greater than that of the surrender value offered by insurance companies.
  • The insured obtains a higher cash value for his/her policy. The insured effectively obtained better liquidity terms than otherwise available from the insurance company.
  • The life settlement investor continues to pay premiums on the policy until maturity and are then compensated with the full-face value of the policy when it matures (when the insured dies).
  • When viewed with such lens, one can see how the life settlement is disrupting the insurance for the good of the insured. The life settlement industry is paying forward the death benefit to the insured while he/she is still alive.

Laureola is a boutique Fund Manager focusing on the asset class of Life Settlements. Our Fund is specifically designed for Private Clients and small to medium sized Family Offices. A well-managed portfolio of Life Settlements will keep its diversification characteristics in difficult times, as the strategy has a very different way of making money – investing in the longevity and mortality markets.

The fund has achieved expected returns of 8% to 12% achieved in every year (except one which was +6.4%). The Laureola Fund delivered a positive return in 86 of 88 months that it has been in operation.

By Alex Lee CFA, Director, Investor Relations – Australia and New Zealand

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