Context for the Life Settlement Index

Last week Amrita Financial released the February data for the Amrita Life Settlement Index. It showed a dramatic decline of 13% from January. Some have wondered how the index could be so volatile and have asked for more information about the way it works. In this blog post I will examine some of the factors that contributed to the volatility and resulting decline expressed in the latest life settlement index results.

It is true that a 13% month over month decline does reflect a high degree of volatility compared with other indices. However it is important to remember that the life settlement industry is relatively small compared with other industries in the financial services sector. In fact, there are less than 40 life settlement providers in the USA by most accounts. Of those, many are inactive and waiting for their funding sources to resume buying life insurance policies on the secondary market. These life settlement providers are the source of data for the life settlement index. Consequently, the life settlement index is easily swayed because of the low number of respondents available to the complete the monthly life settlement provider survey. Some have said that means the Amrita Life Settlement Index isn’t a reliable measure. However, if is important to remember that the low number of respondents is indicative of the low number of providers that are actually operating in the USA. Hence, the actions of a few life settlement providers in the marketplace can have a profound affect on the ebbs and flows of demand and competition.

In January Goldman Sachs announced its departure from the life settlement industry. In February Credit Suisse announced significant lay offs and job reductions from its Life Finance [life settlement ] Department. In an industry with relatively few players, two of the larger particpants have either abandoned or scaled back their life settlement buying activities. This certainly equates to a net loss in the overall “demand” seen in the life settlement market. Life settlement brokers and consumers will feel certainly notice this lowered demand in the marketplace and Amrita's index reflects that reality.

Finally the index is a relative measure of month over month data. Meaning a 13% decline in the February must be kept in the context as a comparison to January’s data. It doesn’t signify anything other than a February vs. January comparison. From one month to another, the demand can be relatively volatile with such a dynamic marketplace.