UK traded life policy market jumps in 2008-study
LONDON, Dec 2 (Reuters) - Demand from British investors for funds which buy life policies from elderly people with a few years' life expectancy has grown by 53 percent in the past 12 months, a study showed on Tuesday.
The report -- conducted by Bristol Business School and commissioned by boutique fund manager MPL -- offers fresh evidence that investors are seeking to diversify away from volatile mainstream markets.
It said that the combined assets of the five largest traded life policy (TLP) fund distributors in the UK grew to $621.4 million last month from $405.2 million in November 2007 at a time when many asset classes are experiencing heavy outflows.
Institutions accounted for 75 percent of the total assets. In a TLP deal a fund buys life policies, mainly written in the United States, from individuals who according to actuarial calculations have only a few years to live.
The UK market is dwarfed by the United States. Estimates for the size of the TLP market in the United States in 2006 range widely - between $5.05 billion to $12.5 billion -- due to a lack of disclosure requirements.
Policyholders can typically get between 30 and 60 percent of the future policy value, said Jeremy Leach managing director of MPL. He said these rates compare well with those offered by original insurers when policyholders surrender their policies.
The TLP cashes the remainder of the accrued insurance pot when the policyholder dies, with a typical fund returning around 9 percent a year.
MPL currently has $160 million under management in its traded life policy fund. Leach expects new inflows in 2009 to range between $150 and $200 million.
Merlin Stone, the Bristol Business School professor who wrote the study is bullish on the market's growth potential, and is expecting a boost from the baby boomer generation's move into retirement.
Capacity may be restricted though if fund managers "shell-shocked" by the financial crisis prove reluctant to consider new and relatively untested asset classes, he said. (Reporting by Cecilia Valente; Editing by Greg Mahlich) (cecilia.valente@thomsonreuters.com; +44 (0)20 75423570; Reuters Messaging: cecilia.valente.thomsonreuters.com@reuters.net))
