Fund managers who buy U.S. life insurance policies to cash in the death benefits have predicted a bumper year in 2009 as investors seek uncorrelated alternatives to mainstream markets.

Supply is also is expected to increase as more individuals, stung by tumbling investment portfolios, could sell their policies at discounted prices.

Managers of funds investing in traded life policies (TLP) are forecasting that assets under management could as much as
double as mandates pour in from other fund managers, hedge funds and high net-worth individuals seeking steady returns
uncorrelated to equities and bonds.

“We are in a situation where property, equity and bonds or a bank account, are not going to deliver. People have to look
further afield and they have to make an effort to understand other asset classes,” said Jeremy Leach, managing director at
MPL, a boutique investment house specialising in TLPs.

Under a TLP deal, the insured party — generally a person over the age of 65 — sells their policy to a buyer at a discount for a lump sum, giving the buyer the right to collect the death benefit.

The Insurance Studies Institute said in a report published last month that it estimated the TLP market would reach $21
billion by 2012. In 2007, the market was estimated at around $12.2 billion.

The concept of leveraging the value in life policies was developed in response to the AIDS epidemic. TLPs evolved as a
separate strand unconnected to terminal illness.

SECURITY
TLP fund managers tend to deliver annual returns in the high single digits. Investors in the bull markets have found these
returns too low but now the security of such returns is attracting more interest, said Leach.

MPL currently manages about $300 million through its Traded Life Policies fund and expects to add a further $250 million over the course of 2009. It already has commitments of some $100 million from continental European investors towards the 2009 at sum.

Leach said MPL would now seek policies from mid-income individuals, having previously targeted high net worths. “Average policy value is $728,000; we expect it to come down well below $500,000 by the end of 2009,” he said. Leach is not alone forecasting large inflows.

Peter Dodd, a director at the $65 million TLP fund Fortress International, told Reuters he expects assets to double this
year. Dodd also said he would be able to purchase life policies at a greater discount in the current market, boosting returns.

The Insurance Studies Institute said retirees could sell their life insurance policies to fund their retirements after seeing the value of their investment portfolios plummet during 2008.

However, Nigel Newlyn, portfolio manager at investment advisory firm Argent, warned that sudden growth in the TLP
market would have to be well managed. “The important thing is being able to buy high-quality policies. You need to be confident about the issuer of the policy and (to buy) at the right price,” Newlyn said.

He said clients are now more prepared to invest in TLPs as the yield is more attractive compared with mainstream investments.

Kevin Mudd, fund manager of TLP fund Aurora, is also expecting assets in his fund to double this year. However he warned that the increased longevity of the policy holders could bring down returns by up to 1 percent to 2 percent per year.

Major investment houses are also involved in the life policy market at the high end. Credit Suisse said in a presentation last year that it had purchased or financed more than $5 billion in life policies and was in the process of purchasing or financing more than $350 million in policy face values.

Credit Suisse targets policies of $1 million or more, while rival Goldman Sachs said in a similar document that it targeted
policies with a value of between $1 million and $20 million. Neither bank was able to offer predictions for 2009.

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