5th June 2023

The Value of Life Settlements as an ESG Investment: Empowering Responsible and Sustainable Investing


ESG (Environmental, Social, and Governance) investing has gained significant traction as investors seek to align their financial goals with sustainable and responsible practices. While traditional ESG investments often focus on sectors like renewable energy and sustainable infrastructure, there is a lesser-known opportunity that combines financial returns with a positive social impact - Life Settlements.

Life Settlements are US-issued life insurance policies that have been sold by the original owner at a discount to their future maturity value. They have little or no correlation to equites and bonds. Insurance companies play a crucial role in society by providing financial protection against risks and uncertainties. They contribute to social well-being by offering products such as life insurance that help individuals and businesses recover from unforeseen events. By fulfilling these roles, insurance companies support social stability and resilience.

Environmental Impact
Whilst life settlements do not have a direct environmental impact, investing in this asset class can indirectly support sustainability efforts. By allocating capital to responsible investments like Life Settlements, investors reduce the pressure on environmentally damaging sectors. This redirection of funds promotes a more sustainable and low-carbon economy by contributing to the shift away from environmentally harmful activities.

Social Impact
Life settlements provide a unique avenue for investors to make a positive social impact. A Life Settlement occurs when a policyholder sells their life insurance policy to a third party for a lump sum payment. By investing in Life Settlements, individuals can support policyholders who may be facing financial hardship, medical expenses, or the need for long-term care. This investment option offers a responsible solution that directly helps individuals navigate challenging circumstances.

Governance and Regulatory Compliance
Life settlement investments are subject to stringent regulatory oversight to protect policyholders and investors alike. This governance framework ensures transparency, fairness, and compliance with applicable laws and regulations. By investing in a regulated market, investors can have confidence in the legitimacy and ethical practices of the life settlement industry.

Responsible Investing
Life settlements also align with responsible investing principles by addressing the financial needs of individuals in a fair and transparent manner. The regulated nature of the life settlement industry ensures compliance with governance standards, protecting the interests of policyholders and investors. This adherence to ethical practices enhances the industry's ESG rating.

Low Correlation and Diversification
Life settlements offer diversification benefits within investment portfolios. Their low correlation to traditional asset classes, such as stocks and bonds, provides potential risk mitigation during market volatility. Including life settlements in a diversified portfolio can contribute to overall portfolio resilience and reduce concentration risk.

Regulatory Compliance
The life settlement industry is subject to stringent regulatory oversight. Policies and regulations are in place to safeguard the interests of policyholders and ensure fair treatment during the life settlement transaction process. The adherence to governance standards and regulatory compliance contributes to the positive ESG rating of life settlements.

Financial Inclusion and Empowerment
Life settlements contribute to financial inclusion by enabling policyholders to unlock the value of their life insurance policies. In many cases, individuals may no longer need the coverage or struggle to pay the premiums. By selling their policies, they receive a cash settlement that can be used to address immediate financial needs or invest in other areas. This empowerment provides individuals with greater control over their financial well-being.

Including life settlements in an investment portfolio offers diversification benefits. Life settlements have a low correlation to traditional asset classes like stocks and bonds, providing potential risk mitigation during market volatility. The unique nature of life settlements allows for diversification beyond traditional investment options, contributing to a well-balanced and resilient portfolio.

MPG’s High Protection Fund is seeing strong demand for Life Settlement investments as a growing part of the alternative assets sector. It delivered net annualised returns of 9.27% in 2022 and attracted net inflows of $20 million. The High Protection Fund has returned 296.91% since it was launched in July 2009. It aims to achieve smooth predictable investment returns of between 8% and 9% per annum, net of fees.

Excellent ESG Rating
According to Dun & Bradstreet, the weighted average ESG rating of the holdings in High Protection Fund is 2.21. The Dun & Bradstreet ESG rating scale ranges from 1 to 5 with 1 being the highest achievable rating and 5 indicating the poorest rating. An ESG rating of 2.21 can therefore be regarded as excellent.

By demonstrating environmental responsibility, contributing to social impact, prioritizing customer focus, upholding strong governance and risk management practices, complying with regulations, and implementing responsible investment strategies, insurance companies can earn a positive ESG rating. These factors collectively reflect their commitment to sustainability, responsible business practices, and meeting the evolving expectations of stakeholders.

Life settlements present a compelling opportunity for ESG investors seeking to align financial returns with positive social impact. By investing in life settlements, individuals can make a meaningful difference in the lives of policyholders while diversifying their portfolios and promoting responsible financial practices. With the potential for financial inclusion, empowerment, diversification, and indirect environmental impact, life settlements offer a unique avenue for responsible and sustainable investing. As ESG investing continues to evolve, exploring unconventional opportunities like life settlements can further advance the integration of financial goals with positive social change.