The Market for Life Insurance and Investment Books

If you are an advisor looking to buy or sell a book of business, the market for investment books determines whether or not you’ll be able to find a book to buy at all or what you can expect to sell your book for.

This is why LSM Insurance has partnered with the book valuation experts at Jacox-Hilton Corporation. General partners, Cameron Jacox and James Hilton, told us what the market looks like these days if you’re an advisor looking to buy or sell a book of business, as well as what has been happening in the market as of late.

“It has been largely a frozen market for a while because there’s a huge gap between what buyers are willing to pay and what sellers are willing to sell at, so there are a lot of folks in their 60s and even into their 70s and 80s who are sitting on their book, not actively servicing their clients and just collecting their renewals,” says Jacox. “This is a structural problem.”

Luckily, he does see a bit of a silver lining on the horizon.

“The good news is we have seen a thaw lately. We have seen buyers willing to increase the price they are willing to pay. Consider how absurd it is that books today can be sold for 2x trailers. That means that without doing any new business on the block, the purchaser makes a 50 per cent return on investment automatically. There is no other industry where such a return is guaranteed,” he says.

“Only when buyers become more sophisticated in the depth of analysis that they do on blocks will they grasp and accept the true value. The market is thawing in large part because valuation models now look at the future profitability of a book.”

There is also plenty of opportunity to be had. The market is made up of 80,000 advisors in Canada who are selling life insurance and the average age clocks in at about 60. “This means there is a market of over 30,000 advisors who are in the retirement age realm in the next few years and, because of that, this market is going to start to heat up.”

At the time of our interview in December 2011, Jacox even went so far as to say that the last year had been the busiest in Jacox-Hilton’s history. Now would be the perfect time for captive agents, such as those from London Life or Investor’s Group, to strike out on their own as entrepreneurs because they will find willing sellers. The books provide a plethora of much-needed leads for their continued growth. With returns of as much as 50 per cent but no lower than 20 per cent, getting leveraged to buy a life insurance book is indeed very prudent.

Unfortunately, there haven’t been many young advisors entering the market because there haven’t been any recruitment efforts by the bigger MGAs. “There are opportunities for the MGAs,” says Jacox. “However, the issue of training and recruitment is a whole other animal.”

Nonetheless, Jacox tells us that there are books out there for those who want them.

“We anticipate that this upward trend will continue, but we think there’s still a lot of education that needs to go through the market so that folks understand what they have to do to get what they want.”

There are also several other things Jacox is noticing about the profile of those in the Canadian market. Those in the 45-to-50 age bracket are the advisors most actively looking to sell their book.

“The reason being they’re in the retirement planning business, so they are trying to a little bit of that for themselves,” reveals Jacox. “Quite often, they find a buyer a little ways before they’re willing to sell and come up with an agreement whereby, when they’re willing to retire, or if something happens to them, then the buyer purchases the book based on a predetermined formula.”

Secondly, it has become difficult for Jacox to distinguish between buyers and sellers when it comes to age, as those close to retirement age are not necessarily retiring and instead buying new books themselves. They’ve been around for longer, and they see the opportunity.

“It’s harder to distinguish the buyer and seller profile because we have older and younger advisors on both ends of that spectrum,” concludes Jacox.

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