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Investment Firm Puts a New Face on an Old-Fashioned Product With NFTs Backed by Life Settlements

Nonfungible tokens have gotten a bad reputation in the recent past, leaving many investors to scratch their heads at what they really have to offer. Sundance Strategies hopes to “legitimize” NFTs with an offering that is backed by $850 million in life insurance settlements.
  • Terrence Dopp
  • April 2022

Kraig Higginson wants to prove nonfungible tokens, commonly referred to as NFTs, are more than a flash in the pan or the investment of the moment. And he's hoping a first-of-its-kind offering backed by life insurance settlements could be the initial step in “legitimizing” the investments.

Sundance Strategies Inc., Higginson's firm, plans to sell NFTs backed by $500 million in investment-grade life insurance-linked bonds, themselves backed by $850 million of life insurance policies as well as $115 million of cash reserves.

The deal is a new take on a product that has been in the investment world for years—bonds backed by life settlements or other collateral—and Higginson said the decision to structure the securities as an NFT can't be overlooked. By embedding the transaction on a blockchain, he said the technology will “democratize” a corner of the financial world previously dominated by institutional players, as well as prove faster, more efficient and more secure.

“That's a piece of the puzzle that you're going to find becomes more and more valuable,” Higginson said. “Now does it add two points of value to the underlying paper? No. But is it going to add a layer of security that you can't get just holding a bond in your account in the marketplace right now? And the answer is yes.”

Related: Growing NFT Marketplace Creates Exposures, Opportunities for Insurers

Kraig Higginson

Kraig Higginson

Sundance is looking to use the NFT as an initial step in a plan to work with Tradability to give its customers direct participation in insurance-backed bonds, the company said. Also on its radar is a forthcoming simplified process to deliver “cradle-to-grave” insurance products to a wide audience.

Tradability is a fintech firm offering primary and secondary modules designed to link issuers of crypto-based securities and investors in order to simplify the often complex space.

Often murky and confusing to outsiders, NFTs gained notoriety for “Bored Ape” offerings and controversy over people using them to convey copyrighted artworks. In reality, they're digital files that convey ownership through a step-by-step record of transactions. In the Sundance NFT, ownership of the NFT also will bring ownership of the underlying security and streamline the sales process, Higginson said.

Investors in the newish cryptocurrency market and industries have entered the space and its newer cousin NFTs for differing reasons.

Insurance carriers across all lines have been taking tentative steps into the world of crypto, also referred to as decentralized finance, as the digital tokens gain broader acceptance within the realm of both private and institutional investors. For insurers, that can run the gamut from allowing customers to make payments using digital coins or even paying out claims in that manner.

It also may take the shape of investments and new business lines such as institutions themselves putting money into the cryptocurrency market and insurers protecting so-called digital wallets against hacking or theft. Like Higginson's bond, insurers also have shown interest in the technology itself: The currencies are based on blockchains, which embed information at every step and offer new levels of claims processing and efficiency.

Life Settlements

At the basic level, life settlements are the sale of life insurance policies for more than the cash surrender value but less than the death benefit. The buyer agrees to continue paying premiums for the life of the insured, making the issue of life expectancy doubly crucial. The market kicked off on a larger scale in the 1980s as a method for people to cover health care costs through so-called viatical settlements during the AIDS epidemic and has seen highs and lows since that time.

According to Conning Insurance research, despite the economic uncertainty wrought by the COVID-19 pandemic, the life settlements market experienced a fifth consecutive year of growth in 2020. The firm's average 10-year forecast of that growth is about $233 billion and the outlook calls for annual volume of new settlements of $7.3 billion, both figures up from previous estimates.

Related: An Old and a New Problem

In 2007 and 2008, a combination of the financial crisis and changes to actuarial assumptions wreaked havoc in the life settlements market. Higginson said for that reason Sundance will have an outside firm “re-underwrite” every policy that it takes on. “There are a lot of bones and ashes in the life settlements business because people walked in the door, structured themselves wrong and got killed three, four or five years down the road,” he said.

Higginson said the target yield is in the 4%-to-6% range and Sundance is still awaiting several outlets to issue ratings for the issue before going to market. With volatility on the horizon, the NFTs offer investors a way to realize a safe return that's independent of larger financial markets, he said.

“I think we're going to be one of the shining stars, if you will, in legitimizing the NFT space,” he said. “This product doesn't lose its value because it only counts on whether New York Life will pay and whether the guy will die. That's all. And guess what? Both of those are going to happen.”


Terrence Dopp is a senior associate editor. He can be reached at terry.dopp@ambest.com.



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