Decoding the Value of Life Insurance: Analyzing Market Dynamics and Investment Strategies with Abacus Life's CEO

Jay Jackson, Abacus Life: 00:00:00

Foreign.

Andres Sandate, ATLalts: 00:00:04

Welcome everybody, to another edition of the ATL Alts podcast. This is your host, Andre Sendate, coming to you from Atlanta, Georgia. I am joined today by Jay Jackson, the chairman and CEO of Abacus Life.

Jay, welcome to the ATL Alts Podcast.

Jay Jackson, Abacus Life: 00:00:21

Thank you, man. Great. Great to be here. Big fan of Atlanta and obviously a huge fan of Alts.

Andres Sandate, ATLalts: 00:00:27

Well, we're excited to have you. We were talking earlier in kind of the pre show, as I call it, about some of the things that we wanted to try to cover in a short amount of time.

I know you're a busy person, had a big earnings call yesterday. So running a public company, I'm delighted to have you to get the backstory and obviously dive into life settlements.

And a big part of ATL Alts is the education and awareness of growing and differentiated alternative asset classes for our advisors, our family offices and other investors that are trying to diversify their portfolios. But I always start with the same question. So I'd love to ask you, Jay, if you could share with our listeners here at ATL your story.

Jay Jackson, Abacus Life: 00:01:15

Sure. And you know, my story and abacus almost go hand in hand a little bit.

And as you have sort of just with your, with your audience, there'll be a lot of familiarity in the sense that I was once on the other side of the desk where I was picking alts. Right.

And I began my career even before this at Franklin Templeton, worked in munis, and ultimately ended up at a family office where we were selecting alt asset managers to try to diversify our own holdings and certainly our exposure. And I was introduced to this uncorrelated asset in a sense of, first of all, looking at insurance products in an uncorrelated way.

And we were looking at catastrophe bond insurance and a variety of other things that we thought, okay, those aren't traditional, traditionally correlated. What I mean by uncorrelated, I mean really uncorrelated. You know, I don't want to be less correlated when I'm picking my alts.

I want to be actually uncorrelated. And what does that mean? Right.

And what was interesting about the life insurance space, specifically around the mortality space, was that it truly is uncorrelated to other markets.

Regardless of what is going to happen in your equity or bond portfolio, the lifespan and mortality and life insurance type products are not correlated to any of those types of key fundamental events that you might see. So it was super interesting to us. The challenge was accessing it. And so when we first started looking at this asset. Yeah, go ahead.

Andres Sandate, ATLalts: 00:02:39

No, I was going to say that's always one of the biggest things about this area for investors, but also for managers and people that want to deploy capital is how do you find the policies? How do you actually build an asset management business around the mortality event that's just going to happen?

Jay Jackson, Abacus Life: 00:02:57

And that was the same problem I had. I was sitting there with a family office jack willing to either build a portfolio or invest in one.

And we came to a very common theme which was how do I gain access to this? Here's why. We love the asset as an investor, right. And we'll take a. Take a step back on both of these.

But we'll look at it from both the policyholders point of view and the investor point of view. And we'll start with the investor point of view.

What's interesting from an investor point of view, if you just break down this asset in its simplest form and assume it's not insurance.

If you were just to look at this asset as though it was a credit fund or a piece of credit, and in that scenario you have an A rated carrier, which has been defined as the life insurance company in a rated carrier that is highly regulated. So the issuer is A rated.

In fact, the credit that they're issuing is reserved regulatory reserved in each state up to anywhere from 30 to 50% depending on what the reserves in the state requirements are. The third piece is that it's truly uncorrelated in the sense that it is truly. It's almost like a mortality driven zero coupon.

The impact of your return is driven by a mortality event, not by rising or lowering of interest rates rates. And then the last piece of that is, is that your average return or that your target return in this asset is, you know, low to mid teens.

Now if you were pursuing this as a credit, right, Or a bond that you would invest in and I could tell you about an A rated issue bond that was uncorrelated pain mid teens issued by an A rated carrier that is in fact truly not only uncorrelated but cash reserved. You would back the truck up.

Andres Sandate, ATLalts: 00:04:38

Yeah, you would say, I was just thinking.

Jay Jackson, Abacus Life: 00:04:40

But it's the component. Yeah, yeah, right. But that it senses lifespan based. There's a lack of understanding the underlying asset is. And that's the other component to this.

First is of course education and two is access. So let's address those two, right? Because now it comes back to the policyholder.

Because what's happened over the last 20 years in this asset institutionally, ownership wise, almost every major large Private credit fund is a major investor in this asset. They have private credit funds. If you think about it from a private credit perspective, they love it. Right?

Mid team returns equity like returns with almost no correlation held up against kind of other higher correlated private credit assets that they may own. But again, their fear was I have no way to get access to this. It comes back to this fundamental decision.

n regulatory and it took from: 2005

What it means in its simplest form is that you as a policyholder now have regulatory protections and it's a pro consumer transaction specifically related to disclosures, transparency in the actual acquisition, beneficiaries sign offs, letter of competencies when that single event occurred. And now it's regulated in nearly every state. Institutional asset manager said, whoa, wait a minute.

This is something I should take a close look at because the fear of the underlying asset not being regulated and something that I have clear title to is maybe starting to go away. So now it's a matter of now getting out and educating people. And here's where this is the big problem.

Educating policyholders is hard because people don't treat their life insurance policy like equity. They treat it like debt. And here's a clear example why in this next stat should blow you away there.

If you look at the overall life insurance market today, how much is in force? It's a little over $13 trillion. That is 2x the US residential real estate market. It is a massive, massive market of which the 13 trillion.

Do you know how much of that will pay a claim, meaning that will actually pay upon someone's ultimate mortality? 10%.

Andres Sandate, ATLalts: 00:06:57

It's a fraction of that.

Jay Jackson, Abacus Life: 00:06:59

Yeah, fraction. 9 out of 10 never pay a claim. We go a step further and we say, okay, fine. And this is out of a University of Wisconsin and UPenn study.

Out of, out of, out of, out of Wharton. Then they go, okay, fine, let's get rid of everyone younger, let's get rid of term.

Let's just look at those over the age of 65, 75% never pay a claim. This isn't an issue with the insurance company, it's not their fault.

This is an issue with education, meaning that people treat their life insurance policy like debt, not equity. Let's fast forward to somebody who's 80 years old. They're 80 years old. How old are their, how old are their children? Mid-50s, early-50s. Right.

They're saying to themselves, this life insurance policy has served its purpose. They have a million dollar life insurance policy. Like what am I doing? I'm paying 20, $500 a month on something that my kids don't need.

I'm just going to stop paying on it. Which is what do let it last, let it terminate. That happens literally thousands of times per day.

What we do at its core at Abacus in the most simplest way, is that all we do is teach people how to understand what the net present value of their contract is. And the core understanding to knowing what the net present value of their contract is.

First and foremost, you have to know the remaining term of the contract. Here's what I mean by that. You, you have to know your lifespan. And what we do at Abacus at our core, our tagline is know the value of your life.

Right. So Abacus Life is the name of our company. In a funny way, first and foremost, we are not a life insurance company. Right.

We thought it would be cute to name our, our, our company Abacus Life because it's math for your life. Right. And this was understanding your lifespan data. Unfortunately, we realized about 80% of the population doesn't know what an abacus is.

So that, that kind of fell on its. They're like a Bacchus. It happens. Yeah, yeah, I mean I get it. It hasn't been used in 100 years, so. Understood. But the point of that story is.

Andres Sandate, ATLalts: 00:09:08

But that's a good point. Let me, let me interject real quick. But life insurance has been around for 100 plus years.

Jay Jackson, Abacus Life: 00:09:15

100 plus years.

Andres Sandate, ATLalts: 00:09:16

It hasn't, it hasn't evolved.

And financial advisors and insurance advisors, obviously when you talk about financial planning, protection, you know, life insurance, health insurance, home insurance, all this insurance is offered and sold.

And yet what you just described, the figures, the $13 trillion market, 90% of the policies will never pay 70 plus percent when you take out term insurance.

So I think we have an opportunity to really educate advisors who can then in turn educate their clients around that 80 year old couple who have the 50, 55 year old children, they're actually sitting on an asset.

Jay Jackson, Abacus Life: 00:10:05

That's correct.

Andres Sandate, ATLalts: 00:10:05

And there's a market for it and.

Jay Jackson, Abacus Life: 00:10:08

A significant investable asset. Right. You know, Abacus paid out $220 million last year, nearly a quarter of a billion dollars we paid out to people.

But the core foundation of that valuation, when you solve for np duration of the contract and going back to that, that's where the lifespan is super important.

And I want all of your Listeners to remember this, because what we are doing is starting to change the fundamental conversation around financial planning. And here's why.

When someone comes to us and say, hey Jay, I have a million dollar life service policy, I pay $2,500 a month, like great, we're going to get a HIPAA release from you. We're going to pull all your medical files, we're going to look at those medical files and compare you, Mr.

Jones, to every single person just like you who has cardiovascular disease, kidney disease, B. And we go down the list and we say, okay, here's what the mortality experience has been for them. Year one, there were 5, 5%, year two, 10%.

And then the midpoint where the most mortalities occurred is your projected probabilistic lifespan. As weird and mortality based as that sounds, Mr. Jones is keenly aware of that. And you know what the number one response is when I tell Mr.

Jones and say, you know what, honestly, you're in pretty good shape here. Your average projected lifespan is around seven years. And you know what the number one responses for him? No way. I'm never living that.

Andres Sandate, ATLalts: 00:11:27

Really?

Jay Jackson, Abacus Life: 00:11:27

Man, are you crazy? You better go back to that magic eight ball and give me another shake. And I'm always like, Mr. Jones, like that's not how it works.

Like, there's massive amount of data to support this. Abacus is inherently a data company that has massive amounts of lifespan and actuarial data that we apply to financial services.

First thing we apply it to is understanding the value of life insurance. Because if you know Mr.

n, what's your future cost of: 2500

How many times do RIAs come and financial advisors come looking for a way to increase their AUM and literally never have the conversation about what the net present value or market value of their life insurance policy is. It is unbelievable to me.

And the other piece to this, which is coming like a freight train, I am now applying that seven year lifespan data to their financial plan. I'm going to their financial advisor and I'm saying, listen, Mr.

Jones has a seven year lifespan, could expand probabilistically all the way to nine and a half, but he has a zero percent probability beyond year 10. How are you managing their assets to accommodate that? This is the story you should be telling each and every one of your clients.

BlackRock just came out where they want to refine target date funds. They're renaming them Life Path Funds using lifespan data.

We made an acquisition, we announced an acquisition last week of FCF advisors, which is model portfolios. Right. Effectively ETFs. I'm doing the same thing. We're building lifespan based ETFs.

So then in financial planning, everyone can look at this and say as a core readjust, your core equity and bond investments based upon something far more important than returns. What's your actual use of those funds are?

If the number one fear of every client out there is running out of money in retirement, don't you think you should know how long that time scape is?

Andres Sandate, ATLalts: 00:13:45

Right.

Jay Jackson, Abacus Life: 00:13:46

And that's what we're doing with the data. So at Abacus. So yeah, it's, it's really fascinating on, on, I think where this is going to go, how this is going to continue to lead.

I mean we could do a whole series on this.

Andres Sandate, ATLalts: 00:14:02

Yeah, no, no doubt.

I mean I think the, I think that the way that you've articulated the, the, the, the majority of asset managers, when they believe they have identified an asset class the way you described it, that is somewhat unknown and needs to be out there. More to the financial advisor financial intermediary community, a lot of times they lead with how great their product is.

What you are describing is core to the financial planning profession is helping the client understand the net present value of an asset that the client already has and really digging in and understanding with that client, especially those that have, you know, those expenses that you're talking about, they're paying that premium of two or three thousand dollars a month. I don't, I don't see a lot of asset managers positioning things in that way.

And I'd love to understand as you've gone out and talked to advisors and talked to Rias about this idea of introducing this lifespan conversation in financial planning, what's been the response from the advisor community?

Jay Jackson, Abacus Life: 00:15:19

Overall, it's a bit of hesitancy. I don't know if I feel comfortable having that conversation with my clients.

It includes medical things and ultimately what I always tell them, I go, well your client just had it with me and I paid them $24 million for their contract. So they're keenly aware. And I think that this is now becoming a far more comfortable conversation than it was 10 years ago.

And I tell them all the same thing. You've got to graduate, you've got to expand. You've got to start getting your head around this knowledge and not get left behind here.

Because this is a conversation that's happening every day. The top number one New York Times bestseller books over the last 24 months are all on longevity, lifespan and health. Spanish, all of them.

Andres Sandate, ATLalts: 00:16:01

Yeah, so.

Jay Jackson, Abacus Life: 00:16:02

So we should be talking about this regularly in our financial practice.

Abacus offers financial solutions in the sense that, yes, we have investment funds, we have an interval fund that's certainly hopefully going to be coming out in the near term. You can invest into our stock directly, buy abl, you get the same premise. But here's what we are.

At its core, we're an alternative asset manager that is also the market maker for the asset we invest in. So when people talk about how do I get the asset? We are the largest origination company and market maker and that gives us a huge advantage.

And you know, to go full circle with this, what's really fascinating now is that our largest investors today are insurance companies. They're no longer there.

Andres Sandate, ATLalts: 00:16:45

Most people, yeah, they're not the RIAs and individuals and high net worth folks buying policies. It's the insurance companies themselves.

Jay Jackson, Abacus Life: 00:16:54

Yeah, they're buying back their own paper and I'm selling it to them.

Which gives us a really unique scalable, interesting opportunity for, you know, when we launch our fund, we have a really interesting liquidity and exit into that, into that fund. You're not kind of having to wait for mortalities to occur because when a carrier buys it back, we actually then lapse it on their behalf.

So you go back to the original policyholder. Right, that policyholder. This conversation started about them treating it like debt, not equity.

When I sell it back to a carrier and I terminate the contract, it is truly equity. It was an equity transaction. There's no more profit on someone's mortality.

e. The supreme court ruled in: 1911

Nowhere else in the world has that. When you fill out your life insurance application, it's literally called owner. It's your contract.

And my passion in this is having people understand that ultimately doesn't harm the insurance companies. Ultimately what happens is that people will buy more life insurance knowing that it has an actual increased value, that it's an actual asset.

And I think that's where I want to see this go to new insurance products, new annuities that come out with the mindset that this is an actual piece of property that you own that has a real market value in the future.

Andres Sandate, ATLalts: 00:18:25

Yeah. And I think this, introducing this notion of, you know, the math on your life, right.

Your company, the idea of what's the net present value of that asset that you have. Right. And starting to educate the advisor or in turn their client around, that is no longer an expense and we're going to just let it lapse.

And you're one of the 90% or 70% of folks who paid for years only to receive nothing. You maybe had peace of mind. The financial planner did the financial plan.

But ultimately there was a lot of assets or in this case dollars and if you're the RAA investable assets left on the table. So I want to finish with billions and I want to finish with one, one final question.

You talked about the, the, the, the aspect of insurance companies are starting to buy back the paper. There's a big opportunity for RIAs and financial advisers to educate clients.

There's an opportunity for individual policyholders to understand, you know, the value of, of that insurance. It seems like there's a lot of different big foundational pillars where the, the company, you as the chairman and CEO Jay, are driving the ship.

How do you focus on all of that simultaneously and execute. Tell me about the, the, the go forward plan because you have, you have some really big opportunities.

Each of those are going to come with their own unique set of challenges. I think it'd be great to, to our listeners with how you see the company evolving and trying to tackle some of those big opportunities going forward.

Jay Jackson, Abacus Life: 00:20:09

I think you start with this same underlying theme, right. And that is understanding lifespan and longevity data and how it applies in general to financial planning is the key underlying theme.

And if that's our foundation, the other, the other big pillars you spoke about all fall into place. And you know, you start with what we started with in insurance. That's an engine that's going to continue to run and grow and expand.

And the growth there is exponential when we think about the market sizing. Our addressable market is in the hundreds of millions of people and then you start to.

Now it's about starting that over again in the sense of educating people on financial planning. So we launched a division called ABL wealth where we're putting some of our strategic acquisitions like our ETF.

We did purchase a Luxembourg based asset manager with 2 billion in AUM focused in this asset. And then the third pillar is really about technology.

But and if you think about that, we do what we call mortality verification for pension funds, state pensions. It's because we, we know where every mortality occurs in the United States.

But what's fascinating about that is that most states don't know how that mortality occurred.

If you look at death certificates and someone has stage four cancer, but they pass away in an automobile accident, death certificate says automobile accident, not stage four cancer. We knew it was stage four cancer.

That helps future prognosis and diagnosis of medical disease and even potentially help forecast and how things could affect the next pandemic. So that data piece of is super, super valuable.

And I would suggest that as a public company though our core focus is education around lifespan, longevity and healthspan. And then these other financial pieces all fall into place quite nicely and you build off of that.

And that's where I see in the next decade that the financial planning model is going to look much different. We're going to be having these conversations and really interesting detail customizable financial planning.

And also the last piece I would say to that is that we know that there's $3 trillion of transfer of wealth on an annual basis due to you know, generational transfer. Yet so many financial advisors complain how they maybe don't participate in that next generation.

If you start with a conversation related to your client's lifespan and then have that lifespan conversation with the next generation, things like how to plan for long term care and how to put those things in motion and giving them some real statistics, hey, mom and dad were you know, and telling them to their children, your mom and dad are at a 7 to 10 year life expectancy. Here's the actual output. Let's have a conversation on how this wealth transfers to you. That's going to change I think everything.

And so you know, as a public company we're, we're, we're super focused on that and we're, we're looking and actively speaking to large RIA independent broker dealers on this topic right now.

Andres Sandate, ATLalts: 00:22:57

Exciting. Well, I'm, I'm glad we could get a few minutes of your time, Jay. I know that you guys have quite a bit on your plate. Congratulations.

With the recent acquisition. It sounds like a lot of really cool things are happening. I'm going to let you get the final word.

How can folks learn more if I'm a financial advisor, if I'm a, a family office, an ria, if I'm a home office executive trying to learn more about the space because this, this content will get out there. How can they learn more about Abacus Life and opportunities for, for a partnership?

Jay Jackson, Abacus Life: 00:23:31

Simplest way abacus life.com that's our, and we have our investor relations tab there and they can go onto the investor relations tab.

They can actually subscribe to receive updates and every, every article we do, all of the updates we do related to the public company they could receive in a feed into their email every single day. We are constantly out there. We run north of 80 commercials per week in national television networks generating close to 10,000 inquiries per month.

So you know, it's pretty hard to avoid us at this point. And you know, I apologize now if they've seen me.

I, I'm, I'm, I'm on, on just about every financial news channel at this point in a blue V neck sweater. And I've gotten a lot of tease about it. But we're, we're out telling the story on their behalf, right?

We're out there trying to push this agenda and we built a calculator for them to easily access, access that net present value. So those customized solutions, they, they can learn and all about that@abacuslife.com and our symbol is ABL and you know, stands for Abacus Life.

And they can follow our stock and they can learn a lot about the industry and then look at all the products we have.

Andres Sandate, ATLalts: 00:24:36

That's great. Well, Jay, I want to thank you for coming on ATL Alts for a, a short but very informative high impact show to talk about life settlements.

Folks, check out Jay Jackson, chairman and CEO of Abacus Life. Thanks for joining me today on ATL Alts.

Jay Jackson, Abacus Life: 00:24:53

Thanks for having me.

Andres Sandate, ATLalts: 00:24:55

You're welcome.

Jay Jackson, Abacus Life: 00:25:00

And would also love to see you when I'm.