Mercer has outlined growing local demand for life settlements as part of the wider investment class of insurance-linked strategies.

Research by the global consulting and investment services firm has found life settlements are back on the rise after global demand slowed during the financial downturn.

The market is expected to rebound in 2010 after demand fell to $US8 billion ($8.6 billion) last year after rising in 2008 from $US5.5 billion ($5.9 billion) in 2005 to $US11.7 billion ($12.5 billion).

Life settlements are essentially a secondary market exposure to life insurance risk.

Mercer Alternatives Boutique Senior Associate Ryan Bisch says the investment class is back in vogue after the global financial crisis highlighted a lack of investment diversification.

“Life settlements provide a genuine alternative (investment) because they are based on bearing longevity risk as well as exploiting structural inefficiencies in the life insurance market, rather than mainstream capital market risk premia,” he says.

Mercer expects “early adopters” in the region to be drawn to good potential returns, but warns the investment also demands a detailed understanding of longevity risk.