We've all been talking about private equity investing in life settlements for a while. The rumors have persisted for the past year and the whispers have grown louder throughout 2010. Finally, a report of movement about private equity in the life settlement world has come out naming Cerebus Capital as the funding source for Proverian Capital. Cerebrus is one of the largest PE firms in the United States.
While I am sure Proverian wouldn't admit if Cerebrus is their funding source, this is a huge win for Proverian. You know anyone that can buy Chrysler and live to tell about it is well capitalized.
I for one applaud Cerebrus for jumping into the longevity market. I have a feeling this will pave the way for other PE firms to jump in as well.
www.cerberuscapital.com
Life Settlements
Tuesday, December 21, 2010
Monday, December 13, 2010
Life Settlement Brokers And Best Practices?
The Institutional Life Markets Association, ILMA for short, came out with its list of best practices for life settlement providers. Keep in mind, the ILMA is slanted from an investor's persepective. This is a not-for-profit trade association focused on the longevity market as an investment class. In essence, this is the investor's wish list of what a life settlment transaction should have to make them, the investor, feel more comfortable.
It is hard to argue against most of their best practices. Some of the suggested items are:
1) Providers certifying the intermediary (i.e. a life settlement broker, insurance agent, financial advisor or attorney). Life settlement providers already do this to some extent, but the degree to which it is done varies dramatically.
2) Guidance to providers on transferred policies; whether policy premiums have been financed; anti-fraud plans including retention of a medical professional or underwriter capable of comparing policy applications to medical records for material discrepancies; and privacy policies; and direction on state and federal laws and regulations compliance.
3) Policy owners should only work through certified intermediaries unless the policy owner has a net worth of at least 1,000,000. Essentially, if you aren't an accredited investor type, don't think about calling Coventry yourself. This is moronic to me. Is the ILMA suggesting that those with a lower net worth aren't sufficiently sophisticated enough to handle a direct to consumer life settlement provider? Why not? Perhaps the policy owner wants to save the brokerage commission? If they are of a lower net worth, the brokerage commission is probably more important anyway. Perhaps the policy owner has excellent counsel and advice, but their advisor (whatever type they might be...estate, law, insurance, financial, etc.) isn't participating in the transaction, but merely advising on the impetus for selling the policy? We can not continue to attempt to save people from themselves or assume people are not capable of things they may very well be capable of. Trying to treat selling one's personal asset, their life insurance policy, as analogous to investing in hedge funds doesn't make sense.
While the best practices didn't explicitly call for the use of a life settlement broker, it seems implicitly communicated that the best intermediaries are life settlement brokers. No insurance producer, attorney or financial planner could realistically execute the intermediary best practices called out by the ILMA if they only attempt life settlements intermittently. Only dedicated life settlement brokers are capable of effectively establishing the market price of a policy since they are most likely to have the most well developed networks of funding sources and consistent implementation of best practices described by the ILMA. I for one agree with this assertion.
To implement the best practices across the industry in a uniform fashion will require time and financial resources. I don't know how interested providers, in a time when funding isn't pervasive, are in adopting the ILMA guidelines. Then again, if this is what investors want, perhaps the providers won't have a choice.
To read the ILMA's best practices in their entirety, please visit the ILMA's website at www.lifemarketsassociation.org
It is hard to argue against most of their best practices. Some of the suggested items are:
1) Providers certifying the intermediary (i.e. a life settlement broker, insurance agent, financial advisor or attorney). Life settlement providers already do this to some extent, but the degree to which it is done varies dramatically.
2) Guidance to providers on transferred policies; whether policy premiums have been financed; anti-fraud plans including retention of a medical professional or underwriter capable of comparing policy applications to medical records for material discrepancies; and privacy policies; and direction on state and federal laws and regulations compliance.
3) Policy owners should only work through certified intermediaries unless the policy owner has a net worth of at least 1,000,000. Essentially, if you aren't an accredited investor type, don't think about calling Coventry yourself. This is moronic to me. Is the ILMA suggesting that those with a lower net worth aren't sufficiently sophisticated enough to handle a direct to consumer life settlement provider? Why not? Perhaps the policy owner wants to save the brokerage commission? If they are of a lower net worth, the brokerage commission is probably more important anyway. Perhaps the policy owner has excellent counsel and advice, but their advisor (whatever type they might be...estate, law, insurance, financial, etc.) isn't participating in the transaction, but merely advising on the impetus for selling the policy? We can not continue to attempt to save people from themselves or assume people are not capable of things they may very well be capable of. Trying to treat selling one's personal asset, their life insurance policy, as analogous to investing in hedge funds doesn't make sense.
While the best practices didn't explicitly call for the use of a life settlement broker, it seems implicitly communicated that the best intermediaries are life settlement brokers. No insurance producer, attorney or financial planner could realistically execute the intermediary best practices called out by the ILMA if they only attempt life settlements intermittently. Only dedicated life settlement brokers are capable of effectively establishing the market price of a policy since they are most likely to have the most well developed networks of funding sources and consistent implementation of best practices described by the ILMA. I for one agree with this assertion.
To implement the best practices across the industry in a uniform fashion will require time and financial resources. I don't know how interested providers, in a time when funding isn't pervasive, are in adopting the ILMA guidelines. Then again, if this is what investors want, perhaps the providers won't have a choice.
To read the ILMA's best practices in their entirety, please visit the ILMA's website at www.lifemarketsassociation.org
Saturday, November 27, 2010
Fed Action Related To Life Settlements?
This is an interesting piece about the signifigance of the Federal Reserve to life settlements. It is part of an obvious PR blitz by LPI, but food for thought nonetheless.
WACO, Texas, Nov 16, 2010 (BUSINESS WIRE) -- The Federal Reserve recently announced that it would move ahead with its plan to buy an additional $600 billion of U.S. Treasurys, an act widely viewed as an effort to spark the nation's economy. With short term interest rates at nearly zero -- and few other available tools at its disposal -- the Fed decided to effectively "flood" money into our economy. Whether the move will achieve its intended objective remains to be seen. What is apparent is that the financial markets offer no clear paths. To combat this, many investors are adopting multi-faceted strategies to hedge against risk, volatility, or meager returns and are seeking alternative, non-correlated investments like life settlements.
A life settlement is the purchase of an existing life insurance policy from an elderly policy holder at a discount to its face value. The transaction is used by wealthy seniors, who have large and expensive policies they no longer need, to extract value from an otherwise illiquid asset. Investors are attracted to life settlements because returns are not based on unknown future market performance (as with the stock, bond or real-estate markets), but on a known discount to a stated face value, which is quantifiable over a variety of time periods.
Life settlements are priced to yield around a 3% compounded return over a ten-year period, but can yield around 10-12% if the policy matures in five years. Yields increase even more if the policy matures earlier than five years. Because of this superior return potential and lack of correlation to financial markets, life settlements are becoming increasingly attractive to qualified purchasers.
Read rest of article at Marketwatch
WACO, Texas, Nov 16, 2010 (BUSINESS WIRE) -- The Federal Reserve recently announced that it would move ahead with its plan to buy an additional $600 billion of U.S. Treasurys, an act widely viewed as an effort to spark the nation's economy. With short term interest rates at nearly zero -- and few other available tools at its disposal -- the Fed decided to effectively "flood" money into our economy. Whether the move will achieve its intended objective remains to be seen. What is apparent is that the financial markets offer no clear paths. To combat this, many investors are adopting multi-faceted strategies to hedge against risk, volatility, or meager returns and are seeking alternative, non-correlated investments like life settlements.
A life settlement is the purchase of an existing life insurance policy from an elderly policy holder at a discount to its face value. The transaction is used by wealthy seniors, who have large and expensive policies they no longer need, to extract value from an otherwise illiquid asset. Investors are attracted to life settlements because returns are not based on unknown future market performance (as with the stock, bond or real-estate markets), but on a known discount to a stated face value, which is quantifiable over a variety of time periods.
Life settlements are priced to yield around a 3% compounded return over a ten-year period, but can yield around 10-12% if the policy matures in five years. Yields increase even more if the policy matures earlier than five years. Because of this superior return potential and lack of correlation to financial markets, life settlements are becoming increasingly attractive to qualified purchasers.
Read rest of article at Marketwatch
Wednesday, November 10, 2010
NY Times Doesn't Understand Life Settlements
A recent article in the NY Times, titled Raising Cash From the Less Usual Places, seemingly tries to do a fair and balanced look at ways to pay for elder related expenses. They of course touch on life settlements. However, my gripe is this, to the uneducated life settlements are portrayed and understood to be a tool for desperate seniors who have nothing else to sell.
Life settlements have helped numerous seniors out of tough spots, prevented foreclosures and wiped out crippling debt. But for every down on their luck senior who sold a policy, there are 10 others who were affluent or even down right wealthy when they sold their life insurance policy.
As much as life settlements are depicted as a strategy for the needy, they are really a wealth or estate strategy. Consider this, the average life settlement is for a life insurance policy with a $1.7million face, while the average in force policy is less than $350k. There are some ancillary considerations for this discrepancy, but at the end of the day, rich people are selling policies not poor people.
So while reporters and misinformed politicians are reminding everyone that your food stamp eligibility might be affected if you sell your policy, the rich keep selling their policies like just another asset. So please save us the sob story about poor grandma who was broke and someone took advantage of her to buy a life insurance policy on the cheap. If Grandma was really broke, chances are she stopped paying her premiums long ago.
Life settlements have helped numerous seniors out of tough spots, prevented foreclosures and wiped out crippling debt. But for every down on their luck senior who sold a policy, there are 10 others who were affluent or even down right wealthy when they sold their life insurance policy.
As much as life settlements are depicted as a strategy for the needy, they are really a wealth or estate strategy. Consider this, the average life settlement is for a life insurance policy with a $1.7million face, while the average in force policy is less than $350k. There are some ancillary considerations for this discrepancy, but at the end of the day, rich people are selling policies not poor people.
So while reporters and misinformed politicians are reminding everyone that your food stamp eligibility might be affected if you sell your policy, the rich keep selling their policies like just another asset. So please save us the sob story about poor grandma who was broke and someone took advantage of her to buy a life insurance policy on the cheap. If Grandma was really broke, chances are she stopped paying her premiums long ago.
Wednesday, July 28, 2010
GAO Study Finds that Life Settlements Deliver Almost 8 Times Surrender Value to Seniors
When evaluating a life settlement, the first question is always how much will a policy sell for? The better question is, how much more will a life settlement net than surrendering it to the life insurance carrier. Financial decisions are never made in a vaccum and the relative value of an insurance asset on the scondary market is best compared with the perceived value of a surrender. The GAO has finally given some fantastic context to this discussion with a recent report.
HUDSON, Ohio--(BUSINESS WIRE)-- The U.S. Government Accountability Office recently issued a long anticipated report on the state of the emerging Life Settlement market. One of the key findings, based on analysis of over 1,000 life settlement transactions, was that seniors selling their policies in a life settlement transaction received almost 8 times as much money as they would have had they surrendered the policy to the insurance company. “This confirms what we have been saying all along, life settlements are good for consumers and result in maximizing policy value for seniors who no longer want or need their life insurance policy,” said Brian Smith, President of the Life Settlement Institute. For example, proceeds of a life settlement may help a senior pay for long term care.
Using just the 1020 policies relied upon in the study means that life settlements delivered $232 million more value to seniors than they would have received from the issuing insurance company. The study shows that seniors would have received $37.4 million if they surrendered their policy but instead received over $269 million from the life settlement transactions.
The study also found that although the vast majority of states have adopted pervasive regulation of the life settlement market, some have yet to do so and differences among state laws can be significant. Smith added: “This finding also comes as no surprise to us. We have been working with state legislators and state insurance regulators to adopt consistent model legislation across the country and eliminate such discrepancies. Last year we helped get legislation enacted in several states including New York and California. However, there are 50 states and it takes time to get these initiatives passed. The National Conference of Insurance Legislators (NCOIL) Model Life Settlement Act is a very good bill and we will continue to support its adoption around the country.”
HUDSON, Ohio--(BUSINESS WIRE)-- The U.S. Government Accountability Office recently issued a long anticipated report on the state of the emerging Life Settlement market. One of the key findings, based on analysis of over 1,000 life settlement transactions, was that seniors selling their policies in a life settlement transaction received almost 8 times as much money as they would have had they surrendered the policy to the insurance company. “This confirms what we have been saying all along, life settlements are good for consumers and result in maximizing policy value for seniors who no longer want or need their life insurance policy,” said Brian Smith, President of the Life Settlement Institute. For example, proceeds of a life settlement may help a senior pay for long term care.
Using just the 1020 policies relied upon in the study means that life settlements delivered $232 million more value to seniors than they would have received from the issuing insurance company. The study shows that seniors would have received $37.4 million if they surrendered their policy but instead received over $269 million from the life settlement transactions.
The study also found that although the vast majority of states have adopted pervasive regulation of the life settlement market, some have yet to do so and differences among state laws can be significant. Smith added: “This finding also comes as no surprise to us. We have been working with state legislators and state insurance regulators to adopt consistent model legislation across the country and eliminate such discrepancies. Last year we helped get legislation enacted in several states including New York and California. However, there are 50 states and it takes time to get these initiatives passed. The National Conference of Insurance Legislators (NCOIL) Model Life Settlement Act is a very good bill and we will continue to support its adoption around the country.”
NCOIL Drafts New Life Settlement Disclosure Model
The Life Insurance and Financial Planning Committee the National Conference of Insurance Legislators (NCOIL), Troy, N.Y., is drafting model state legislation that would require life insurers to tell policyholders that life settlements are among the alternatives to letting policies lapse, according to Georgia state Sen. Ralph Hudgens, R-Hull, Ga., the committee chair.
Hudgens says he has asked another committee member, Kentucky state Rep. Ronald Crimm, R-Louisville, Ky., to draft the model bill.
The model bill would require life insurers to advise insureds about all of the alternatives that would be available if the insureds ever decided to give up their policies.
Kentucky, Maine and Washington have enacted similar notice laws, Hudgens says.
Hudgens says he expects the model law to be introduced during the NCOIL annual meeting in Austin, Texas, in November.
Source: www.LifeandHealthInsuranceNews.com July 28, 2010
Hudgens says he has asked another committee member, Kentucky state Rep. Ronald Crimm, R-Louisville, Ky., to draft the model bill.
The model bill would require life insurers to advise insureds about all of the alternatives that would be available if the insureds ever decided to give up their policies.
Kentucky, Maine and Washington have enacted similar notice laws, Hudgens says.
Hudgens says he expects the model law to be introduced during the NCOIL annual meeting in Austin, Texas, in November.
Source: www.LifeandHealthInsuranceNews.com July 28, 2010
Tuesday, July 27, 2010
Life Settlement Industry Poised for Growth
We've been seeing evidence of a recovery in the life settlement market for the past couple of months. Providers are buying for new funding sources, brokers are closing more deals and an index that tracks the industry has been pointing to a more positive market. Scott Page, the president and CEO of the Lifeline Program, wrote a great article which provides some background information on the current life settlement market and reasons to be optimistic moving forward. As the head of an Atlanta, Ga based life settlement provider he is indeed on the front lines and has a great vantage point. The following is an excerpt from the National Underwriter, which was published on 7/26/10.
For the first time in 24 months, the forecast for the life settlement industry is bright, particularly after surviving a perfect storm situation in 2008. The life settlement market was whipsawed two years ago when a dramatic change in life expectancy tables combined with the collapse of the credit markets to nearly cripple the industry.
The fallout was significant: Credit disappeared, hedge funds fled, offers were pulled, some companies folded and consumers ultimately suffered. However, the life settlement business has once again proven to be resilient as funding sources have returned, and the industry has another opportunity to flourish—as long as it is done the right way this time. The companies in our industry need to focus primarily on the long haul, while the goals of the capital sources need to align with the goals of the providers and the rest of the industry.
At the moment, there are a number of large players poised to help bring the industry back to prior glory. But there are challenges ahead. The industry is facing what can be best described as a crisis of confidence, which can be seen at both ends of the business.
At one end, capital sources, including hedge funds and private equity groups, remain wary. Some got burned badly from polluted portfolios containing policies with insurable-interest question marks and origination concerns. Fortunately, regulators have finally cracked-down on stranger-owned policies.
At the other end, there are skeptical agents and brokers who were let down when policy offers were pulled—sometimes inexplicably, often unprofessionally and usually with little or no notice. In between, providers had little control of the situation and were forced to make excuses that left agents and brokers scrambling for answers. It was a difficult time, and the industry as a whole has the scars to prove it.
Looking back, perhaps the industry needed the shake-up, painful as it was. The life settlement industry is unique and challenging. Too many new companies jumped into the business with little experience but a lot of attitude. They quickly secured a bunch of state licenses and started vacuuming up policies without understanding the intricacies of the business. We saw ignorance of origination and insurable interest risks; poor medical underwriting; disregard for transparency and standardization; and a complete lack of understanding of how to track the insured and manage the asset class.
As previously mentioned, the future for the industry is, indeed, bright. Moving forward, the industry needs to address the confidence issues head-on and ensure that these situations never happen again. Foremost, the goals of the providers must be better aligned with the capital. Ideally, the provider companies should have their own capital or a least direct control of the capital. Transparency also emerges again as a key factor. Full disclosure of fees and commissions adds to the industry’s legitimacy, but we need to go even further and begin to present unimpeachable proof of funds when offers are made. This is of tremendous value to brokers, agents and consumers.
In the short term, a key factor is pent-up demand. Only a select few policies have been purchased during the past year, and there are thousands of seniors who are interested in selling their policies as soon as possible.
For institutions, this means that portfolios can be aggregated to specific goals very quickly and at reasonable costs. Providers who have aligned with the new capital sources have an opportunity to grow quickly but with more control over their business.
For agents and brokers, new funding sources are emerging. This will help revive a practice area and profit center that had been dormant. As the industry embraces transparency and new best practices, such as requiring proof-of-funds letters, confidence will begin to rise and the industry will once again flourish.
For consumers, there is great promise. While offers might not be at the levels of a few years ago, the market is coming back. The option to sell an insurance policy for a profit is now available again for seniors. This in itself is an encouraging development.
Improved underwriting and more sophisticated medical exams also work in the consumer’s favor. Some providers are performing in-person paramedical examinations, just like insurance companies at policy origination, to secure the most up-to-date medical picture of policyholders. This improves underwriting and in some cases will help raise offers.
After weathering the perfect storm, the industry is poised for growth. As long as the lessons learned remain at the top of the mind, and the industry is responsible with its capital while always focusing on seniors as the primary client, then the players and the pieces are in place for the life settlement industry to once again flourish.
For the first time in 24 months, the forecast for the life settlement industry is bright, particularly after surviving a perfect storm situation in 2008. The life settlement market was whipsawed two years ago when a dramatic change in life expectancy tables combined with the collapse of the credit markets to nearly cripple the industry.
The fallout was significant: Credit disappeared, hedge funds fled, offers were pulled, some companies folded and consumers ultimately suffered. However, the life settlement business has once again proven to be resilient as funding sources have returned, and the industry has another opportunity to flourish—as long as it is done the right way this time. The companies in our industry need to focus primarily on the long haul, while the goals of the capital sources need to align with the goals of the providers and the rest of the industry.
At the moment, there are a number of large players poised to help bring the industry back to prior glory. But there are challenges ahead. The industry is facing what can be best described as a crisis of confidence, which can be seen at both ends of the business.
At one end, capital sources, including hedge funds and private equity groups, remain wary. Some got burned badly from polluted portfolios containing policies with insurable-interest question marks and origination concerns. Fortunately, regulators have finally cracked-down on stranger-owned policies.
At the other end, there are skeptical agents and brokers who were let down when policy offers were pulled—sometimes inexplicably, often unprofessionally and usually with little or no notice. In between, providers had little control of the situation and were forced to make excuses that left agents and brokers scrambling for answers. It was a difficult time, and the industry as a whole has the scars to prove it.
Looking back, perhaps the industry needed the shake-up, painful as it was. The life settlement industry is unique and challenging. Too many new companies jumped into the business with little experience but a lot of attitude. They quickly secured a bunch of state licenses and started vacuuming up policies without understanding the intricacies of the business. We saw ignorance of origination and insurable interest risks; poor medical underwriting; disregard for transparency and standardization; and a complete lack of understanding of how to track the insured and manage the asset class.
As previously mentioned, the future for the industry is, indeed, bright. Moving forward, the industry needs to address the confidence issues head-on and ensure that these situations never happen again. Foremost, the goals of the providers must be better aligned with the capital. Ideally, the provider companies should have their own capital or a least direct control of the capital. Transparency also emerges again as a key factor. Full disclosure of fees and commissions adds to the industry’s legitimacy, but we need to go even further and begin to present unimpeachable proof of funds when offers are made. This is of tremendous value to brokers, agents and consumers.
In the short term, a key factor is pent-up demand. Only a select few policies have been purchased during the past year, and there are thousands of seniors who are interested in selling their policies as soon as possible.
For institutions, this means that portfolios can be aggregated to specific goals very quickly and at reasonable costs. Providers who have aligned with the new capital sources have an opportunity to grow quickly but with more control over their business.
For agents and brokers, new funding sources are emerging. This will help revive a practice area and profit center that had been dormant. As the industry embraces transparency and new best practices, such as requiring proof-of-funds letters, confidence will begin to rise and the industry will once again flourish.
For consumers, there is great promise. While offers might not be at the levels of a few years ago, the market is coming back. The option to sell an insurance policy for a profit is now available again for seniors. This in itself is an encouraging development.
Improved underwriting and more sophisticated medical exams also work in the consumer’s favor. Some providers are performing in-person paramedical examinations, just like insurance companies at policy origination, to secure the most up-to-date medical picture of policyholders. This improves underwriting and in some cases will help raise offers.
After weathering the perfect storm, the industry is poised for growth. As long as the lessons learned remain at the top of the mind, and the industry is responsible with its capital while always focusing on seniors as the primary client, then the players and the pieces are in place for the life settlement industry to once again flourish.
Saturday, July 17, 2010
Great Recession Affects Life Settlements For Seniors
As the Great Recession started to take its toll, seniors increasingly looked for liquidity in non traditional sources for their retirement. Many were quick to embrace the relatively new strategy of selling their life insurance policies in life settlements. Seniors with unwanted life insurance policies were attracted to the prospects of quick cash. However, life settlements proved to not be the panacea everyone had hoped they would be.
The current challenge seniors face when evaluating liquidity options is that their assets are worth the least when they need them the most. During the Great Recession, real estate prices have been depressed, CD's yielded paltry returns and stocks have seen very large haircuts across the board. Unfortunately, stocks, real estate and cash are where most seniors park their money. Selling a home outright or in a reverse mortgage is tough because of the real estate market. Stocks are often underwater and cash in bank accounts are generating negligible amounts of interest. Some have been lucky with gold and bonds, but most seniors have been drastically affected by the dire economic conditions facing the world over the past 2 years. As seniors looked to sell life insurance policies as life settlements during the worst economic downturn since the Depression, they were again faced with a harsh reality.
Seniors found that the value of their life insurance policies on the secondary market was also affected by the Great Recession. As credit markets and liquidity dried up, the ability of financial institutions to buy life insurance policies decreased. Their dry powder was reduced so to speak.
Some seniors sold their life insurance policies for relatively low life settlement valuations. Some weren't as lucky. Many policies went unsold due to lack of demand. Many policies that would have sold two and half years ago were surrendered or allowed to lapse. Any life settlement broker will tell you that they were flooded with policies that they couldn't sell. The supply far outweighed the demand.
While life settlements are lauded as an uncorrelated asset class, it is important to remember that basic economics still drive the life settlement market. Unfortunately, those that forgot that lesson learned the hard way when they found out life settlements aren't a silver bullet to their financial woes.
The current challenge seniors face when evaluating liquidity options is that their assets are worth the least when they need them the most. During the Great Recession, real estate prices have been depressed, CD's yielded paltry returns and stocks have seen very large haircuts across the board. Unfortunately, stocks, real estate and cash are where most seniors park their money. Selling a home outright or in a reverse mortgage is tough because of the real estate market. Stocks are often underwater and cash in bank accounts are generating negligible amounts of interest. Some have been lucky with gold and bonds, but most seniors have been drastically affected by the dire economic conditions facing the world over the past 2 years. As seniors looked to sell life insurance policies as life settlements during the worst economic downturn since the Depression, they were again faced with a harsh reality.
Seniors found that the value of their life insurance policies on the secondary market was also affected by the Great Recession. As credit markets and liquidity dried up, the ability of financial institutions to buy life insurance policies decreased. Their dry powder was reduced so to speak.
Some seniors sold their life insurance policies for relatively low life settlement valuations. Some weren't as lucky. Many policies went unsold due to lack of demand. Many policies that would have sold two and half years ago were surrendered or allowed to lapse. Any life settlement broker will tell you that they were flooded with policies that they couldn't sell. The supply far outweighed the demand.
While life settlements are lauded as an uncorrelated asset class, it is important to remember that basic economics still drive the life settlement market. Unfortunately, those that forgot that lesson learned the hard way when they found out life settlements aren't a silver bullet to their financial woes.
Monday, July 12, 2010
Life Settlement Broker Closes Doors
Life settlements broker Invescor Ltd. has shut down, citing the sluggish demand for the alternative investments last year. “You were looking at a perfect storm: The capital markets were constricted, and those who were buying policies were buying them low,” said Michael Leibowitz, president and chief executive.
He made the announcement in a memo to the firm's associates, and news of the closing was first reported in The Life Settlements Report. Invescor officially closed July 1.
In its life settlements business, Invescor was paid based on the offer price that investors quoted for a life insurance policy. But that activity slowed down last year and into the beginning of this year as institutional investors purchased fewer policies.
The slowdown in business also proved fatal to the life settlements group at The Goldman Sachs Group Inc. After dedicating significant resources to it, the company pulled the plug earlier this year.
Some institutional-investor activity is coming back, but the offers are still very low, and investors remain very selective about the policies they want to buy, Mr. Leibowitz said.
“It's just not enough volume to continue operating in that business model,” he said.
Invescor's broker-dealer — Invescor Wholesale BD Inc. — was was involved in the life settlements operation, but won't be shut down, Mr. Leibowitz said. He said that he isn't at liberty to discuss the broker-dealer in greater detail.
Observers said that the recent exits from the life settlements industry could make room for new participants.
“There will always be an ebb and flow in terms of funding sources, but certainly, investment banks and broker-dealers aren't the big players,” said Christian Evulich, vice president of business development at Amrita Financial Inc., a settlements broker. The new money is coming from domestic and international hedge funds, along with pension funds overseas, he said.
The slowdown in activity seems to have given way to a broader range of policies available to investors and an increase in funding sources, Mr. Evulich said.
But the numbers don't seem to bear that out just yet. The Amrita Life Settlement Index, which measures demand for insurance policies on the secondary market, hit 460 last month, down 14.3% from 536.6 in May.
“We're not alarmed that there are others exiting the business, and we wouldn't be surprised if there were others,” Mr. Evulich said.
By Darla Mercado, Investment News - July 11, 2010
He made the announcement in a memo to the firm's associates, and news of the closing was first reported in The Life Settlements Report. Invescor officially closed July 1.
In its life settlements business, Invescor was paid based on the offer price that investors quoted for a life insurance policy. But that activity slowed down last year and into the beginning of this year as institutional investors purchased fewer policies.
The slowdown in business also proved fatal to the life settlements group at The Goldman Sachs Group Inc. After dedicating significant resources to it, the company pulled the plug earlier this year.
Some institutional-investor activity is coming back, but the offers are still very low, and investors remain very selective about the policies they want to buy, Mr. Leibowitz said.
“It's just not enough volume to continue operating in that business model,” he said.
Invescor's broker-dealer — Invescor Wholesale BD Inc. — was was involved in the life settlements operation, but won't be shut down, Mr. Leibowitz said. He said that he isn't at liberty to discuss the broker-dealer in greater detail.
Observers said that the recent exits from the life settlements industry could make room for new participants.
“There will always be an ebb and flow in terms of funding sources, but certainly, investment banks and broker-dealers aren't the big players,” said Christian Evulich, vice president of business development at Amrita Financial Inc., a settlements broker. The new money is coming from domestic and international hedge funds, along with pension funds overseas, he said.
The slowdown in activity seems to have given way to a broader range of policies available to investors and an increase in funding sources, Mr. Evulich said.
But the numbers don't seem to bear that out just yet. The Amrita Life Settlement Index, which measures demand for insurance policies on the secondary market, hit 460 last month, down 14.3% from 536.6 in May.
“We're not alarmed that there are others exiting the business, and we wouldn't be surprised if there were others,” Mr. Evulich said.
By Darla Mercado, Investment News - July 11, 2010
Monday, June 21, 2010
J.P. Morgan Exiting Life Settlement Market
By Dealflow Media
J.P. Morgan is getting out of the life settlement market, a person familiar with the company said.
The person told The Life Settlements Wire that J.P. Morgan expects to wind down its operation over the next few months.
J.P. Morgan is the second major investment bank to exit the market in recent months. Goldman Sachs said it was leaving the market in January, disappointed in its lack of growth.
J.P. Morgan had entered the business around 2007. It had a smaller operation than its competitors, employing fewer than 10 people in its life finance business, the person familiar with the company said.
Rob Finfer, chief executive of Bethesda, Md.-based life settlement broker Integrity Capital Partners said he hasn’t seen J.P. Morgan purchasing policies for at least a year.
“I would not have referred to them as a major player in the life settlement space,” Finfer said. Still, “I’m disappointed when any funding source decides to leave the space, especially in the environment where we have so many excellent policies for sale.”
J.P. Morgan spokesman Brian Marchiony declined to comment.
J.P. Morgan is getting out of the life settlement market, a person familiar with the company said.
The person told The Life Settlements Wire that J.P. Morgan expects to wind down its operation over the next few months.
J.P. Morgan is the second major investment bank to exit the market in recent months. Goldman Sachs said it was leaving the market in January, disappointed in its lack of growth.
J.P. Morgan had entered the business around 2007. It had a smaller operation than its competitors, employing fewer than 10 people in its life finance business, the person familiar with the company said.
Rob Finfer, chief executive of Bethesda, Md.-based life settlement broker Integrity Capital Partners said he hasn’t seen J.P. Morgan purchasing policies for at least a year.
“I would not have referred to them as a major player in the life settlement space,” Finfer said. Still, “I’m disappointed when any funding source decides to leave the space, especially in the environment where we have so many excellent policies for sale.”
J.P. Morgan spokesman Brian Marchiony declined to comment.
Thursday, June 3, 2010
Life Insurers to Settle with Life Settlements?
A recent article in Seeking Alpha examined the love hate relationship between life insurance carriers and the life settlement industry. If the carriers can't beat em, should they join em? Below is an excerpt from Clark Troy's article.
New York Life and the Actuarial Society of Greater New York hosted Michael Fasano of Fasano Associates for a seminar called “Mortality Curves: Lessons from Life Settlement Underwriting” on Friday, May 28. On the face of it, this would not seem very shocking, were it not for the enmity general shown to the life settlements industry by life insurers. Life settlements, and particularly stranger-owned life insurance (STOLI), have in recent years been the bête noire of the life insurance industry. Life insurance trade association the American Council of Life Insurers has vigorously lobbied for strong legislation protecting senior citizens (and its own profitability) from fraudulent life settlement origination such as STOLI, and large states and key life settlements markets such as New York and California have enacted such laws. The life settlements industry, acknowledging that the unsavory practices of STOLI have besmirched its image, also generally supports such legislation.
However, much as it may hate and fear the life settlements industry, life insurers and reinsurers have shown an interest in life expectancy providers such as Fasano Associates (the other two leaders are American Viatical Services and 21st Services), who estimate the longevity of senior citizens who are considering entering into a life settlement transactions. These vendors provide the key data point for evaluating life settlements and, in so doing, have accumulated considerable expertise and data assets for estimating how long older people with health problems are likely to live. This is obviously something life insurers are interested in too. Although the life expectancy providers have had some pretty major hiccups along the way, they’ve acquired enough domain knowledge that insurers are curious.
Could a life insurer or reinsurer seek to partner with or acquire a life expectancy provider? It’s not outside the realm of possibility, but it would depend on pricing, which would in turn depend on how the life settlements market was doing as a whole. For the life settlements market to flourish, institutional investors need to be in a risk-seeking mode. Through the first quarter of 2010, with accommodative fiscal policy successfully encouraging a global risk trade and thinning spreads between sovereign and corporate as well as G20 and emerging market debt, prospects for life settlements -- an asset with non-correlated fixed income like returns – might have been thought to be encouraging, although in fact the flows of capital towards life settlements slowed. The big institutional investors to date have been German, primarily pension funds, and German institutional investors have other things on their minds these days.
Originally Published - Seeking Alpha, Jun 2, 2010
New York Life and the Actuarial Society of Greater New York hosted Michael Fasano of Fasano Associates for a seminar called “Mortality Curves: Lessons from Life Settlement Underwriting” on Friday, May 28. On the face of it, this would not seem very shocking, were it not for the enmity general shown to the life settlements industry by life insurers. Life settlements, and particularly stranger-owned life insurance (STOLI), have in recent years been the bête noire of the life insurance industry. Life insurance trade association the American Council of Life Insurers has vigorously lobbied for strong legislation protecting senior citizens (and its own profitability) from fraudulent life settlement origination such as STOLI, and large states and key life settlements markets such as New York and California have enacted such laws. The life settlements industry, acknowledging that the unsavory practices of STOLI have besmirched its image, also generally supports such legislation.
However, much as it may hate and fear the life settlements industry, life insurers and reinsurers have shown an interest in life expectancy providers such as Fasano Associates (the other two leaders are American Viatical Services and 21st Services), who estimate the longevity of senior citizens who are considering entering into a life settlement transactions. These vendors provide the key data point for evaluating life settlements and, in so doing, have accumulated considerable expertise and data assets for estimating how long older people with health problems are likely to live. This is obviously something life insurers are interested in too. Although the life expectancy providers have had some pretty major hiccups along the way, they’ve acquired enough domain knowledge that insurers are curious.
Could a life insurer or reinsurer seek to partner with or acquire a life expectancy provider? It’s not outside the realm of possibility, but it would depend on pricing, which would in turn depend on how the life settlements market was doing as a whole. For the life settlements market to flourish, institutional investors need to be in a risk-seeking mode. Through the first quarter of 2010, with accommodative fiscal policy successfully encouraging a global risk trade and thinning spreads between sovereign and corporate as well as G20 and emerging market debt, prospects for life settlements -- an asset with non-correlated fixed income like returns – might have been thought to be encouraging, although in fact the flows of capital towards life settlements slowed. The big institutional investors to date have been German, primarily pension funds, and German institutional investors have other things on their minds these days.
Originally Published - Seeking Alpha, Jun 2, 2010
Tuesday, May 18, 2010
Texas called Wild West Of Life Settlements.
As most know, life settlement legislation varies from state to state. Texas has been pegged as the "Wild West" for life settlements by Dave Lieber of the Star Telegram. He asserts that lax regulation and oversight fuel fly by night schemes. I can't disagree more from a life settlement broker's perspective. Their compliance requirements are thorough and involved. In fact, they have to approve every single page of a life settlement broker's website before it can be considered in compliance. Nonetheless, he has an interesting point of view. Below is an excerpt so you can make up your own mind:
Ninety-nine years ago, legendary U.S. Supreme Court Justice Oliver Wendell Holmes Jr. wrote an opinion that a life insurance policy was a person's property and could be sold.
A century later, the concept has morphed into "life settlement" contracts, also called "death bets" or "death contracts."
People who need quick cash can sell their policies to licensed brokers, who then sell them to third-party investors.
The investors pay the premiums until the person dies. Then all the benefits go to the investors instead of the original beneficiaries. If someone lives longer than expected, investors may lose money. Otherwise, the investor wins.
"You're betting on death," says Joe Rotunda, director of the Texas State Securities Board's enforcement division. "You're betting somebody is going to die by a certain date and you're not going to have to shell out any additional money until you see a return on your investment. It sounds good, but there's a lot of risk involved."
Life insurance policies are often bundled together and sold on Wall Street. These are called "death bonds." Investors don't know whose policies they are buying.
Under Texas law, policies sold this way must be registered as securities. But in practice, some life settlement contracts are kept off the grid. Brokers aren't always licensed, and the policies they sell aren't registered. That can lead to fraud.
In fact, Rotunda says of the Texas life settlement industry, "It is the Wild West."
"It's always been a problem, but the amount of fraud we're seeing now has, anecdotally, increased tremendously," he said.
As enforcement division chief, Rotunda leads investigations into life settlement cases. In April, the board accused a Plano company of not being licensed and registered and of making misleading promises to investors. Deception is a key component of making a case for securities fraud.
But enforcement is tough. Life settlements are not regulated as thoroughly as much of the rest of the insurance and securities market, Rotunda says. One problem: The term life settlement does not appear in the Texas Securities Act.
That means each allegation of fraud has to be individually examined to see if it can meet the broad terms for securities described in state law.
"It's not as straightforward or black-and-white as it would be in other states," Rotunda says.
That has made Texas attractive to some slick operators, others say.
"Texas is a hot spot," says Gloria Wolk, a North Carolina-based consumer advocate who focuses on life settlement fraud. "Texas has more people working as brokers and providers than any other state because they don't provide oversight. There is no regulation. When things get really hot about some company, with too many complaints, then the state goes and does something."
Rotunda acknowledges that his hands are sometimes tied by the law but says his agency still goes after those who break the rules.
Read more: http://www.star-telegram.com/2010/05/01/2156969/texas-is-the-wild-west-of-life.html#ixzz0v1CUYfqf
Ninety-nine years ago, legendary U.S. Supreme Court Justice Oliver Wendell Holmes Jr. wrote an opinion that a life insurance policy was a person's property and could be sold.
A century later, the concept has morphed into "life settlement" contracts, also called "death bets" or "death contracts."
People who need quick cash can sell their policies to licensed brokers, who then sell them to third-party investors.
The investors pay the premiums until the person dies. Then all the benefits go to the investors instead of the original beneficiaries. If someone lives longer than expected, investors may lose money. Otherwise, the investor wins.
"You're betting on death," says Joe Rotunda, director of the Texas State Securities Board's enforcement division. "You're betting somebody is going to die by a certain date and you're not going to have to shell out any additional money until you see a return on your investment. It sounds good, but there's a lot of risk involved."
Life insurance policies are often bundled together and sold on Wall Street. These are called "death bonds." Investors don't know whose policies they are buying.
Under Texas law, policies sold this way must be registered as securities. But in practice, some life settlement contracts are kept off the grid. Brokers aren't always licensed, and the policies they sell aren't registered. That can lead to fraud.
In fact, Rotunda says of the Texas life settlement industry, "It is the Wild West."
"It's always been a problem, but the amount of fraud we're seeing now has, anecdotally, increased tremendously," he said.
As enforcement division chief, Rotunda leads investigations into life settlement cases. In April, the board accused a Plano company of not being licensed and registered and of making misleading promises to investors. Deception is a key component of making a case for securities fraud.
But enforcement is tough. Life settlements are not regulated as thoroughly as much of the rest of the insurance and securities market, Rotunda says. One problem: The term life settlement does not appear in the Texas Securities Act.
That means each allegation of fraud has to be individually examined to see if it can meet the broad terms for securities described in state law.
"It's not as straightforward or black-and-white as it would be in other states," Rotunda says.
That has made Texas attractive to some slick operators, others say.
"Texas is a hot spot," says Gloria Wolk, a North Carolina-based consumer advocate who focuses on life settlement fraud. "Texas has more people working as brokers and providers than any other state because they don't provide oversight. There is no regulation. When things get really hot about some company, with too many complaints, then the state goes and does something."
Rotunda acknowledges that his hands are sometimes tied by the law but says his agency still goes after those who break the rules.
Read more: http://www.star-telegram.com/2010/05/01/2156969/texas-is-the-wild-west-of-life.html#ixzz0v1CUYfqf
Wednesday, April 28, 2010
Brokers See Life Settlement Growth Opportunities
Thank God we are finally seeing some positive news from and about life settlement brokers. It appears things may be turning around in the life settlement industry! Finally! Below is an excerpt from a recent National Underwriter Magazine article by Trevor Thomas. It was published on 4/12/2010.
The life settlement business has been set back by the recession, but a number of factors are pointing to growth opportunities, according to settlement brokers speaking on at panel at the recent Life Settlement Summit in Miami.
More educated buyers and more realistic life expectancies are helping to create a demand for “quality paper,” said Mike Liebowitz, president and chief executive officer, Invescor Ltd., Farmington Hills, Mich. In addition, projected returns on settlement investments “are starting to be more realistic,” he said. “Buyers are coming back.”
Russel Dorsett, co-managing director of Select Life Corporation and director, Veris Settlement Partners, Rockville, Md., said the market “is coming back into balance. In 2009, there was a lot of paper and not enough buyers. Now we are rejecting three of five policies, so that’s improving.”
Rob Haynie, managing director, Life Insurance Settlements Inc. Fort Lauderdale, Fla., agreed there has been a recent rise in interest among buyers.
“There is more competitive bidding now than 12 months ago,” he said. “Capital is coming back now.”
But capital is looking for improved life expectancy projections, he said.
Jon B. Mendelsohn, president and chief executive officer, Ashar Group L.L.C., Orlando, Fla., says the settlement industry has helped consumers generate $1 billion from their life policies.
“We have a tremendous amount of legitimate inventories,” said Mendelsohn.
Members of the panel felt that increasing regulation of the life settlement industry by the states has been largely good for the industry.
Liebowitz said that 41 states, with 85% to 90% of the nation’s population, have regulations covering life settlements. This has helped stabilize the industry, he said.
“The fact that regulation is pervasive is a good thing all around,” Dorsett agreed. “Providers that don’t play by the rules are finding fewer places to play at all. We providers have to educate consumers and producers.”
In heavily regulated states, such as Virginia and Vermont, there is virtually no settlement activity, noted Dorsett.
“Other places, such as California and New York, will be good place to work.”
He said that although the industry can live with most recent state legislation, “there are some off-the-wall proposals being discussed. We can’t let down our guard; bad regulation once passed tends to spread to other jurisdictions.”
Haynie cited estimates by the American Council of Life Insurers, Washington that a total of $20 trillion in life face value is in force in the U.S. Yet 97% is in policies that ultimately lapse or are surrendered, he said.
“We try to get consumers good value,” he said.
Haynie said he thinks the industry needs to keep its message to seniors short, sweet and positive. “Seniors get turned off if you start with a negative,” he observed.
More than half of life insurance agents have a potential of substantial new income from settlements, Liebowitz said. “Agents often call looking for help for a client,” he reported.
Momentum for settlements dropped off in 2008-2009, but Liebowitz reported he recently has been having more conversations with life broker dealers.
“We’re starting to see momentum again,” he said. “We need legitimate, clean paper.”
“We have zero tolerance for any paper that does not seem to have originated legitimately,” Mendelsohn said. “We’ve had a tremendous amount of interest. The settlement industry is getting back to basics. We have serious players.”
Liebowitz said the life insurance industry is pushing back against life settlements “because they (insurers) realize they need to change. This industry will succeed; they can’t stop it.”
There has been a significant increase in people over-age-65 buying policies because more of them know life settlement is an option, Liebowitz reported. The vast majority of those who sell policies use the money for living expenses, he said.
The Life Settlement Summit was sponsored by National Underwriter Life & Health and other Summit Business Media publications.
The life settlement business has been set back by the recession, but a number of factors are pointing to growth opportunities, according to settlement brokers speaking on at panel at the recent Life Settlement Summit in Miami.
More educated buyers and more realistic life expectancies are helping to create a demand for “quality paper,” said Mike Liebowitz, president and chief executive officer, Invescor Ltd., Farmington Hills, Mich. In addition, projected returns on settlement investments “are starting to be more realistic,” he said. “Buyers are coming back.”
Russel Dorsett, co-managing director of Select Life Corporation and director, Veris Settlement Partners, Rockville, Md., said the market “is coming back into balance. In 2009, there was a lot of paper and not enough buyers. Now we are rejecting three of five policies, so that’s improving.”
Rob Haynie, managing director, Life Insurance Settlements Inc. Fort Lauderdale, Fla., agreed there has been a recent rise in interest among buyers.
“There is more competitive bidding now than 12 months ago,” he said. “Capital is coming back now.”
But capital is looking for improved life expectancy projections, he said.
Jon B. Mendelsohn, president and chief executive officer, Ashar Group L.L.C., Orlando, Fla., says the settlement industry has helped consumers generate $1 billion from their life policies.
“We have a tremendous amount of legitimate inventories,” said Mendelsohn.
Members of the panel felt that increasing regulation of the life settlement industry by the states has been largely good for the industry.
Liebowitz said that 41 states, with 85% to 90% of the nation’s population, have regulations covering life settlements. This has helped stabilize the industry, he said.
“The fact that regulation is pervasive is a good thing all around,” Dorsett agreed. “Providers that don’t play by the rules are finding fewer places to play at all. We providers have to educate consumers and producers.”
In heavily regulated states, such as Virginia and Vermont, there is virtually no settlement activity, noted Dorsett.
“Other places, such as California and New York, will be good place to work.”
He said that although the industry can live with most recent state legislation, “there are some off-the-wall proposals being discussed. We can’t let down our guard; bad regulation once passed tends to spread to other jurisdictions.”
Haynie cited estimates by the American Council of Life Insurers, Washington that a total of $20 trillion in life face value is in force in the U.S. Yet 97% is in policies that ultimately lapse or are surrendered, he said.
“We try to get consumers good value,” he said.
Haynie said he thinks the industry needs to keep its message to seniors short, sweet and positive. “Seniors get turned off if you start with a negative,” he observed.
More than half of life insurance agents have a potential of substantial new income from settlements, Liebowitz said. “Agents often call looking for help for a client,” he reported.
Momentum for settlements dropped off in 2008-2009, but Liebowitz reported he recently has been having more conversations with life broker dealers.
“We’re starting to see momentum again,” he said. “We need legitimate, clean paper.”
“We have zero tolerance for any paper that does not seem to have originated legitimately,” Mendelsohn said. “We’ve had a tremendous amount of interest. The settlement industry is getting back to basics. We have serious players.”
Liebowitz said the life insurance industry is pushing back against life settlements “because they (insurers) realize they need to change. This industry will succeed; they can’t stop it.”
There has been a significant increase in people over-age-65 buying policies because more of them know life settlement is an option, Liebowitz reported. The vast majority of those who sell policies use the money for living expenses, he said.
The Life Settlement Summit was sponsored by National Underwriter Life & Health and other Summit Business Media publications.
The life settlement business has been set back by the recession, but a number of factors are pointing to growth opportunities, according to settlement brokers speaking on at panel at the recent Life Settlement Summit in Miami.
More educated buyers and more realistic life expectancies are helping to create a demand for “quality paper,” said Mike Liebowitz, president and chief executive officer, Invescor Ltd., Farmington Hills, Mich. In addition, projected returns on settlement investments “are starting to be more realistic,” he said. “Buyers are coming back.”
Russel Dorsett, co-managing director of Select Life Corporation and director, Veris Settlement Partners, Rockville, Md., said the market “is coming back into balance. In 2009, there was a lot of paper and not enough buyers. Now we are rejecting three of five policies, so that’s improving.”
Rob Haynie, managing director, Life Insurance Settlements Inc. Fort Lauderdale, Fla., agreed there has been a recent rise in interest among buyers.
“There is more competitive bidding now than 12 months ago,” he said. “Capital is coming back now.”
But capital is looking for improved life expectancy projections, he said.
Jon B. Mendelsohn, president and chief executive officer, Ashar Group L.L.C., Orlando, Fla., says the settlement industry has helped consumers generate $1 billion from their life policies.
“We have a tremendous amount of legitimate inventories,” said Mendelsohn.
Members of the panel felt that increasing regulation of the life settlement industry by the states has been largely good for the industry.
Liebowitz said that 41 states, with 85% to 90% of the nation’s population, have regulations covering life settlements. This has helped stabilize the industry, he said.
“The fact that regulation is pervasive is a good thing all around,” Dorsett agreed. “Providers that don’t play by the rules are finding fewer places to play at all. We providers have to educate consumers and producers.”
In heavily regulated states, such as Virginia and Vermont, there is virtually no settlement activity, noted Dorsett.
“Other places, such as California and New York, will be good place to work.”
He said that although the industry can live with most recent state legislation, “there are some off-the-wall proposals being discussed. We can’t let down our guard; bad regulation once passed tends to spread to other jurisdictions.”
Haynie cited estimates by the American Council of Life Insurers, Washington that a total of $20 trillion in life face value is in force in the U.S. Yet 97% is in policies that ultimately lapse or are surrendered, he said.
“We try to get consumers good value,” he said.
Haynie said he thinks the industry needs to keep its message to seniors short, sweet and positive. “Seniors get turned off if you start with a negative,” he observed.
More than half of life insurance agents have a potential of substantial new income from settlements, Liebowitz said. “Agents often call looking for help for a client,” he reported.
Momentum for settlements dropped off in 2008-2009, but Liebowitz reported he recently has been having more conversations with life broker dealers.
“We’re starting to see momentum again,” he said. “We need legitimate, clean paper.”
“We have zero tolerance for any paper that does not seem to have originated legitimately,” Mendelsohn said. “We’ve had a tremendous amount of interest. The settlement industry is getting back to basics. We have serious players.”
Liebowitz said the life insurance industry is pushing back against life settlements “because they (insurers) realize they need to change. This industry will succeed; they can’t stop it.”
There has been a significant increase in people over-age-65 buying policies because more of them know life settlement is an option, Liebowitz reported. The vast majority of those who sell policies use the money for living expenses, he said.
The Life Settlement Summit was sponsored by National Underwriter Life & Health and other Summit Business Media publications.
The life settlement business has been set back by the recession, but a number of factors are pointing to growth opportunities, according to settlement brokers speaking on at panel at the recent Life Settlement Summit in Miami.
More educated buyers and more realistic life expectancies are helping to create a demand for “quality paper,” said Mike Liebowitz, president and chief executive officer, Invescor Ltd., Farmington Hills, Mich. In addition, projected returns on settlement investments “are starting to be more realistic,” he said. “Buyers are coming back.”
Russel Dorsett, co-managing director of Select Life Corporation and director, Veris Settlement Partners, Rockville, Md., said the market “is coming back into balance. In 2009, there was a lot of paper and not enough buyers. Now we are rejecting three of five policies, so that’s improving.”
Rob Haynie, managing director, Life Insurance Settlements Inc. Fort Lauderdale, Fla., agreed there has been a recent rise in interest among buyers.
“There is more competitive bidding now than 12 months ago,” he said. “Capital is coming back now.”
But capital is looking for improved life expectancy projections, he said.
Jon B. Mendelsohn, president and chief executive officer, Ashar Group L.L.C., Orlando, Fla., says the settlement industry has helped consumers generate $1 billion from their life policies.
“We have a tremendous amount of legitimate inventories,” said Mendelsohn.
Members of the panel felt that increasing regulation of the life settlement industry by the states has been largely good for the industry.
Liebowitz said that 41 states, with 85% to 90% of the nation’s population, have regulations covering life settlements. This has helped stabilize the industry, he said.
“The fact that regulation is pervasive is a good thing all around,” Dorsett agreed. “Providers that don’t play by the rules are finding fewer places to play at all. We providers have to educate consumers and producers.”
In heavily regulated states, such as Virginia and Vermont, there is virtually no settlement activity, noted Dorsett.
“Other places, such as California and New York, will be good place to work.”
He said that although the industry can live with most recent state legislation, “there are some off-the-wall proposals being discussed. We can’t let down our guard; bad regulation once passed tends to spread to other jurisdictions.”
Haynie cited estimates by the American Council of Life Insurers, Washington that a total of $20 trillion in life face value is in force in the U.S. Yet 97% is in policies that ultimately lapse or are surrendered, he said.
“We try to get consumers good value,” he said.
Haynie said he thinks the industry needs to keep its message to seniors short, sweet and positive. “Seniors get turned off if you start with a negative,” he observed.
More than half of life insurance agents have a potential of substantial new income from settlements, Liebowitz said. “Agents often call looking for help for a client,” he reported.
Momentum for settlements dropped off in 2008-2009, but Liebowitz reported he recently has been having more conversations with life broker dealers.
“We’re starting to see momentum again,” he said. “We need legitimate, clean paper.”
“We have zero tolerance for any paper that does not seem to have originated legitimately,” Mendelsohn said. “We’ve had a tremendous amount of interest. The settlement industry is getting back to basics. We have serious players.”
Liebowitz said the life insurance industry is pushing back against life settlements “because they (insurers) realize they need to change. This industry will succeed; they can’t stop it.”
There has been a significant increase in people over-age-65 buying policies because more of them know life settlement is an option, Liebowitz reported. The vast majority of those who sell policies use the money for living expenses, he said.
The Life Settlement Summit was sponsored by National Underwriter Life & Health and other Summit Business Media publications.
Monday, March 1, 2010
Goldman Sachs Exits Life Settlements
National Financial Partners Corp. has taken on full ownership of Institutional Life Services LLC, a venture that The Goldman Sachs Group Inc. recently exited.
Institutional Life Services LLC started out in 2007 as a venture between NFP, affiliates of Goldman and Genworth Financial Inc. Back then, it was intended to act as a life settlement exchange.
Genworth and Goldman have since pulled out of the investment, but. According to a filing with the Securities and Exchange Commission, NFP took on full ownership of the enterprise in December.
ILS will act as a life settlement provider, rather than as a life settlement index, according to the filing. NFP also bought full ownership of Institutional Life Administration LLC.
NFP’s acquisition of the full ILS business came just before Goldman announced its departure from the life settlements arena by shuttering its QxX mortality index and closing down Longmore Capital, a life settlements provider.
Goldman’s vision of a booming institutional market simply wasn’t bearing fruit, Goldman spokesman Michael DuVally had said.
NFP has been a player on the retail side of the life settlements business. Some of its affiliates provide those services to investors who want to sell an unneeded policy.
That corner of the business hasn’t always been simple, though. NFP’s commission and fee revenue declined last year to $948.3 million, from $1.15 billion in 2008. The dropoff stemmed, in large part, from falling sales of the company’s retail life and life settlements products, which tend to be high-commission products
Further, the company’s affiliates have had a number of legal brushes related to life settlements. Media personality Larry King sued NFP-affiliated firm The Meltzer Group Inc. in 2007 for breach of fiduciary duty. He claimed he was told to buy $10 million in life insurance coverage and then sell it to another party for $550,000. Mr. King received a settlement in that claim.
In another suit filed last year in Ohio, Louis Levin, an 81-year-ancient investor, claimed NFP-affiliate Howard Kaye Insurance Agency Inc. — along with principal Howard Kaye and Barry Kaye and Associates Inc. — advised him to buy a $5 million policy. According to the suit, the defendants told Mr. Levin he would earn a “substantial profit” for selling the policy on the life settlements market. The firm wasn’t able to locate buyers, and Mr. Levin wound up spending $322,000 on premiums. He is suing for breach of contract. NFP itself was not named in any of these suits.
Institutional Life Services LLC started out in 2007 as a venture between NFP, affiliates of Goldman and Genworth Financial Inc. Back then, it was intended to act as a life settlement exchange.
Genworth and Goldman have since pulled out of the investment, but. According to a filing with the Securities and Exchange Commission, NFP took on full ownership of the enterprise in December.
ILS will act as a life settlement provider, rather than as a life settlement index, according to the filing. NFP also bought full ownership of Institutional Life Administration LLC.
NFP’s acquisition of the full ILS business came just before Goldman announced its departure from the life settlements arena by shuttering its QxX mortality index and closing down Longmore Capital, a life settlements provider.
Goldman’s vision of a booming institutional market simply wasn’t bearing fruit, Goldman spokesman Michael DuVally had said.
NFP has been a player on the retail side of the life settlements business. Some of its affiliates provide those services to investors who want to sell an unneeded policy.
That corner of the business hasn’t always been simple, though. NFP’s commission and fee revenue declined last year to $948.3 million, from $1.15 billion in 2008. The dropoff stemmed, in large part, from falling sales of the company’s retail life and life settlements products, which tend to be high-commission products
Further, the company’s affiliates have had a number of legal brushes related to life settlements. Media personality Larry King sued NFP-affiliated firm The Meltzer Group Inc. in 2007 for breach of fiduciary duty. He claimed he was told to buy $10 million in life insurance coverage and then sell it to another party for $550,000. Mr. King received a settlement in that claim.
In another suit filed last year in Ohio, Louis Levin, an 81-year-ancient investor, claimed NFP-affiliate Howard Kaye Insurance Agency Inc. — along with principal Howard Kaye and Barry Kaye and Associates Inc. — advised him to buy a $5 million policy. According to the suit, the defendants told Mr. Levin he would earn a “substantial profit” for selling the policy on the life settlements market. The firm wasn’t able to locate buyers, and Mr. Levin wound up spending $322,000 on premiums. He is suing for breach of contract. NFP itself was not named in any of these suits.
Wednesday, February 10, 2010
European Life Settlement Trade
As the life settlement market struggles to recover from a tough 2008 and 2009, a group of American life settlement representatives are embarking on a European trade mission. This is exactly the kind of proactive thinking that we need more of in the industry to lift from the difficult times we are now facing. The idea is to cultivate international activity in the US longevity market. Below is an excerpt of the press release.
LUXEMBOURG, February 08, 2010 -- Carlisle Management Company, a leading alternative assets manager and manager of the Luxembourg Long Term Growth Life Settlement Fund, today announced its sponsorship of the First European Life Settlements Trade Mission.
"We are extremely pleased to be a part of the foundation for a European based life settlement organization, ELSA sets standards for the European life settlement industry and promotes transparency by providing accurate, authoritative information to the investment community," said Tim Mol, Carlisle's Chief Operating Officer.
A life settlement is the transfer of ownership and beneficiary rights of an unwanted or unneeded life insurance policy in exchange for a cash settlement. Life settlements represent an estimated $12 billion annual secondary market and one of the fastest growing financial sectors today. As capital sources continue to search for stable returns and low volatility, life settlements are already playing a significant role in the asset allocation strategies of leading banks, financial institutions, insurance companies and mutual funds.
LUXEMBOURG, February 08, 2010 -- Carlisle Management Company, a leading alternative assets manager and manager of the Luxembourg Long Term Growth Life Settlement Fund, today announced its sponsorship of the First European Life Settlements Trade Mission.
"We are extremely pleased to be a part of the foundation for a European based life settlement organization, ELSA sets standards for the European life settlement industry and promotes transparency by providing accurate, authoritative information to the investment community," said Tim Mol, Carlisle's Chief Operating Officer.
A life settlement is the transfer of ownership and beneficiary rights of an unwanted or unneeded life insurance policy in exchange for a cash settlement. Life settlements represent an estimated $12 billion annual secondary market and one of the fastest growing financial sectors today. As capital sources continue to search for stable returns and low volatility, life settlements are already playing a significant role in the asset allocation strategies of leading banks, financial institutions, insurance companies and mutual funds.
Friday, January 29, 2010
5 Things To Know About Life Settlements
As someone who has been in the life settlement industry it gets old hearing people bash life settlements. My philosophy is that they aren't for everyone, but if they can help you or a loved one...why knock it? In the interest of being fair and balanced, I am passing along some "tips" that everyone should take into consideration about life settlements.
From Money Magazine, Jan. 26, 2010
1. Your parents may be getting sold on these
In some retirement hot spots, such as South Florida, advertising for "life settlements" is ubiquitous. The pitch? Sell us your permanent (cash-value) life insurance policy and you can have a chunk of the death benefit now. In exchange, the company buying the policy becomes the owner and beneficiary and gets the full payout when you die.
Most settlement firms want policies likely to pay off within 10 years, so the elderly are prime targets. For those who anticipate running out of money, it's an appealing idea.
You'll probably hear this sell more often in the coming years: Wall Street is turning pools of insurance policies into tradable securities (as it did with mortgages), which will increase investor demand.
2. It's hard to know a good deal from a bad one
The life settlement industry is run by small investment firms, and there isn't a central marketplace to solicit bids. So there's no "going rate." A 70-year-old man with high blood pressure and heart disease could get offers from $116,000 to $162,000 for a $1 million policy, reports broker Golden Gateway Financial (compared with about half that if he surrendered it to the insurer). Thus, it pays for anyone considering a settlement to get several bids.
3. Brokers help obscure the process
Since many settlement firms won't deal with consumers directly, shopping around typically means going to one or more brokers. But brokers' fee structures vary widely -- from 1% of the death benefit to 15% of the difference between the offer and the policy's surrender value -- and they're not always transparent. That makes it tricky to compare offers, says Connecticut insurance commissioner Thomas Sullivan. So ask for the offers minus all charges.
4. Your insurer hates them
Insurance companies assume some policyholders will stop paying premiums -- meaning the firms will have to foot only a small surrender value, vs. a big death benefit. Since investors make good on policies that might otherwise lapse, insurers pay more death benefits, which makes them none too happy.
That's led many insurers to sweeten the payout for surrendering. Some even let you partially cash out but keep the policy active at a lesser death benefit. It's worth asking the insurer what it could do for you, and weighing that against settlement offers.
5. There are alternatives
Before taking a settlement, "you have to ask, 'Who will go unprotected if this policy is sold?' " says Steven Weisbart of the Insurance Information Institute. If it's your parents who can't bear the premiums, you may want to help. It'll be worth your investment if you stand to inherit, or if keeping the policy in force means you won't be financially supporting Mom when Dad passes on.
If your folks just need money but still could benefit from the policy, help them consider other options, such as selling their home or taking out a reverse mortgage.
From Money Magazine, Jan. 26, 2010
1. Your parents may be getting sold on these
In some retirement hot spots, such as South Florida, advertising for "life settlements" is ubiquitous. The pitch? Sell us your permanent (cash-value) life insurance policy and you can have a chunk of the death benefit now. In exchange, the company buying the policy becomes the owner and beneficiary and gets the full payout when you die.
Most settlement firms want policies likely to pay off within 10 years, so the elderly are prime targets. For those who anticipate running out of money, it's an appealing idea.
You'll probably hear this sell more often in the coming years: Wall Street is turning pools of insurance policies into tradable securities (as it did with mortgages), which will increase investor demand.
2. It's hard to know a good deal from a bad one
The life settlement industry is run by small investment firms, and there isn't a central marketplace to solicit bids. So there's no "going rate." A 70-year-old man with high blood pressure and heart disease could get offers from $116,000 to $162,000 for a $1 million policy, reports broker Golden Gateway Financial (compared with about half that if he surrendered it to the insurer). Thus, it pays for anyone considering a settlement to get several bids.
3. Brokers help obscure the process
Since many settlement firms won't deal with consumers directly, shopping around typically means going to one or more brokers. But brokers' fee structures vary widely -- from 1% of the death benefit to 15% of the difference between the offer and the policy's surrender value -- and they're not always transparent. That makes it tricky to compare offers, says Connecticut insurance commissioner Thomas Sullivan. So ask for the offers minus all charges.
4. Your insurer hates them
Insurance companies assume some policyholders will stop paying premiums -- meaning the firms will have to foot only a small surrender value, vs. a big death benefit. Since investors make good on policies that might otherwise lapse, insurers pay more death benefits, which makes them none too happy.
That's led many insurers to sweeten the payout for surrendering. Some even let you partially cash out but keep the policy active at a lesser death benefit. It's worth asking the insurer what it could do for you, and weighing that against settlement offers.
5. There are alternatives
Before taking a settlement, "you have to ask, 'Who will go unprotected if this policy is sold?' " says Steven Weisbart of the Insurance Information Institute. If it's your parents who can't bear the premiums, you may want to help. It'll be worth your investment if you stand to inherit, or if keeping the policy in force means you won't be financially supporting Mom when Dad passes on.
If your folks just need money but still could benefit from the policy, help them consider other options, such as selling their home or taking out a reverse mortgage.
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