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
Life Settlements
Showing posts with label life insurance carriers. Show all posts
Showing posts with label life insurance carriers. Show all posts
Thursday, June 3, 2010
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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