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.”
Life Settlements
Wednesday, July 28, 2010
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
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