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
Life Settlements
Wednesday, 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
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