Insurers dead set against life settlement securitization

The American Council of Life Insurers is asking policymakers to bar the securitization of life settlements.
APR 07, 2010
The American Council of Life Insurers is asking policymakers to bar the securitization of life settlements. The group said yesterday that securitization would encourage promoters — keen on developing a secondary market — to entice seniors to sell their life insurance policies, even when it's not in their best interests to do so. The ACLI also said that carriers were worried that securitization would encourage stranger-originated life insurance practices. “Investors in life settlement securitizations will have no hard assets as security for the inevitable default and fraud losses that attach to these investments with alarming regularity,” the ACLI said in a policy statement. In addition, the ACLI argued that securitization is fraught with risk for life settlement investors, especially with seniors living longer. Further, the trade association argued that investors have no hard assets to retain in the event they end up investing in fraudulent policies. The group also noted that the rating agencies say that providers don't have a common set of standards to accurately predict seniors' life expectancies. Transparency is also another problem, since investors in a securitization aren't able to examine the settlement underwriting files. “The amount and quality of information that will be made available to investors in life settlement pools is insufficient for any respectable securitization,” the group noted. The statement was released in the midst of heated regulatory scrutiny of the life settlements industry. The Securities and Exchange Commission has created a task force to look at investor risk related to securitizing life settlements, and William Galvin, secretary of state in Massachusetts, has looked into life settlements ratings agency DBRS Ltd. to question their methodologies for rating settlement pools. Nevertheless, experts and ratings agencies have cast doubts on the ease with which such a successful securitization market could exist. Only one securitization made up exclusively of life settlements has taken place, and it was a rated transaction involving American International Group Inc. and a pool of thousands of policies provided by Coventry Group, a life settlements firm.

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