Connecting the Twitter Dots

Today the Life Insurance Settlement Association, Orlando, kicked off its first full day of its 15th spring annual conference here in New York, an event it says has around 400 registered attendees. To give you brief updates, I have been respectively filing updates on twitter.com and linkedin under Jimsconn and Jim Connolly.
Now, I’m going to fill in the brief Twitter dots.
Top on the list of issues concerning LISA and the life settlement issue were just released IRS Revenue Rulings 2009-13 and 2009-14. The rulings address how both seller and buyer should treat gains, parsing, in a complex, sometimes byzantine way, what is ordinary income and what is capital gain. The ruling is creating concern since attendees say it is will hurt the life settlement industry. Some say that it will also hurt the life insurance industry and products including annuities. When asked whether LISA and the life insurance industry have a common interest, there was some agreement although a bit of doubt over whether the two can work together on the issue. There was agreement that Congress needs to be lobbied and lobbied HARD.
Alan Buerger, co-founder and CEO of Coventry, gave his assessment of some of the current issues facing the industry. Buerger sees potential for securitizations of life settlements. He refers to an American International Group, New York, securitization totaling $8.4 billion of life insurance which helped return $1.2 billion of money back to the federal government following a loan from the U.S. Treasury. Buerger thinks that there will be more securitizations that are use a smaller number of policies than the size of recent transactions.
On regulatory issues, Buerger says that the industry has to do a better job of getting the message out that it is helping the consumer by providing them with more money than they would have received from surrendering life insurance contracts.
Buerger also criticized a recent hearing on life settlements conducted by U.S. Sen. Herb Kohl’s special committee on aging. Buerger says that up until the last moment the special committee provided no information on who would be testifying and what would be said. He said that he felt Coventry was being set up and had declined to participate in the hearing. “We knew that this was a hit job.” So, he continues, an hour after his company pulled out, the special committee staff opened up with information. Ultimately, after information was released, Buerger said his firm did agree to testify.
At the state level, Buerger advises LISA attendees to watch out for an Attorney General initiative in California which will tax benefits to the beneficiary if there is not an insurable interest.
Mmmm. In an age where states are cash starved, could this be a trend?
If the California initiative has legs, it may well affect COLI and BOLI, Buerger says.
And, Buerger capped off his talk to the room full of attendees on an upbeat note. Now there are too few dollars for too many policies. But a year from now, that will reverse, he predicts.
Kurt Gearhart, a director of the life insurance group with Credit Suisse Securities in New York, has some advice for the life settlement industry. The quality of life policy originations needs to improve in order for the industry to grow and advance. The more doubt there is about how policies are originated, the more that they will back away from the life insurance as an asset class, he says.
On the issue of life expectancies, there was an interesting juxtaposition. As a session on a life settlement mortality study conducted by Watson Wyatt was being discussed, attendees were venting their anger over how life expectancies were less than accurate and impacting the willingness of investors to invest in life settlements.
Among the issues raised by the audience was how there could be a 4-5 year disparity of life expectancies. One broker complained that from the seller’s viewpoint, there is a lack of credibility that is keeping them away. The panel countered that they have not been presented with questions from investors who say they need a certain return or a certain life expectancy.
Another broker claimed that providers of life expectancies have swung to the right and are unduly conservative to protect themselves.