Industry Groups React to Settlement Reports

Several insurance trade groups are reacting to two government reports on the life settlement market that were released late last week.

Although both the Securities and Exchange Commission Report and the Government Accountability Office reports say in the long run the settlement market could grow and that there is a service that the market provides to consumers, it also presented a picture of an industry that was badly hit by the economic crisis and other factors over the last year. The GAO report included a survey of life settlement providers who “reported purchasing policies with a total face value of around $5.50 billion, $9.03 billion, $12.95 billion, and $7.01 billion in 2006, 2007, 2008, and 2009, respectively.”

The groups include the American Council of Life Insurers, Washington; the Institutional Life Markets Association, Washington; and the Life Insurance Settlement Association, Orlando, Fla.

Frank Keating, president and CEO of the American Council of Life Insurers, Washington, thanked the SEC and the task force for its “thoughtful analysis of the life settlement market and the regulatory gaps that could expose investors to a variety of risks, including the very real possibility that settlement packages will be infected with stranger-originated life insurance (STOLI) transactions.”

“As the SEC Task Force report shows, there is a lack of transparency in life settlements and uncertainty over regulation of a market that has been awash in litigation. ACLI hopes that the report will add new momentum to efforts in the states and in Congress to protect investors, as well as senior citizens.”

“We are pleased that GAO recognized life settlement transactions as a viable option for policy owners,” said Jack Kelly, managing director of the ILMA, Washington. “We commend the GAO for highlighting the need for consistent regulation at the state level as the life settlements industry has grown.

“ILMA has consistently urged the adoption of uniform law and regulations and endorses the GAO recommendation to provide clear and consistent law and regulation of this marketplace.

“We agree with the GAO’s finding for the need to have full and complete disclosure to consumers. This finding validates the very reason ILMA was formed - to ensure life settlement transactions are conducted with transparency and the utmost integrity.

ILMA’s first guiding principle is transparency. We concur with the GAO for the need of uniformity, transparency, and disclosure. “The key recommendation from this report focuses on developing public policy consistency in the life settlements market,” concluded Kelly.

Doug Head, executive director of the LISA, Orlando, Fla., says that the reports underscore the value proposition of life settlements and how they can bring policyholders much more than they could receive if they surrendered the contract or allowed it to lapse.

The SEC report was prepared by a task force established in August 2009 by SEC Chairman Mary Schapiro. The report notes “inconsistent regulation of participants in the life settlements market, including those who arrange for the buying and selling of policies and those who provide estimates of an insured's life expectancy. In addition, the report notes that investors in individual life settlement transactions, or pools of life settlements, would benefit from the application of baseline standards of conduct to market participants.”

The GAO report was conducted at the behest of U.S. Sen. Herb Kohl, D-Wis., chair of the Special Committee on Aging. Among the conclusions reached in the report are:
“Inconsistencies in the regulation of life settlements may pose challenges. Policy owners in some states may be afforded less protection than owners in other states and face greater challenges obtaining information to protect their interests.”
Additionally, it found that “Policy owners also could complete a life settlement without knowing how much they paid brokers or whether they received a fair price, unless such information was provided voluntarily. Some investors may face challenges obtaining adequate information about life settlement investments.”