On February 3, 2010, the American Council of Life Insurers (ACLI) published a recommendation that the securitization of life settlements 'be prohibited by legislation or regulation.' This is an extraordinary pronouncement from an industry that has consistently asserted that there is a legitimate place for life settlements in the market and that life settlements are a valuable financial tool for seniors. The recent ACLI position is not only an affront to the principal of free and open capital markets, but it cynically portrays them as a protector of consumers, when in fact, their objective is to deprive consumers of their right to receive a true market value from a financial asset: a life insurance policy which is no longer needed, wanted, or affordable; one for which they have paid good money, often for many years. "This 'recommendation' is sensationalistic nonsense, larded with half-truths leavened by out-right lies. The ACLI knowingly attempts to confuse not only the public but public policymakers by equating legitimate life settlements with stranger-originated life insurance (STOLI) while characterizing the licensed and regulated intermediaries involved in the life settlement industry as 'STOLI promoters' preying upon seniors. "The reality is that STOLI is a primary market problem, whereby a new insurance policy is applied for and issued in the absence of a valid insurable interest. In that context, the real 'STOLI promoters' are unscrupulous life insurance agents appointed by the very companies that constitute the membership base of the ACLI, as well as the life insurance companies themselves when they fail in their most fundamental underwriting responsibility: to establish a clear and valid insurable interest at the inception of the policy. LISA has consistently supported legislation in the states which makes clear to all parties that improper origination will result in a permanently invalid policy and to ensure that Insurers carry out their responsibilities at origination, not many years after issuing the policy. "From a secondary market perspective, stranger-originated life insurance simply does not make financial sense. A newly issued life insurance policy which has been properly priced and underwritten has no value as a life settlement. Nor will it have any value in two years -- or five years -- unless the insured undergoes a substantial change in health. The notion that the securitization of life settlements would create a pool of capital dedicated to creating worthless life insurance contracts flies in the face of economic logic. "'Securitization,' according to a recent ACLI statement, 'is a very effective means of market-making and encouraging rapid expansion' of any industry. More capital in the settlement market makes it likely that prices paid to consumers in the secondary market will increase, and more consumers will receive more value for their unwanted and unneeded life insurance policies. It is hard to see how that would not be a good thing for seniors owning unwanted policies with a minimal cash surrender value and ongoing premiums they no longer afford or want to pay. "From the standpoint of investors, a properly constructed portfolio of settled life insurance policies offers the potential for steady returns over long durations with low credit risk and relatively minimal correlation with other asset classes. Securitization of these portfolios, if done properly, would allow more long term institutional money managers to add longevity risk to their investment mix when and as they feel it is appropriate. LISA recognizes that there are a number of hurdles to securitization; the marketplace will either overcome them, or it will not. Any investment in any asset class has risks. To imply that the magnitude of risk associated with life settlements as an asset class is so overwhelming that a ban by regulatory fiat is required is nothing short of astonishing. It is a repudiation of the very techniques increasingly in use by insurers to provide for reserve capital for their policies. "We at LISA believe that Consumers and Investors (and this includes well informed seniors), are in the best position to determine what is in their own best financial interests and should be fully informed of the risks and opportunities of any financial decision. We also believe that well regulated markets operating in an open and transparent fashion are the heart and soul of the U.S. economy. That the ACLI would suggest otherwise is incomprehensible. With all the real issues public policymakers -- not to mention the life industry -- have on their plates, asserting an ill thought-out and unnecessary proposal like this one borders on the absurd." |
