Schapiro Eyes Tougher Regs In 2010

Life settlements allow consumers to be able to reap the economic benefit that otherwise would be a windfall for life insurers. The policy owner has a contractual right recognized all the way back in 1911 in a U.S. Supreme Court decision which allows them to sell their policy for value to a third party. Life settlements involve those insureds who are over age 70 who are NOT terminally ill that find themselves with life insurance policies they no longer want, need, or can afford. They have an opportunity to receive an amount greater than surrendering their policy back to the insurer for its cash surrender value, in certain situations many times more. While not for everyone, life settlements do offer the consumer an important liquidity option not available elsewhere. The sale of a life insurance policy is a protected property right, recognized back in 1911 in a US Supreme Court case. This transaction is regulated in 37 states. Invescor applauds the actions by the Securities and Exchange Commission's Chairman Mary Schapiro to take a closer look at life settlements through the establishment of their Task Force on Life Settlements. Consumer knowledge and protection is paramount in the life settlement marketplace. Consumers should be protected through a regulatory environment that requires consistent and clear standards in transparency and disclosure. Life settlements should only be introduced by trained, qualified, and licensed financial professionals as part of a thoughtful and thorough financial planning process. Over 70% of the state's insurance departments regulate life settlements which require among other things extensive consumer disclosures which address Chairman Schapiro's concerns. Also the Financial Regulatory Authority (FINRA) has rules and has had guidance in place since 2006 which apply to their members when dealing in variable life settlement transactions.Each of the concerns raised by Chairman Schapiro regarding issues that seniors should be aware of before selling their policies are fully disclosed as required by both state and FINRA regulations. The North American Securities Administrators Association (NASAA) and FINRA have already made efforts to address investments in viatical (life) settlements and related products. Dan Curry, president of DBRS Inc., the U.S. arm of the Toronto company, who testified before the House financial services subcommittee on capital markets said that "This is not another mortgage-backed securities market" and that he "...think[s] this will be a very, very small securitization market." Mr. Curry also said that "I'd be surprised if it's more than a handful of transactions." By 2008, life settlements were a $16-billion (U.S.) industry (based on the face value of policies acquired that year) against over $27 trillion of face amount in force. That results in 5/100 of 1%. Best case scenarios suggest it will grow to between 1 - 2%.It is clearly a niche marketplace. Not all in-force policies are what investors are currently looking for. They may have been issued by the wrong insurance company, wrong type of policy, too high or too low a face amount, too high a premium, or have an insured with too long a life expectancy, etc. One of the biggest risks in life settlement investing is longevity. The longer the insured lives the more the investor has to pay in premium to keep the policies in-force until time of claim. This can have a direct impact on the investment's return. This type of investment is for the sophisticated, accredited, and institutional investors looking for to further diversify their existing portfolios. This is a long and complex transaction to begin with and poses unique risks to the investor such as longevity, not found in typical retail investments.