InsuranceNewsNet Magazine March 2010 : Page 13
Feature Story Your Industry. One Publication. providers, promoters of life settlement artificially manufacture new life insur- ance sales to generate an inventory of policies for investors.” Analysts have said that the life settle- ment market potential ismany times its current $10 billion to $15 billion, accord- ing to a variety of estimates. The guess on the value of policies that could be converted to life settlements also var- ies, but it will be about $100 billion this year according to theConning Research report, “Life Settlements: A Buyers’ Mar- ket for Now.” The potential market could average $170 billion annually for the next decade, Conning said. ACLI spokesman Jack Dolan could not cite evidence as to why the association thought the market potential was limited but referred to unspecified LIMRA data. James O. Mitchel, LIMRA vice pres- ident of developmental research, said the Conning data is probably the best guess for market size and potential. But Mitchel agreed with the ACLI that the securitization market does have limi- tations because investors would want newer settlements and data. “Securitizing an existing block of pol- icies depends on data from who knows how many years ago,” Mitchel. “Nobody who’s selling the settlement has the money to go back and redo the life settle- ment documentation. Nobody’s going to buy it because they don’t know the cur- rentmedical background and life expec- tancies of the people in that group.That means you need a new pool.” In its most recent survey, LIMRA did not findmany peoplewhowanted to sell their policies, Mitchel said. “My personal view is that the ACLI thinks if you push securitization you’re not going to have any existing demand, and you’ll run to STOLI to meet the securitization need,”Mitchel said. But Mitchel also said he does not believemuch capital is available to fund securitization. So why should the ACLI call for banning securitization? “Did they have to go that far? Some could argue that, but I think it’s consis- tent with their position that they oppose STOLI,” Mitchel said. D l Do an sa d th ACLe ACLI is responding iid to investigations into securitizations announced in September. The Securi- ties and Exchange Commission estab- lished a Life Settlements Task Force to research securitization, among other issues. Massachusetts Secretary of State William Galvin started an investigation focusing on DRBS of Toronto, a credit- rating agency that rates life settlement bonds. And a congressional subcom- mittee conducted a hearing on the sub- ject, also in September. These all followed a New York Times article in early September, “Wall Street Pursues Profit in Bundles of Life Insur- ance,” which rang the alarm bells that big financiers who brought the world themortgage-based securitizationmelt- downwere at it again, but this timewith life settlements.The ensuing con- gressional hearing seemed to let the air out of that bubble. “You heard folks like Goldman Sachs say at the hearing that this is a drop in the bucket. There isn’t enough out there to get worried about,” said Mitchel, who also was skeptical that the securitized settlements could be an economy-buster like the mortgage- backed securities. Goldman Sachs has since exited the life settlement arena, saying that the mar- ket was not showing signs of taking off. In December, it closed its tradeable QxX mortality indexes, which tracked the lives ofmore than 100,000 people over 65 with impair- ment s who sold their
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