ACLI calls for prohibition of life settlement securitizations
On February 3, 2010, the American Council of Life Insurers (“ACLI”), a Washington based trade association representing the life insurance industry, issued a policy statement recommending that the securitization of life settlements be prohibited by legislation or regulation. The ACLI believes that such securitizations increase the risk of fraud in the purchase of life insurance because they may “encourage promoters of these packages to prey upon senior citizens urging seniors to settle their life insurance policies even if a settlement is not in their economic best interests.” This may lead to an increase in stranger owned life insurance transactions (“STOLI”) which are prohibited in a number of states. The ACLI also contends that life settlement securitizations pose risks for the investors because the insured may live longer than expected and “ruin” the investment return – “[i]nvesting in a life settlement contract only makes economic sense when the insured person has a relatively predictable -- and shortened -- life span.” Furthermore, there is a lack of transparency as investors are not allowed to perform due diligence by examining the settlement underwriting files, and therefore, cannot properly evaluate the investment risk.
According to industry reports, certain members of the life settlement industry have responded to the ACLI policy statement by saying that the statement fails to distinguish between legitimate settlement transactions, which the ACLI has acknowledged are acceptable, from STOLI. They also argue that securitizations are beneficial as they increase competition in the settlement marketplace, thereby allowing consumers to obtain the most money for policies they legitimately wish to sell.
Click here for a copy of the ACLI policy statement.
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