Michael Abraham

DOW JONES NEWSWIRES

The Securities and Exchange Commission charged Provident Capital Indemnity Ltd., its president and the firm’s purported outside auditor, with conducting an alleged life settlement bonding fraud.

According to the agency’s complaint, which was filed in a Virginia District Court, PCI is an offshore company located in Costa Rica that provides financial guarantee bonds on life settlements and claims to protect investors’ interests in life insurance policies by promising to pay the death benefit if the insured lives beyond his or her estimated life expectancy.

From at least 2004 to March of last year, PCI issued about 197 bonds backstopping numerous bonded offerings of investments in life insurance policies with a face value of more than $670 million.

The SEC alleges that PCI, as well as President Minor Vargas Calvo, and auditor Jorge L. Castillo misrepresented PCI’s ability to satisfy its obligations under its bonds. They allegedly made “material misrepresentations about the assets that backed PCI’s bonds, PCI’s credit rating, the availability of reinsurance to cover claims on PCI’s bonds, and whether PCI’s financial statements had been audited,” the SEC said.

The complaint further alleges that Castillo never conducted an audit of PCI and instead issued clean audit reports at Vargas’s bidding, thereby supporting the illusion that PCI had materially larger assets and greater financial wherewithal to support its obligations under the life settlement bonds.

The SEC also alleged PCI and Vargas represented that PCI was backed by a ” bouquet” of “reputable reinsurers” that would backstop PCI’s obligations under its life settlement bonds. PCI didn’t have that bouquet of reinsurance, the SEC alleges.

PCI’s website touts the company has a “fully recognized insurance company” with “strict underwriting guidelines” that is reflected in the company’s high rating with Dunn and Bradstreet. The SEC alleges that PCI’s “audited” financial statements were provided to Dunn and Bradstreet, which then issued the company’s favorable rating based on PCI’s reported net worth.

The investigation into the allegations is still ongoing. A PCI representative wasn’t immediately available to comment on the allegations.

-By John Kell

  (END) Dow Jones Newswires

  01-19-111727ET

  Copyright (c) 2011 Dow Jones & Company, Inc

Commentary by Michael Abraham:

 Unfortunately there is nothing positive one can say about this – string em up!

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201101191727dowjonesdjonline000480&title=sec-alleges-offshore-company-conducted-life-settlement-bond-fraud

SEC Probes Company Over Life-Span Data

By MARK MAREMONT And LESLIE SCISM

The Securities and Exchange Commission is investigating Life Partners Holdings Inc., a Waco, Texas, company that has arranged for investors to buy several billion dollars of life-insurance policies from their original owners, according to four people who have been contacted recently by the agency.

As part of its probe, the SEC’s enforcement division has been seeking experts to analyze the way Life Partners has estimated the life expectancies of the insured individuals, these people say. The estimates—projections of how long the people might have to live—are a crucial part of the investment equation.

The shorter an insured person’s expected life span, the more Life Partners generally can charge for that policy, because investors expect a faster payout. If the death comes later than anticipated, not only is the policy payout delayed, but investors who buy policies or parts of them must continue to pay premium bills while they wait to collect on a death benefit.

Life Partners executives on Wednesday didn’t respond to requests for comment.

Questions about the accuracy of Life Partners’ life-expectancy estimates were the focus of a December Page One article in The Wall Street Journal. The article reported that many of the insured people are living well beyond the company’s estimates, suggesting that the 10% or 15% yearly returns promoted to Life Partners’ investor clients may prove elusive for many.

The company has said it remains confident in its methodology, and that even if many insured people outlive their projected life spans, investors likely will still make respectable single-digit annual returns.

Attractive projected returns for clients are a key part of Life Partners’ formula for success. One of the fastest-growing small companies in the U.S. in recent years, Life Partners reported earnings of $29.4 million on $113 million of revenue for its fiscal year ended Feb. 28, 2010.

Life Partners says it has sold 6,400 policies with a face value of $2.8 billion to 27,000 clients since its 1991 founding. Life Partners extracts often-hefty fees in the deals, averaging $308,000 apiece for the 201 policies sold in its most recent fiscal year. Investors often buy pieces of multiple policies.

The company uses a Reno, Nev., physician, Donald T. Cassidy, to provide its life-expectancy estimates. Wednesday, Dr. Cassidy didn’t respond to requests to his office for comment. He declined to be interviewed for the Journal’s earlier story.

Rick Bergstrom, an actuary in Bellevue, Wash., who has worked in the life-settlements field since 1997, said an attorney from the SEC’s Fort Worth, Texas, office called him last week, to ask whether he could help analyze Life Partners’ life-expectancy projections.

Mr. Bergstrom said he and a partner five years ago examined Dr. Cassidy’s work for an institutional investor that was thinking of hiring the physician. They concluded Dr. Cassidy was using an “unrealistic” approach that tended to produce inaccurately short life expectancies, Mr. Bergstrom said.

Scott Gibson, an actuary at Lewis & Ellis Inc. in Richardson, Texas, said he recently received a similar call from an SEC attorney, adding that “nothing has come of it at this point.”

An SEC spokesman said he couldn’t confirm or deny the existence of any investigation into Life Partners.

In an interview with the Journal last week, an investor from St. Augustine, Fla., said he was personally assured in 2007 by Life Partners’ chief executive, Brian Pardo, that the company’s accuracy record on life-expectancy projections was “extremely high.”

The investor, Charles A. Snell, a 71-year-old commercial real-estate developer, said in 2007 he invested $750,000 in Life Partners’ fractional policies after traveling to Waco to meet with Mr. Pardo. Mr. Snell said he asked Mr. Pardo: “How accurate? Like 70 to 80%?” He said Mr. Pardo nodded and replied: “In that ballpark.”

Of the six policies Mr. Snell invested in, most of the insureds were estimated to have five years or less to live. None have yet died, and he said he recently received a notice he will owe $20,000 in additional premiums by May. Mr. Snell, who hasn’t yet earned any return on his investment, said he feels misled.

It isn’t clear what action, if any, the SEC could take involving Life Partners. Although the company is publicly traded, it won a federal appeals court ruling 15 years ago that its life-settlement transactions weren’t subject to federal securities laws.

Some states have claimed Life Partners’ fractional-policy sales make it subject to state securities law. Life Partners in 2008 settled a fraud suit filed by Colorado regulators, agreeing to repurchase policies from many investors in that state. The settlement came with no finding of fraud.

Based on data Life Partners filed with the Texas Department of Insurance, the Journal found that, for policies sold from 2002 through 2005, insured people outlived Life Partners’ projections about 90% of the time. Many of those policies were on HIV-positive people; Life Partners since 2004 mostly has sold policies on older people.

http://newsroom-magazine.com/2011/governance/justice-department/justice-charges-provident-capital-indemnity-in-massive-fraud-scheme/

Justice Charges Provident Capital Indemnity In Massive Fraud Scheme

“PCI is accused of lying to investors across the globe to sell more than half a billion dollars worth of ‘guaranteed’ bonds which turned out to be worthless,” said U.S. Attorney MacBride. “This case is another example of how the members of the Virginia Financial and Securities Fraud Task Force are working to detect, deter and punish financial fraudsters who target investors throughout Virginia, the nation and the world.”

Commentary by Michael Abraham:

 This is a real worry – can someone please explain the difference between the Life Partners business model and that of the now defunct Mutual Benefits Corporation – which cost this writer dear! I feel sorry for their investors but do hope that should this collapse a manager is appointed not a self serving liquidator!

http://online.wsj.com/article/SB10001424052748703951704576092300545767640.html

Posted on08 January 2011

Jan 07, 2011 08:06 ET

ORLANDO, FL–(Marketwire – January 7, 2011) – Recent buying activity affirms institutional investors’ growing interest in making life settlements an important part of their investment portfolios.

To meet the increased demand of investors seeking to learn more about life settlements, the Life Insurance Settlement Association (LISA) will host its first conference on March 2 tailored to the needs of institutional investors. The conference will be held in New York at the Harvard Club.

“Life settlements provide a double benefit for institutional investors. They are uncorrelated to other assets and can provide attractive returns compared with fixed income alternative investments,” Darwin Bayston, LISA’s executive director explains.

“Investors really want to understand what this asset class is all about. As the voice of the life settlement industry, we are on a mission to present an informative, unbiased and valuable one day program.” Experts will cover topics that will give institutional investors specific, technical knowledge that will facilitate their participation in the life settlement market. Among the areas to be covered are life expectancies, life settlement valuations and portfolio construction, optimizing cash flows from a life settlement portfolio and measuring a portfolio’s performance.

The conference provides a perspective particularly suitable to long-term institutional investors. It will be particularly beneficial to public and private pension fund sponsors, endowment and foundation sponsors, private equity investors, hedge fund sponsors, mutual fund managers and wealth fund managers.

Institutional investors need to understand this maturing and viable asset class which is now regulated in 40 states offering potential investors greater transparency and full disclosure. Conning & Company estimates that there was approximately $35 billion in life settlement face value in force at year-end 2009. And, the firm continues, the market has the potential to grow to roughly $100 billion over the next decade.

Qualified institutional investors will receive one complimentary registration to attend this inaugural conference.

LISA’s mission is to promote the development, integrity and reputation of the life settlement industry and to promote a competitive market for the people it serves.

For more information, contact: on LISA Darwin Bayston Executive Director (407) 894-3797 on Conference Registration or Press Credentials Events Department (407) 894-3797

Commentary by Michael Abraham 

a great initiative!

Author: Laura Miller

Troubled building society Norwich & Peterborough (N&P) has admitted its advisers gave “inappropriate” advice to a customer who invested the bulk of their SIPP in Keydata, in a case lawyers involved say mirrors dozens of other claims.

N&P, which is being circled by rivals as a potential takeover target, faces a multi-million pound claim of poor advice from hundreds of angry Keydata investors.

They allege they were mis-sold or over-exposed to life settlement fund Lifemark, which was marketed by Keydata before its collapse in 2009, following advice from N&P advisers.

Related articles

N&P have staunchly defended their advice process. But in a letter responding to one investor’s complaint seen by IFAonline it admits its 2007 recommendation was wrong for the customer.

The letter says investing £50,000, or around two-thirds of his SIPP, in a single Lifemark-backed Keydata product exposed the investor to “a greater risk” should Keydata fail.

This risk could have been “better accommodated” by investing the £50,000 across a wider range of investment funds, it adds.

Lawyers say the concession by N&P could now set a precedent for other claims against the building society from SIPP investors who believe they were over exposed to Keydata plans.

N&P has made no offer of compensation to the investor, who has now hired law firm Regulatory Legal to get his cash back.

The letter shows the investor initially wanted to buy an annuity, but was instead advised to invest two-thirds of their SIPP into a Keydata growth plan.

They were also advised to transfer their equity ISA into the monthly income option of the Keydata plan.

Regulatory Legal is poised to lodge a 390-strong group of claims with the Financial Ombudsman (FOS) against N&P amounting to about £18m.

However, CEO Matthew Bullock has said the society could suffer losses of around £50m because of its Keydata exposure.

Regulatory Legal’s clients claim they have been forced to reject an FSCS’ offer to compensate investors who relied mainly on Keydata brochures, as N&P failed to follow FSA rules to provide the documents at the point of sale.

FSCS claims are paid for by levy payers out of a shared pool. However, N&P would be forced to meet the cost of FOS rulings, which offer more generous compensation terms to investors, out of its own pocket.

As a building society N&P is not allowed to tap the stock market to raise fresh capital, but could use the merger route to consolidate its balance sheets and augment reserves.

Coventry Building Society is understood to be the front runner to take over its ailing rival, though this has not been confirmed by N&P.

Keydata was put into administration by the FSA for insolvency as a result of a tax liability on 8 June 2009.

Investors have been unable to access their investments since. Lifemark is facing severe liquidity problems and the threat of insolvency, despite receiving an emergency loan of about £7m in October, including £1.5m from N&P.

An N&P spokesperson says: “The customer has not yet suffered a loss as their investment has not yet matured.

“We are continuing to work with the regulatory community to reach a resolution for all of our Keydata customers and not only those who have made formal complaints, and we hope a final resolution is reached in the early part of 2011.”

Commentary by Michael Abraham:

This is really painful for the life settlement industry particularly as Life settlements and their operation have nothing to do with what is an out and out  fraud, but unfortunately the investment funds that were stolen were earmarked for policy purchase.  Just more grist to the mill of those who criticise settlements!
Read more: http://www.ifaonline.co.uk/ifaonline/news/1935055/-admits-66-sipp-investment-keydata-inappropriate#ixzz1CDqxVKdh

Betting on death

Puget Sound Business Journal – by Kelly Gilblom , Staff Writer

Date: Friday, January 7, 2011, 3:00am PST

Source: Conning Research & Consulting

Frenzied sales of securities backed by bad mortgages nearly toppled the financial system two years ago. Now, a new kind of security is on the rise, this one backed by the life insurance policies of senior citizens.

The securities, known as “death bonds,” and “senior life settlements,” are being sold in significant amounts in Washington state, and could be putting local banks and other investors at risk, regulators say.

The securities are created by bundling together the ordinary life insurance policies of owners who want to cash out. Owners typically sell the policies for a fraction of their payout value, …

Read more: Washington state banks are at risk buying ‘senior life settlements’ | Puget Sound Business Journal

Commentary by Michael Abraham

Let’s sell some papers – call life settlements death bonds! This article is so puerile it is not worth further comment! 

By Noah Buhayar -

Gerova Financial Group Ltd., the Bermuda-based investment company, said it acquired about $1.2 billion of insurance policies and loans and arranged financing for further purchases in the life-settlements market.

Gerova purchased the portfolio from Los Angeles-based hedge fund HM Ruby Fund LP with $11 million in cash and $94 million in stock, according to a statement released on PR Newswire today. The company said it arranged a five-year, $50 million line of credit.

Commentary by Michael Abraham:

 Thank god another blighted portfolio out of circulation!

04 Jan 2011 | 09:34

David Rawson-Mackenzie

Longevity as an asset class has typically appealed more to institutional investors but it will start appealing to retail investors too, writes Centurion’s David Rawson-Mackenzie.

Investing in longevity is certainly not for the unsophisticated investor and we would be foolish to think otherwise. However, it would also be untrue to believe that it is only suitable for investors with a Masters degree in quantum finance and nerves of steel.

Investing in longevity is not just for investors with degrees in quantum finance

Enabling knowledgeable retail investors to benefit from investing in longevity is a view that is beginning to permeate the industry but first the dilemma facing this asset class needs to be resolved: the dichotomy is that longevity is a simple concept to explain but hard to understand and this is mainly due to a lack of standardisation in the longevity market.

The lack of industry standards is particularly true for macro longevity, which relates to the general population and is generally represented by a sample size in the tens of thousands of lives: it is based on derivatives such as swaps, longevity linked notes and longevity indices.

The International Swaps and Derivatives Association (ISDA) has set industry standards for many of the over the counter (OTC) global derivatives markets, but to date there has been no standard documentation or contract for longevity derivatives.

This looks all set to change with the announcement that the ISDA is working on a standardised contract for longevity swaps as a response to the increased interest in this relatively new market sector. It is early days but a new industry standard for longevity derivatives will help transparency and mitigate risk.

The concept of a derivative can also be difficult to grasp as there is no actual “physical” asset. However, the increasing number of longevity swaps being arranged by investment banks in recent years is helping to bring longevity more into the mainstream investment markets.

The most recent one was completed by BMW with Deutsche Bank in February 2010 for $4.6bn and market analysts predict that in 2010 the longevity swap market for UK pension funds alone will reach £10bn.

The introduction of longevity indices will also help increase transparency and raise standards. The newly formed Life & Longevity Markets Association is dominated by the top investment banks including Deutsche Bank, JP Morgan, Morgan Stanley and UBS and aims to provide a consistent and transparent set of standards for developing, producing and publishing longevity indices.

Currently there are three main indices in operation: the CSFB Longevity Index launched by Credit Suisse in December 2005; JP Morgan’s LifeMetrics Longevity Index released two years later and the latest entrant into the market – the Xpect indices developed by the Deutsche Börse – the German stock exchange.

Micro longevity is a different animal; it references a much smaller pool of lives – typically between 200 and 1,000 – and includes investment products such as life tenancies and life settlements. Being based on physical assets such as property and life insurance policies, micro longevity is relatively easy to explain but there are still a number of standardisation issues.

For example, in the case of life settlements, there are limited standards of policy origination so it can be difficult to ascertain the rationale and condition under which the policy was taken out in the first instance: if this was with the sole purpose of selling it back into the market this would bring into question insurable interest and fraud.

Life tenancies do not have this origination issue: the process and documentation for buying and selling property is standardised within a legal framework, although there is the ability to customise certain aspects of the contract depending on the nature of the life tenancy structure.

For life settlements there are also no industry standards for estimating the life expectancies of the underlying insured although life tenancies are different as they are based on using standardised population tables.

A final issue with both life settlements and life tenancies is pricing as establishing a market price is not as simple as looking up the price on Bloomberg or Reuters. For example, for life settlements, if we assume that on average a life company has five different products and then multiply that by the number of life companies in the US – currently over 1,000 – then it is easy to comprehend the impossible task of getting a daily price for all the assets held in one life settlement portfolio.

Life settlements in a synthetic format could be attractive to the retail market if they were made available via a “symposium” of investment banks whereby the banks take on both the origination risk and pricing the life settlements.

There would also be more data available to generate the life expectancy estimates as the banks would use their own mortality tables. In this way, the less quantifiable risks associated with life settlements disappear and the process becomes far more transparent thus making them far more attractive to the retail investor.

The investment banks would also provide the liquidity, which is a key ingredient in any retail product, but like all good things this comes at a price: lower yields, so investors expecting returns in the double figures will be disappointed.

Yet a longevity product with low volatility and minimum correlation to the financial markets should have a place in an asset allocation model and as we move forward, the next decade will see longevity filtering into investment portfolios.

With the aid of asset allocation simulation tools, investors and their advisers will be able to remodel the historic performance of their investment portfolios to introduce different levels of longevity and demonstrate how it can affect a portfolio’s performance and risk profile.

Up until now longevity as an asset class has typically appealed more to institutional investors such as pension funds, insurance companies and investment banks rather than sophisticated retail investors.

However, with the development of more innovative products combined with increasing regulation and standardisation, it is highly probable that in the next decade we will see a longevity investment product specifically aimed at the sophisticated retail market. Watch this space!

David Rawson-Mackenzie is director of Centurion Fund Managers

Commentary by Michael Abraham:

This is an excellent article but, though David makes every effort to simplify his concepts, longevity investment if for retail is certainly only for the few.  It would be interesting to know what percentage of the investing public actually understand the article – more or less than 1% – any guesses?
Read more: http://www.investmentweek.co.uk/investment-week/feature/1934582/longevity-innovative-retail-asset-class#ixzz1CDoemIup

  January 02, 2011 at 6:25 pm

As 2010 draws to a close and the dawn of a new year beckons, those in the life settlement industry look forward with renewed optimism. By most accounts, the life settlement industry’s bottom is behind it and the secondary life insurance market is now in the process of recovering. How much and how fast is still to be determined. However, below are the Top 10 Predictions For Life Settlements in 2011.

1) Secondary Market To See Increased Buying. As everyone knows, capital has been slowly reentering the life settlement market but it is still off the highs experienced prior to the Great Recession. Much of the activity in 2010 was focused on tertiary trades and investors looking for distressed policies or portfolios. As those opportunities become less available in 2011, capital will be redirected to secondary market activities and policy origination.

2) Private Equity Will Arrive: As the investment banks and other types of investors left the market in 2009 and 2010, everyone has been anxious to identify the next big player. Much attention has been paid to Private Equity and in 2011 it will arrive. Rumors have been swirling that PEG’s have been looking for acquisitions of established market players and have recently started funding some providers.

3) Higher Life Settlement Broker Utilization In the past, it has been relatively easy for producers to act as de facto life settlement brokers. However, new industry best practices suggest life settlement brokers are preferred as intermediaries for policy owners interested in a life settlement. Not only are brokers more able to source small pockets of capital, but more stringent licensing, regulatory and compliance requirements make it difficult for anyone but brokers to effectively navigate the landscape. 2011 will see producers more likely to refer cases to life settlement brokers than try to handle them autonomously as they may have in the past.

4) Small investors will make a splash: Many have been waiting for institutional investors to flood the life settlement market with capital, while forgetting that high net worth individuals and family offices in aggregate have the potential to play a serious role. With an eye towards diversification and predictable returns, expect accredited investors and family offices to be active buyers, as never before, in 2011.

5) Continued Push Towards Regulation While approximately 20% of the states remain unregulated, the writing is on the wall that change is imminent. Some of the key unregulated states already have legislation in the works and consumer protection is a hot button issue that resonates with legislators. Expect the trend of consumer friendly life settlement regulation to continue in 2011.

6) Agents and Advisors Will Have To Address Life Settlements Like Never Before In 2011 expect numerous states to adopt the new NCOIL model act requiring carriers to notify consumers of the life settlement option when policies are to be surrendered or allowed to lapse. Agents and financial advisors that previously didn’t consider life settlements in their practices will now be forced to address the issue as carriers drive policy holders with questions and inquiries to those on the insurance front lines.

7) Greater Focus On Information Security For too long, sensitive insured and policy owner information has been transmitted between agents, brokers and providers using insecure methods such as email. In 2011, as industry best practices demand secure data transfer, expect much higher utilization of specialized life settlement software such as Settlewerx and others.

Smaller Providers While the big players aren’t going anywhere, expect the trend of boutique providers serving smaller pockets of money and niche investors to continue into 2011.

9) Asian Investment US and European investors are the stalwarts of US life settlement investments. In 2011, expect to see more capital coming from Asia and the Middle East, which are relatively untapped sources of investment capital. Newly established offices and initiatives in that part of the world should begin to produce new funding sources in the coming year.

10) Broader Buying Parameters While cherry picking great policies at a discount was the name of the game in 2010, expect 2011 to bring a broader approach to buying. With increasing competition for policies, buyers will have to consider cases that might not have otherwise received bids in 2010.

With the broader economy improving and capital returning to the markets, 2011 promises to be an improved life settlement environment. For those that were able to survive the past two tumultuous years, they will hopefully be rewarded with a fruitful 2011.

Commentary by Michael Abraham:

As you know this commentator is always positive about the market and there is little above with which I would disagree.  However, there are a number of clouds on the horizon, particularly for the retail investor, not least the failure of the German fund managed by Berlin Atlantic.  As I point out in response to another article this is hardly their fault, nonetheless the wolves are massing and with the likelihood that there will be a 100% loss of investors’ and bond holders’ funds, for more than 8000 investors, the fallout will be tremendously damaging.

 http://technorati.com/business/article/top-10-life-settlement-predictions-of/#ixzz1CDnfLYIf