Michael Abraham

Critics say plan to treat all life settlements as securities will shrink the industry – or worse; others say it’s not so

Investment News

By Darla Mercado

On Thursday, a government task force recommended treating life settlements as securities, thus bringing the instruments under tighter regulatory scrutiny.

On Friday, some market participants backed the idea. But others bashed the plan, claiming that such a proposal would place sizable burdens on providers — and offer little added protection for institutional investors.

Commentary by Michael Abraham:

At this stage unfortunately regulation is needed and if it ‘kills off’ some smaller players it will be no loss and may well produce a more settled and professional industry.  These developments are all part of the industry growing up and very much echo the experience of the UK secondary market which began its development perhaps ten tears earlier than the US life settlement market.

http://www.investmentnews.com/article/20100723/FREE/100729946

Investment News

By Darla Mercado

A recommendation by an SEC task force that life settlements be treated and regulated as securities has raised concerns that another turf battle may be brewing between state insurance regulators and federal securities cops.

 “We generally have concerns when the federal government pre-empts state authority, and this would be no exception to that, but we’ll reserve judgment until we see what action the federal government will take,” said Connecticut’s insurance commissioner, Thomas R. Sullivan, who is also chairman of the National Association of Insurance Commissioners’ Life Insurance and Annuities Committee.

Commentary by Michael Abraham:

While I applaud the statements made in the above article I think the media and political coverage of the industry and its predilection with ‘bad’ news has created an impression of an industry filled with fraudulent practice and consequently confidence is low – for instance the FSA in the UK rate life settlements as high risk and have spoken out against them.  Perhaps these changes will raise the profile and give investors and regulators more comfort.

 http://www.investmentnews.com/article/20100726/FREE/100729928

Betting on someone’s life could put your portfolio six feet under

MarketWatch

By Robert Powell

BOSTON (MarketWatch) — Life settlements are not wildly popular investments. But they are wild investments. And to that end, federal regulators and lawmakers are fast at work trying to tame these slippery products, which promise a much higher return over more traditional conservative offerings.

A life settlement is a transaction in which an individual with a life insurance policy sells that policy to another person, who then assumes responsibility for paying the premiums.

Last week, the Government Accountability Office (GAO) warned consumers about participating in life-settlement transactions “due to a lack of clear, consistent state oversight.” The Securities and Exchange Commission recommended that life settlements be clearly defined as securities so that the investors in these transactions are protected under the federal securities laws.

Commentary by Michael Abraham:

At last a well balanced and reasoned article!

http://www.marketwatch.com/story/life-settlements-are-doa-as-an-investment-2010-07-29

The Life Settlements Report

By Dealflow Media

Life expectancy providers will refine best practices to guide their profession and a new actual-to-expected mortality table to help investors compare life expectancy estimates among the underwriters.

Nate Evans, chief executive of Maple Life Financial and a new board member of the Life Insurance Settlement Association (LISA), said he will be representing the board in heading up the effort to revise the best practices and table.

Commentary by Michael Abraham:

Here we go again investors need to realise that whatever these guys do on an individual policy it is still a ‘guess’! If you like risk then buying an individual policy for the early maturity will provide massive returns though the late maturity will have the opposite effect.  If you don’t like risk you need to buy in to a large pool of seasoned policies!

http://lifesettlements.dealflowmedia.com/wires/article.cfm?title=Life-Expectancy-Providers-Refine-Best-Practices-Mortality-Table&id=acbmwargfcdjhrt

IFA online

By Katrina Baugh

Lifemark, one of the life settlements groups behind Keydata, could be facing liquidation after US hedge fund CarVal pulled a $60m rescue offer.

CarVal entered a six-week exclusivity period with Luxembourg-based Lifemark last month to try and thrash out a deal but this has failed, according to the Life Settlements Wire.

 It had already stumped up £3.5m in short-term loans to Lifemark, which ran bonds backing Keydata plans owned by 23,000 customers who invested £350m.

Commentary by Michael Abraham:

Having been involved in the liquidation of a fund I can certainly empathize with the statement that a cash injection is better than liquidation!  Unfortunately a liquidator does just that – liquidate – and assets are sold at less than their value with the additional cost of the liquidator themselves.  What is actually needed in these cases is often just good structured management over time to allow the assets to mature.  But this will not happen because regulators and liquidators want to move on and not need to continually deal with harassed investors!  Cynical but true. 

http://www.ifaonline.co.uk/ifaonline/news/1724528/lifemark-usd60m-rescue-loan-withdrawn-reports

Settlement firms balked at disclosing certain information 

Life and Health Insurance News

By Trevor Thomas

The California Department of Insurance (CDI) has revised its proposed emergency regulations regulating life settlement providers in the state to make them less onerous to life settlement industry.

Among other changes, the revised rules state that audited financial statements submitted by life settlement providers to the CDI shall be held in confidence. The earlier version of the rules would have opened that information to scrutiny by the public, a fact that members of the settlement industry objected to.

http://www.lifeandhealthinsurancenews.com/Issues/2010/July-26-2010/Pages/California-Agency-Backpedals-On-Settlement-Requisites.aspx

The Life Settlements Report

By Dealflow Media

A report by a Securities and Exchange Commission task force issued today said the commission should consider recommending that Congress amend its definition of securities to include life settlements.

The SEC task force also recommended that commission staff should continue monitoring life settlement brokers and providers to ensure that they’re meeting legal standards of conduct, and that SEC staff should monitor the development of a securitization market for life settlements.

Commentary by Michael Abraham:

Is this a sledgehammer to crack a nut? Some would say so. Certainly the SEC is known to be heavy handed and this business is not really as big as some would have you believe, it just receives a disproportionate amount of media coverage.  However, to have one rule for all states would certainly make things simpler.  The underlying problem is that all regulators so far have just taken previous legislation and to their minds amended/improved it.  What they have actually achieved is to legalise the payment of large levels of unnecessary commissions which penalise the insured!  This is one of the times when they should review the simplicity of the secondary policy regulations of their ‘junior partner’!

http://lifesettlements.dealflowmedia.com/wires/article.cfm?title=Congress-Should-Define-Life-Settlements-Securities-SEC-Report&id=pvhztpohkamgeql

Insurers Utilize Life Expectancy Analyses When Issuing Life Insurance Policies, But Their LEs Differ From LEs Developed For Older People Selling Their Life Insurance Policies

By: Insurance Studies Institute

In a generalized sense, insurers use life expectancies to price life policy products when they use mortality tables to provide a guideline of the life expectancies of each cohort market group. Mortality tables and ratings allow them to project future premium revenues vs. expected death benefit payments (including lapses), thereby knowing the potential profit potential for each line of insurance product. Based on the estimate of the insured’s life expectancy, insurers will assign the insured into one of several typical risk classifications. (These classifications may differ among insurance companies.)

The assigned risk category will determine the policy premium cost and/or whether or not a life insurance policy will be issued.

Commentary by Michael Abraham:

This is an excellent study worthy of reading and debate, but again you should note that the more lives in your investment the greater the chance of good, consistent returns.  You should also note the emphasis on medical underwriting.  In this commentator’s view much more emphasis should be placed upon lifestyle.

http://www.insurancestudies.org/wp-content/uploads/2010/08/ISI_Evolution-of-Life-Expectancies-Aug-4-2010.pdf

Investment Adviser Magazine

By: Sam Shaw

Managing Partners Limited (MPL) has signed a strategic partnership with Japanese asset manager United Investments to offer Japanese pension funds access to the returns available through life settlements.

MPL believes the Japan market for funds that invest in life settlements market could be as high as $1bn (£673.49m).

United has launched a private, locally regulated and domiciled fund, that will act as a feeder fund into MPL’s traded policies fund (TPL) – the first of its kind to invest TPLs, according to United.

Commentary by Michael Abraham:

This is an exciting development for MPL and life settlements in general as there is no doubt that once the Japanese understand and accept this product there can be much business from that country.

 http://www.ftadviser.com/InvestmentAdviser/Investments/Region/AsiaPacific/Japan/News/article/20100628/7dc1fd10-7d22-11df-8ad3-00144f2af8e8/MPL-in-strategic-deal-with-Japanese-asset-manager.jsp

The Life Settlements Report 

By: Dealflow Media

Keydata Investment Services founder Stewart Ford said the company was in the process of resolving tax liabilities with U.K. tax officials when the Financial Services Authority placed it under administration last June.

The FSA’s public statements that Keydata was insolvent because of a £5 million ($7.5 million) tax bill for investment products that were not eligible for tax-free status were “demonstrably wrong and misleading,” according to a statement released on Ford’s behalf Tuesday.

Commentary by Michael Abraham:

It is easy to assume that Ford’s comments are self serving and dishonest but that would assume that the regulators got it right.  They have yet to prove this but unfortunately Ford and KeyData have been tried and found guilty by the media.  Yet again a business and an individual could be ruined on the flimsiest of pretexts. The concept of innocent until proven guilty is unfortunately long gone.

http://lifesettlements.dealflowmedia.com/wires/article.cfm?title=Ford-Keydata-Trying-Resolve-Tax-Issues&id=lcpoxjuntsupbmb