Life Settlement and Viatical Settlement News

Our Take on the Secondary Market for Life Insurance

Consumers get more choice, and we don’t think insurers will take a big hit.

Imagine a world where we had to sell our car back to the original dealer, or our house back to the developer, or even stocks to the original seller. This would be a world without secondary markets. It’s the world that most life-insurance policyholders have faced historically. But the life settlement market is becoming increasingly fashionable as investors attempt to capitalize on what they deem to be a “mispriced” niche in the life insurance market.

Brief History
The viatical industry emerged in the late 1980s as the AIDS epidemic took hold and patients needed to finance expensive medical treatments. Terminally ill policyholders sold their life insurance policies to viatical firms for more than their cash surrender value but less than their death benefit. The viatical market morphed into the life insurance settlement market in the late 1990s when AIDS/HIV patients began living longer. In the past several years, an influx of institutional sources of capital has expanded the life settlement market considerably.

Though the size of the life settlement market is unknown, best estimates illustrate a budding trend. According to A.M. Best Co., life settlement purchases have climbed from approximately $2.5 billion in 2003 to more than $10 billion in 2005 based on face amounts. This industry remains largely unregulated.

Life settlement firms target policyholders with impaired health but not terminal illnesses. This typically includes seniors 70 years or older with no-lapse universal life insurance policies with face values of $250,000 or higher.

An Example
Joe, 70 years old, decides he no longer wants his $1 million universal life insurance policy. His health may have worsened, his beneficiaries may have died, or he simply can no longer afford the premiums. Prior to the emergence of the life settlements market, Joe would have had two choices: 1) accept the insurer’s contractually agreed upon surrender value, which is well below the policy’s fair market value, or 2) let the policy lapse and receive nothing. That’s an easy decision!

With a life settlements market, Joe could sell his policy to a life settlement broker for up to 3 times its cash surrender value. The life settlement firm will pay future premiums on the policy and receive the $1 million death benefit upon Joe’s death.

Effect on Life Insurers
There are a number of actuarial-based assumptions used to price life insurance policies, one of which is expected lapse rates. Life insurers price various policies with the supposition that some policyholders will lapse (discontinue paying premiums) rather than retaining the policy until death. Life settlements make estimating lapse assumptions more difficult because policyholders are opting to sell their policies rather than allowing them to lapse. If insurers price policies based on significantly lower lapse assumptions than are realized, insurers lose. Furthermore, the insurer cannot raise rates on guaranteed premium policies to make up the shortfall. Consequently, they could be compelled to hoard more reserves to pay claims.

We don’t think this will have a materially adverse effect on insurers. Like many industry professionals, we think an active secondary market increases the value of insurance policies to policyholders. This should increase demand, which could drive higher premiums. Also, life insurers aren’t sitting still.

What Insurers Are Doing About It
Most insurance companies offer accelerated death benefits for policyholders with impaired health as long as their life expectancy is one year or less. This competes well with viaticals but is not a close substitute for life settlements due to the limitation on life expectancy. This gap creates an opportunity for life settlement firms to capitalize on policyholders with impaired health and a life expectancy longer than one year. The fair market value of insurance policies exceeds its surrender value when the insured experiences health impairment because the death benefit is greatly accelerated. Life settlement firms currently offer policyholders fair market value; however, this gap would narrow considerably if insurance companies began offering surrender values adjusted for health impairments.

Insurance companies are taking several steps to thwart competition by life settlement firms. They are attempting to identify potential targets through the application process and cease offering policies in which premiums are financed. Insurers are also modifying underwriting assumptions and altering agents’ commission structure to emphasize retention. We think solid management teams will continue to take the appropriate steps to preserve profitability while others will sacrifice future profits for near-term growth by continuing to sell into this market.  MetLife MET and  Protective Life PL are taking measures to reduce exposure to this market. Meanwhile, John Hancock (a unit of  Manulife MFC) and  Lincoln National LNC have experienced tremendous sales growth in universal life policies during the first quarter, a prime target for life settlements.

Our Take
Some insurers support life settlements as a tool to assist consumers whose financial protection needs have changed. However, insurers specifically oppose investor-initiated life insurance transactions that are intended to circumvent insurable interest laws–in other words, life settlement firms that contact prospective policyholders to purchase an insurance policy with the intention of subsequently selling it to the life settlement firm. As long as potential profit-making opportunities are available, investors will attempt to exploit them just as in any “arbitrage” situation, whether real or perceived.

We believe that the development of the secondary market for life insurance helps consumers by providing additional alternatives. Naturally, there are inherent risks to having a third party owner with no insurable interest in the insured’s life because the investors benefit upon the insured’s demise. However, some life settlement firms withhold certain personal information when policies are sold to investor groups. Conversely, all information is disclosed when policies are sold to other life settlement companies. To the extent that policyholders perform the necessary due diligence to select a reputable life settlement firm–just as they would when selecting an insurance company–we think this market is a win-win for consumers.

Source: Dafina Dunmore, Moring Star 

For more Life Settlement Information check out:
Life Settlements Page
Senior Settlements Page
Life Insurance Settlement Page

A couple good life settlement links and articles.

Premium Finance Senior Life Settlements -  The purchase of a life insurance policy and the method of financing the purchase and preservation of a life insurance policy are separate and distinct transactions from any other policy transaction, including the potential sale of a life insurance policy in the secondary life insurance market.

Life Settlement Solutions -  Life Insurance Settlements are a popular solution for un-wanted or un-needed life insurance policies.

Life Settlement Brokers make it easy -  Life Settlement Brokers add ease to the Life Settlement Process.

Some decent reading. Enjoy

Statement of Best Practices for the Life Insurance Premium Finance Industry

SAN DIEGO–(BUSINESS WIRE)–June 7, 2006–The Life Insurance Finance Association (LIFA) represents the Life Insurance Premium Finance Industry, and other life insurance, financial planning and loan professionals who support that industry. Life insurance premium loans enable consumers to purchase and maintain valuable life insurance coverage for their family and business needs. The impetus for LIFA’s formation was the need for life insurance premium finance professionals actively to promote and embrace standards for “best business practices” and assist policymakers, insurance carriers and the public in understanding and differentiating between legitimate premium finance transactions from schemes merely cloaked as premium finance transactions that violate insurable interest, anti-rebating, anti-inducement or other insurance laws. To further this goal, LIFA’s Board of Directors has adopted the following Statement of Best Practices for the life insurance premium finance industry.

 Source: Business Wire

Trinity Financial Services Obtains Errors and Omissions Coverage, Indicating their Increasing Effectiveness in the Growing and Strengthening Life Settlement Industry

Due to Trinity Financial Services’ recent growth, success and desire to strengthen their position in the marketplace, they have chosen to obtain Errors and Omissions (E&O) Coverage. This will allow them to solidify pending agreements with a number of nationally recognized Broker-Dealers.

Altamonte Springs, FL, May 30, 2006 –(PR.COM)– Trinity Financial Services, LLC, a full service Life Settlement Brokerage firm, has obtained E&O coverage in response to their recent success and growth. Additionally, it illustrates Trinity Financial Services’ desire to continue strengthening their position in the Life Settlement marketplace by solidifying pending agreements with a number of Broker-Dealers that are looking to add Trinity Financial Services, LLC to their, “Approved Provider” list for Life Settlements.

Trinity Financial Services, LLC has been instrumental in the education, growth and development of the Life Settlement Industry and has experienced a dramatic increase in sales over the last three years. Managing Partner, Daniel Bockhorn states, “We have quickly moved to the forefront of the Life Settlement Industry. Our recent growth, success and marketing efforts have put us in the spotlight with quite a few large firms.” With the addition of many new brokerage clients comes the demand for greater protection of the Broker – Dealer and its field agents. E & O Coverage provides that protection.

With Life Settlements becoming a mainstream Estate and Financial planning product, there is an ever growing number of Broker-Dealers that are either taking a closer look at the Industry, starting to allow their Representatives to research this valuable financial option or they are realizing that they need more than just one Life Settlement Company (Provider or Broker) on their, “Approved Provider” list.

About Trinity Financial Services, LLC
Trinity Financial Services, LLC has been assisting Financial Advisors, Insurance Professionals and their Senior Clients in liquidating existing Life Insurance Policies. The three Managing Partners have a combined experience of over 28 years in the Industry. They have a unique network of strategic alliances with both Institutional and Private Funding Sources and several exclusive and semi-exclusive Funding Sources. Some of these exclusive Funding Sources have distinctive Bond Funds that allows Trinity Financial Services to secure higher offers than the industry standard. For additional information on Trinity Financial Services, LLC or on Life Settlements visit www.trinityfinancialllc.com or call 866-870-8746.

Rumson Capital Announces Company Growth as a Result of Full Disclosure; Rumson Capital’s Volume Increases 100 Percent Since Announcing Full DisclosureJENKINTOWN, Pa.–(BUSINESS WIRE)–May 25, 2006–As a direct result of being the first life settlement company to offer full disclosure of highest-bid life settlement transactions from financial institutions to brokers regardless of regulatory requirements, Rumson Capital has announced that its volume has increased by 100 percent in the past month. By offering full disclosure on life settlement transactions, Rumson Capital is fully revealing to brokers exactly how much the highest bid from the financial institution is, as well as the commission that the company will be receiving on the transaction.

Rumson Capital has received praise from brokers and financial planners alike in this new endeavor. Now, brokers working with Rumson Capital on life settlement transactions are better equipped to determine the right course of action for viators. One of the most challenging issues brokers face when negotiating a life settlement is the lack of transparency - i.e., what is the offer and where is it coming from. Because the industry’s reputation has been plagued with controversy, in anticipation of increased regulatory scrutiny, Rumson Capital is raising the bar in the life settlement industry, in the hopes of encouraging more life settlement companies to offer full disclosure.

“As soon as we announced that we would be offering full disclosure of life settlement transactions, we received an overwhelmingly positive response from the brokers,” said Robert Meyer, vice president and general counsel of Rumson Capital. “The life settlement industry is being scrutinized because regulators realize that there is a lot of ambiguity. If we can help motivate other companies to offer full disclosure and compete fairly, we will be making greater strides to help make retirees’ wealth work better and harder and, ultimately, optimizing their quality of life.”

ORLANDO, FL — (MARKET WIRE) — 05/23/2006 — The Life Insurance Settlement Association announced a new public information service that addresses proposed taxation of investment in life settlements. As a public service, LISA will offer regular updates “on proposals which would sharply conflict with the value consumers have found in the settlement of their life insurance,” such as that being proposed currently in Congress.

A life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Such transactions are usually undertaken for the purposes of estate or financial planning.

“This initiative is designed to allow us to communicate with all interested parties about emerging tax proposals which would devalue life insurance for hundreds of thousands of Americans,” says M. Bryan Freeman, president of the Association’s board.

“Various stakeholders tell us they are aware of and concerned about proposals in (Congressional) tax-writing committees to levy an excise tax of 100 percent on the costs of policy acquisition by investors in settlements,” Freeman adds. “These proposals have been identified at various times in recent months in revenue measures passed by the Senate.”

As reported in mid-May, Congress has passed tax-cut legislation which left undecided the issue of an earlier (life settlement-related) proposal circulated by tax writers. That proposal, which was included in a measure sent by the Senate to conference committee, would have taxed investor-owned policies, including those owned by charities, at punitive rates. The proposed taxes were to be levied on the investment in the policy, not directly on the seller of a policy, which would have masked the effect of this tax on policy sellers and the public.

“Even with that bit of clever obfuscation, the effect would be no less damaging for consumers,” says LISA Executive Director Doug Head. “In fact, the costs were such that there would be few, if any sales in this market as no investment dollars would come into play.” He also disputes the Congressional “score” or estimated revenue raised from the tax by the proposal, noting that, the 100 percent tax would effectively stop industry activity and result in no revenue to the U.S. Treasury.

“Right now, this industry brings many millions in taxes (to the Treasury) which would go away if this proposal were to pass,” Head says. “Though some think that the 100 percent tax would somehow raise revenue, this is like expecting revenue from a 100 percent tax on investment in gold coins. Every time you buy a coin, you have to give one to the Treasury. Who would buy? The coins have value, but if any investment is taxed at this exorbitant rate, it stops.”

Head says LISA will encourage interested persons to sign on to its site for regular updates about the measure as it is considered by Congress. As it stands now, possible “trailer tax cut legislation” — trailing the original bill, is to be attached to must-pass legislation on pension reform, he notes.

Founded in 1995 and now composed of 108 member companies, the Life Insurance Settlement Association is America’s oldest and largest trade association in its industry. LISA’s mission is to promote the development, integrity, and reputation of the life settlement industry and to facilitate a competitive market for consumers. For further information: www.lisassociation.org.

Source: Life Insurance Settlement Association  

Trinity Financial Services, LLC recently attended the Connecticut Financial Planning Association (FPA) Conference and realized that there is still a significant need to educate Life Insurance Agents and Financial Planning Professionals regarding all aspects of Life Settlements. Unfortunately, a lack of understanding about the Life Settlement process prevents many Insurance and Financial Professionals from utilizing this valuable financial option for their senior clients.

Altamonte Springs, FL, May 17, 2006 –(PR.COM)– Trinity Financial Services, LLC, a full service Life Settlement Brokerage firm attended 2006 FPA Connecticut State Conference at the Aqua Turf Club in Plantsville, Connecticut on April 26th. Representing Trinity Financial were Senior Account Managers, Craig Karem and Jeff Kaufman.

Although initially there to promote their Company, it became evident that although there was a general knowledge of Life Settlements, there was an overall lack of thorough understanding. After speaking with numerous Agents and Advisors, Mr. Kaufman stated, “…many clients are missing out on this option, simply because their Agent doesn’t recognize all of possible opportunities when a Life Settlement can be explored…” He continued,”All day we kept hearing,’…I just had a case like that and didn’t know that a Life settlement would work…’”

Mr. Karem acknowledged, ”…although Life Settlements are gaining in popularity and acceptance, it is quite apparent that even some of the most basic intricacies are unknown…” He continued to explain that although some of the attendees he spoke with knew about Life Settlements, few knew that a term policy could be liquidated on the secondary market.

Both Senior Account Managers concurred that although there are more and more inquiries from agents trying to gather information on Life Settlements, there is rarely an opportunity to educate those agents on some of the less commonly known details. They agree that the liquidation of a term life insurance policy is probably the most misconstrued knowledge about a Life Settlement.

About Trinity Financial Services, LLC

Trinity Financial Services has been assisting Financial Advisors, Insurance Professionals and their Senior Clients to sell existing Life Insurance Policies. They have also been instrumental in the education, growth and development of the Life Settlement Industry. For additional information on Trinity Financial Services, LLC or on Life Settlements visit www.trinityfinancialllc.com or call 866-870-8746.

LISA Announces New Life Settlement Information Services to Policymakers and the General Public

ORLANDO, FL — (MARKET WIRE) — 05/10/2006 — The Life Insurance Settlement Association is pleased to announce the release of its first newsletter: “The Voice of The Industry.” With this publication, LISA will introduce the life settlement industry and itself to legislators and policy makers and interested parties. “The Voice of the Industry” will provide a broad, issue oriented view of the life settlement industry and the timeliest related issues. In the first issue, which succinctly discusses a variety of emerging issues such as policy owner disclosure, the responsibilities of brokers and providers, and some of the issues related to the emerging premium finance controversy, LISA establishes its positions.

Given the rapid growth of the life settlement industry in the last decade, LISA has recognized the need for a newsletter that offers a platform for the legislator and layperson alike to stay abreast of the latest developments. “Now, more than ever, the policy-owning public needs a clear and decisive voice to speak on the importance of service this industry offers. The public should be given the opportunity to inform themselves on their policy options. This newsletter provides a forum for that effort,” declares LISA Executive Director Doug Head. LISA expects to release “The Voice of the Industry” as needed, but at least quarterly. Future issues will highlight industry positions, marketing efforts, legislation, and other timely issues.

The newsletter will be distributed, free of charge, to all interested in receiving it. To receive the newsletter, please visit: www.lisassociation.org/newsletter.

Founded in 1995 and composed of 108 member companies, the Life Insurance Settlement Association (LISA) is America’s oldest, largest, and most authoritative trade association in the life settlement industry. The mission of the LISA is to promote the development, integrity, and reputation of the life settlement industry and to facilitate a competitive market for consumers.

BOYNTON BEACH, Fla.–(BUSINESS WIRE)–May 8, 2006–Peachtree Settlement Funding (”Peachtree”) has relocated its Boca Raton, Florida offices to Boynton Beach, Florida. Management believes the move will help facilitate the anticipated future growth in Peachtree and its affiliates’ Structured Settlement, Annuity, Life Settlement, Lottery, Pre-settlement and Tobacco funding groups.

Peachtree’s new 50,000 sq. ft. offices are located in the former Boynton Beach Motorola Headquarters.

Founded in 1996, Peachtree Settlement Funding is a leader in the specialty factoring industry. Peachtree acquires a wide range of financial assets such as Structured Legal Settlements, Lottery Receivables, Life Settlements, Self-Owned Annuities and other types of deferred payment obligations.

Peachtree’s Chief Operating Officer, Tony Mitchell commented, “This is an important transition for us. We have outgrown our old offices and need the additional space to accommodate the anticipated future growth of our business.”

JENKINTOWN, Pa.–(BUSINESS WIRE)–April 20, 2006–Rumson Capital announced today that the company will be offering full disclosure of highest-bid life settlement transactions from financial institutions to brokers. Rumson Capital, an independent life settlement company that offers unique services to those seeking to maximize their financial assets, has decided to set a new standard and be the first life settlement company to offer full disclosure. Never before in the history of the industry has a life settlement company offered full disclosure regardless of regulatory requirements.

Unlike the pricing of new life policies, the price paid for a policy in a life settlement varies widely, and the determination as to whether the offer is fair may be difficult. As a result, brokers frequently face challenges including uncertainty whether they are provided with a fair price for a policy, and determining exactly what the highest offer is and where the money is coming from. To mitigate this, consumer advocates for viators recommend that at least three bids be solicited for policies. Raising the bar for the industry, by offering full disclosure on life settlement transactions, Rumson Capital will fully disclose to brokers and viators alike exactly how much the highest bid from the financial institution is as well as the commission that Rumson Capital will be receiving on the transaction.

Because the industry’s reputation has been plagued with controversy in anticipation of increased regulatory scrutiny, Rumson Capital has made the decision to fully disclose transactions while continuing to help make retirees’ wealth work better and harder and, ultimately, optimizing their quality of life.

“Realizing that the life settlement industry has been viewed as a lot of smoke and mirrors, we are trying to do our part to revolutionize an industry that needs more regulation and are hopeful that this will be the beginning of an industry-wide trend,” said Robert Meyer, vice president and general counsel of Rumson Capital. “If brokers have a clear understanding of an offer, life settlement companies will be forced to compete fairly, resulting in a greater benefit and more money to the viator. We challenge all life settlement companies to offer full disclosure.”

“It is about time,” said Todd Shelbaugh, director of insurance, National Wealth Advisors. “It is refreshing that Rumson Capital is offering full disclosure. One of the most challenging issues I face when negotiating a life settlement is the lack of transparency - ‘what is the offer, where is it coming from?’ Rumson is single-handedly changing the way brokers do business. I trust that I am providing my clients with accurate and credible information when dealing with Rumson Capital.”

In addition to full disclosure, Rumson Capital also offers OptimumLife(SM), a combination of software and analysis by in-house medical underwriters and financial analysts to more accurately determine if a life insurance policy is initially viable for sale, if a financial institution will make a sale offer and if the offer is reasonable.

Source: Business Wire