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Betty's Corner

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Life Settlements Market Is Getting Back On Track After A Rough Period


The life settlement industry is once again on a fast track. Early this year, the market was suffering from a crisis of confidence on many levels. Agents, brokers and consumers were still wary, and the capital markets were just starting to emerge after a cold retreat.

It turns out, however, that a few months can make a huge difference.

Confidence has returned, and the Wall Street heavyweights are back on the scene. Although the names may have changed, a new crop of top-notch hedge funds, private-equity groups and investment bankers are getting more and more involved.

We also have seen some major attitude shifts in recent months.

One change is that we may finally be free of the false notion that portfolios of policies from the stranger-owned-life-insurance days were being freely traded. Many investment groups entered the market expecting to find portfolios of this nature ripe for the taking.

Yes, there were thousands of policies sold to providers during the past five years. And it is theoretically possible that bundles of these policies could be cobbled together into solid, performing portfolios.

However, the reality is that these policies weren't purchased with the concept of building a solid portfolio in mind.

Frankly, the notion that a hodgepodge of policies purchased over several years, and sometimes with questionable insurable interest, could be pooled into a well-performing portfolio is akin to an urban legend. If there is a robust market for such portfolios, we haven't seen it. The reality is that today's life settlement investor is looking for a well-constructed portfolio that was aggregated with long-term returns and goals in mind.

Policy flow also has shifted in recent months. A number of companies re-entered the market this year and were inundated with policies that had been on the market for some time.

Many of these policies had been "looking for a home" since the market dried up and weren't suitable for aggregation into a portfolio. During this period, provider companies were forced to "kiss a lot of frogs" and sort through the pent-up demand in order to start aggregating new portfolios.

Recently, there has been a noticeable change in the policies coming in for evaluation.

On the whole, policies with better characteristics for life settlements are coming forth. We attribute this to two key factors.

The first is a change in agent attitude toward the industry. Confidence is returning.

The "manufactured" life settlements that pervaded the market a few years ago are now a thing of the past. Agents who went out shopping for clients to sell non-recourse premium-financed-policy schemes are gone.

The sources for policies today are traditional insurance agents who have returned to offering life settlements for their clients. These are the same agents who lost confidence in the market a few years ago when the industry was in flux, offers were being pulled, etc.

The second factor is a change that can be tied to the agent force. Because we are dealing with traditional agents - those with long-standing client relationships who are counseling their clients about life settlements - we are seeing a flow of policies much better suited to life settlements.

Policies which, for example, fit into the traditional box of "no longer being needed by the policyholder" are available, versus those being purchased for the specific point of selling later. The industry is returning to its roots after straying with the stranger-owned policies of recent years.

As a reminder, the best policies for life settlements are those owned by seniors who no longer need or who no longer can afford them.

Key-man policies, which are owned by businesses on the lives of executives who are no longer in their employ, also have been drivers of the market. We are returning to such policies at a rapid rate.

Moving forward, the overall goals of the industry remain the same as when the year started. Provider companies must continue to exercise greater control of their capital, and their overall goals need to align with that capital.

Transparency of transactions, and full disclosure of fees and commissions, must continue because they bolster our legitimacy. And provider companies must continue to present unimpeachable proof of funds when offers are made.

For agents and brokers, new funding sources will help expand the market for policies.

Because the option to sell an insurance policy for a profit is now available again for seniors, we expect to see continued growth.

New industry best practices and more-detailed medical exams will improve underwriting and in some cases help raise offers. On the whole, the future remains bright.

The life settlements industry continues to evolve at a rapid rate. Fortunately, we have seen several positive developments in recent months that show that the industry is on track and that future expectations will likely be met.

Wm. Scott Page is president and chief executive of The Lifeline Program, a provider of life settlements.

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