Posts Tagged ‘Investing in Life Settlements’

Second-hand but first risk

Wednesday, November 17th, 2010

Published: August 6 2010 18:56

By Matthew Vincent, Financial Times

Trading in second-hand life insurance policies is expanding rapidly due to increased interest from banks and institutional investors, according to specialist brokers and fund managers. But independent financial advisers warn that this is still too risky an asset class for private investors to buy into.

Earlier this week, research commissioned by fund manager Managing Partners revealed that banks including HSBC, Credit Suisse, Citibank, and Allied Irish were now investing in traded life policy funds, or “life settlements“. These funds aim to generate returns by buying life insurance policies from older US citizens, maintaining the premiums on them, and receiving the proceeds when the policyholders die.

Seven out of 10 life settlement brokers in the US expect to see more policies being traded over the next five years, the research found – suggesting further growth in funds. Managing Partners said that five of the world’s top 20 banks were now investors in its own fund, which has seen assets under management rise from $176m in June 2009 to $190m in June 2010.

Later in the week, SL Investment Management, one of the biggest life settlement providers outside the US, announced it was acquiring two other firms to create a traded life policy “super-power”. Patrick McAdams, investment director at SL Investment Management and chairman of the European Life Settlement Association forecast further growth in trading. “It is a growing market – demographics will support the supply of policies.”

However, the author of the research, professor Merlin Stone, also warned that “this relatively new asset class is creating several dangers for unwitting investors”. Similarly, four of largest independent financial adviser (IFA) groups in the UK cite risk factors as the reason they still refuse to recommend traded life policy funds.

Longevity risk – miscalculating when a traded life policy pays out – can dramatically affect a fund’s performance. “For this type of investment to work, they must be valued accurately, and this entails the difficult job of getting mortality assumptions correct,” says Darius McDermott of Chelsea Financial Services. “Should subjects live longer, it will reduce the return on the investment.” Adrian Lowcock of Bestinvest says: “With valuations based on actuarial calculations on life expectancy, if these are wrong then they could be revalued very quickly.”

Liquidity risk – not being able to sell fund holdings to return cash to investors – can also mean that investors lose money. “If there were a run on these types of fund, assets cannot be sold to meet redemptions,” says Danny Cox of Hargreaves Lansdown. “While the fund has positive cash flows everything in the garden is rosy; however if this were to reverse, there is the potential for values to collapse.”

Charges levied on traded life policy funds have been called into question, too. “The FSA has raised concerns that the commission is too high . . . if the products are as good as the sales literature, suggests then the commissions being paid wouldn’t need to be so high to incentivise people to sell,” argues Lowcock.

Managing Partners has proposed a six-point check list – covering risk, charges, fees and regulation – to help private investors avoid unsuitable products. But Hargreaves Lansdown, Bestinvest, Chelsea Financial Services and Towry say they will not recommend funds to clients. “We are extremely uncomfortable with these investments, and would not wish to be involved,” says Andrew Wilson of Towry.

http://www.ft.com/cms/s/2/ff89b8e0-a182-11df-9656-00144feabdc0.html

Life Policy Group comments: some interesting comments in this article not least those of Adrian Lowcock´s – ‘if the products are as good as the sales literature, suggests then the commissions being paid wouldn’t need to be so high to incentivise people to sell,” argues Lowcock. He is surely well aware that the smaller funds have always needed to deliver better value than their established larger cousins but are unable to do so until they have a track record, and they can´t get this until someone sells the product. The large fund creates impetus by massive marketing spend, these costs all come from the fund. The smaller fund pays that same marketing money directly to the broker and allows that broker to determine whether he keeps it or credits it to the investor – some do, some don´t

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Washington State: Life Settlement Investments May Be Securities

Wednesday, November 17th, 2010

 

By Trevor Thomas, Life and health insurance

The Washington State Securities Division has issued an alert emphasizing that only licensed securities salespeople or broker-dealers can sell investments in life settlements.

Selling securities without a license is subject to criminal prosecution, division officials say.

Insured individuals use life settlement contracts to sell their policies.

In Washington, a security exists when an arrangement represents an investment of money in a common enterprise with the expectation of profits resulting primarily from the efforts of others. A life settlement investment often fits that definition, according to the division, which is part of the state’s Department of Financial Institutions.

Even if a salesperson is licensed to sell securities in Washington, the salesperson needs to check to make sure that the life settlement investments in question have been approved for sale by the broker-dealer the salesperson represents, officials say.

“Selling away,” or selling securities off the books of the broker-dealer, could result in disciplinary action by the broker-dealer and suspension or revocation of the salesperson’s license, officials warn.

The Washington State Securities Division has issued an alert emphasizing that only licensed securities salespeople or broker-dealers can sell investments in life settlements.

Selling securities without a license is subject to criminal prosecution, division officials say.

Insured individuals use life settlement contracts to sell their policies.

In Washington, a security exists when an arrangement represents an investment of money in a common enterprise with the expectation of profits resulting primarily from the efforts of others. A life settlement investment often fits that definition, according to the division, which is part of the state’s Department of Financial Institutions.

Even if a salesperson is licensed to sell securities in Washington, the salesperson needs to check to make sure that the life settlement investments in question have been approved for sale by the broker-dealer the salesperson represents, officials say.

“Selling away,” or selling securities off the books of the broker-dealer, could result in disciplinary action by the broker-dealer and suspension or revocation of the salesperson’s license, officials warn.

Life Policy Group comments:

Personally I think life settlements should be sold as securities not because they need to be but because we need some clarity!

 

http://www.lifeandhealthinsurancenews.com/News/2010/8/Pages/Washington-State-Life-Settlements-May-Be-Securities.aspx

17/08/10

Life settlements are DOA as an investment

Sunday, August 22nd, 2010

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

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. Read the SEC report at this website.

Commentary by Life Policy Group:
A well balanced and reasoned article.
http://www.marketwatch.com/story/life-settlements-are-doa-as-an-investment-2010-07-29

Investment in life settlements continues to grow

Wednesday, May 5th, 2010

By Life Policy Group

Over the past few years we have witnessed a big growth in the popularity of life settlements as an alternative investment opportunity. In comparison to other, more traditional asset classes, life settlements offer a non-correlated, market neutral investment opportunity that is independent of the volatility associated with interest rates, the equity markets, global events and property.

According to an October 2008 report, Conning Research estimated that approximately $12 billion in face amount of Life Settlements changed hands in 2007, up from $6.1 billion in 2006. By 2012, Conning estimated that figure will approach $21 billion.

As the market continues to expand, an increasing number of companies are making investment in life settlements funds available to both retail and institutional clients. The list below, which is not exhaustive, includes a number of funds and their managers, some of which Life Policy Group has or is supplying policies to:

Aurora Defined Benefits Funds
The Aurora Defined Benefits Funds

Catalyst Investment Group
The ARM Assured Income Plan

Centurion Managers
Defined Return Fund
Accelerated Life Settlement Growth Fund

EEA Investment Partners (Guernsey)
EEA Life Settlement Fund

Lansdown Atlantic
The Lansdown Atlantic Life Settlement Fund

Life Contracts International Ltd
Senior Life Settlements Asset-backed Securitization Bond

Life Settlements Funds Limited
The Life Settlements Wholesale Fund

Managing Partners Limited – MPL
Traded Policies Fund

Policy Selection
Assured Fund
Select High Security Fund, plc

Managing Partners Sees Growing Interest in Life Settlement Funds in Asia

Wednesday, February 3rd, 2010

Hedge Week

Managing Partners, an investment company that manages funds investing in life settlements, says it is encountering a groundswell of investor interest in Asia after becoming the first company to have a life settlement fund authorised for distribution to institutions in South Korea.

Commentary by Life Policy Group:

The Traded Policy Fund is managed by Managing Partners whose raison d’être is the purchase of small face value policies giving good spread even in smaller funds. With an average face value of circa $700k and over 70 life offices and a strong steady performance they appear to achieving their goals.

Read the original article here