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Life Health > Life Insurance

Conference Speakers Worry About Life Financing Arrangements

By Allison Bell

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New York

The Viatical and Life Settlement American of Association didn’t need an inspirational keynote speaker to generate interest here at its latest conference.

The 325 conference participants packed into the meeting room to hear top industry executives give them ideas about where their rapidly changing industry might be heading.

The participant list included several representatives from a German investment bank along with representatives from institutional investment firms, rating agencies and professional services firms that are starting to take note of the life insurance policy resale industry.

Although some life insurance company executives continue to criticize the life settlement industry, some of the participants came from life insurance companies.

One of the VLSAA’s board members, Ramiro Rencurrell, works for the life settlement division at Magna Administrative Services Inc., Coral Gables, Fla., which is an affiliate of BMI Financial Group Inc., Coral Gables, a life and health insurance company.

Magna started investing in life settlements in 2002 and became a provider in 2004, Rencurrell said.

Getting into the life settlement market makes good sense for a life insurer, he said.

Life settlement investment returns are good, and the existence of the market is good for the consumer, he added.

“We think that producers have a responsibility to the consumer to present them with every option before the lapse of their policies,” Rencurrell said.

One challenge life settlement companies face is finding policies that are right for the secondary market: The companies are looking mainly for policies with face values of $250,000 and higher sold to insureds with life expectancies of about 2 to 10 years.

In the future, if life insurers increase standard life policy cash surrender values, “we won’t have the same opportunities,” said Alan Buerger, chief executive of Coventry First L.L.C., Fort Washington, Pa., a large life settlement company.

Life insurers concerned about the possibility that unexpected drops in lapse rates will throw off the actuarial projections used to set prices could make more aggressive efforts to stop letting policies go to the secondary market, speakers agreed.

But the life “carriers want this business,” Buerger said.

Life settlement executives at the conference talked about hints that life insurers may not be expecting much lapsation of large policies sold to the older, affluent insureds who do business with the life settlement companies.

For now, reinsurers are balking at the idea of assuming responsibility for policies sold to life settlement companies, Buerger said.

The reinsurers are telling the primary insurers, “‘You’re on the hook,’” Buerger said. “‘You’re going to pay the claim yourself.’ The carriers are afraid of that.”

But the primary insurers will continue to sell policies to consumers who might end up in the life settlement market because they want market share, Buerger said.

He expressed more concern about aggressive premium finance operations and other operations that seem to exist mainly to create life insurance policies that investors can obtain from insureds who do not really need or want the life insurance.

Premium finance firms that help customers with a genuine need for life insurance play a valuable role, Buerger said. But “the premium finance business is not the business of life settlements,” he added.

The kinds of aggressive premium finance companies and other companies that grow life insurance policies for the resale market could draw the wrath of regulators by violating or stretching a variety of laws, such as laws that limit life policy owners’ ability to sell the policies across state lines, Buerger said. “There’s enormous business risk with some of these programs.”

One risk for life settlement companies is that regulators may not distinguish between the life settlement companies and the premium finance operations, Buerger said.

“You’ve got to be careful about the programs that you’re selling,” agreed Larry Simon, president of Life Settlement Solutions Inc., San Diego.

If a premium financing arrangement forces the insured to sell the policy that was financed, that arrangement is probably questionable, Simon said.

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