The life settlement market may be just an early example of an intersection between the life insurance industry and the capital markets.
Analysts at Moody’s Investors Service, New York, give that assessment in a new report on the life settlement market.
Although companies have started by buying and selling in-force life insurance policies, they or other companies could start trading variable annuity product guarantees, if and when there is value in VA guarantees, Moody’s analysts write in the report.
“Secondary markets will develop with third-party investors eager to purchase these options at values attractive to both the buyer and seller,” the analysts report.
Insurers that undervalue VA guarantee options could suffer as a result, the analysts warn.
For now, the immediate concern about the life settlement market is the sale of investor-owned life insurance contracts, which involve purchases by investors of policies on unrelated individuals, says Arthur Fliegelman, a Moody’s senior credit officer.
The rise of the IOLI market may be relevant to reviews of a company’s ratings, Fliegelman says.