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April 09, 2006 at 04:00 PM
The Financial Accounting Standards Board has released a ruling that could help U.S. companies invest more of their own cash in life settlements.
In the past, U.S. companies have had trouble using their own money and cash from other U.S. investors to buy life insurance policies because accounting rules required them to treat the purchased policies as assets with a value less than or equal to the cash surrender value.
Cash surrender values are typically much lower than life settlement policy purchase prices, settlement firms say.
Now FASB, Norwalk, Conn., has released a FASB Staff Position, in FASB Technical Bulletin 85-4-1, that lets purchasers of life insurance policies use either the investment method or the fair value method to value purchased policies.
“We like the FASB decision,” says Doug Head, executive director of the Life Insurance Settlement Association, Orlando, Fla.
The U.S. life settlement market has been growing about 50% per year. The FASB ruling could lead to even faster growth, by increasing institutional investors’ confidence in the market and permitting U.S. purchasers to use the true market value of purchased life policies when reporting life settlement assets, Head says.
Brian Pardo, chairman of Life Partners Holdings Inc., Waco, Texas, a publicly traded life settlement company, agrees that the FASB ruling will increase investor interest in the life settlement market.
