Life settlement companies say they are seeing the value that disclosure can bring to a settlement transaction for their clients, regulators and even for themselves.
The value in disclosure for company executives is that it lets all parties involved see the work that was done to put together a transaction. Additionally, disclosures can be used to show regulators that the settlement was conducted above board.
“It’s all about transparency,” said Jim Cavoli, president and CEO of Life Settlement Insights in Cleveland, Ohio. LSI recently introduced what it calls the “Secondary Market Efforts Report and Offer Summary Sheet,” a new disclosure report providing detailed information about the policy being sold, the potential buyers who saw the policy and the offers they made for it.
Cavoli said the new disclosures were designed to provide a “comfort level” to those selling a policy and their advisors. “This lays it out,” he said.
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Much of the information in the reports, he said, was included after the company took an informal survey of its clients and the advisors and broker-dealers with whom it works.
“People want to know what’s going on, who saw it and how much activity there was,” he said. In addition, showing how a settlement was reached also helps to explain the amount of time that settlements can take.
“Everyone complains that it takes too long to do a settlement,” Cavoli said. “This shows why it takes so long.”
Cavoli said that disclosing how a settlement was reached can also help LSI justify the fees it collects, which he said are based on the “value created” for the seller of the policy rather than the more typical method of basing fees on the face amount of the policy.
“You can stick to your guns and collect what is due, if you have transparency,” he said. “We get paid without getting chiseled down.”
David Dalton, LSI’s manager of marketing and corporate communications, noted that while increased disclosures provide a service to those with whom LSI works, the reports are not “entirely altruistic.” Providing that data to clients and advisors means the company has to collect that data, which in effect creates a wealth of market research.
“In 6 months to a year, we’re going to know this market better than anyone, because we’ll have that data,” Dalton said.
Alan Beurger, CEO for Philadelphia-based Coventry, said he believes disclosure is “essential’ to the process and there should be more disclosure to better combat investor-originated policies and other potentially troubling arrangements.
“They should be informed that they may not be able to get coverage later with a policy in the secondary market” or that strangers will own their policy, he said. “That should be true for every provider.”
Regulators are also keeping their eyes on the life settlements industry with a focus on more disclosure and transparency.
In a notice to members issued in August of last year, the National Association of Securities Dealers said that as variable life insurance policies are securities, any settlement involving such policies would also be considered a securities transaction.
John Gannon, vice president for investor education, said the NASD decided to issue the notice because of the growing role of life settlements in the market.
“The reason it came up is the increasing volume of life settlements in recent years,” he said, and the notice itself noted studies showing the potential market for life settlements amounting to more than $100 billion.