A rating agency says it has concerns about the effects of the resale market for in-force life insurance policies.

Any life settlement market controversies that hurt the tax breaks U.S. life insurance policies now enjoy could cause significant problems for U.S. life insurers, according to a new analysis from the New York office of Fitch Ratings.

Life insurers also could face legal trouble, because many life settlement transactions appear to combine risk factors such as confused and elderly policyholders, high compensation for brokers, and efforts to replace existing life policies with new policies, the rating agency warns.

Although “legitimate” life settlements are different from the illegitimate kind, “the emergence of the ‘illegitimate’ market is a predictable outgrowth of the ‘legitimate’ secondary market,” Fitch contends. “It may also be difficult for insurers to distinguish between the two.”

Today, the direct effects of life settlements on life insurers are small, because the amount of life insurance in life settlements is small, but “that view could change if the market grows rapidly,” Fitch says.