The life settlement market will continue to expand and evolve in the second half of 2008.
Since the business emerged in the early 1990s, life settlements have provided eligible senior-aged clients with an effective financial planning tool to help deal with unnecessary life insurance policies. They have also introduced a new way for financial professionals to boost clientele and increase profit. The associated rewards have helped fuel the market’s growth to date, as well as increased attention, interest and scrutiny.
Going forward, expect continued growth, continued attention on regulation of the transactions and more standardization of the secondary market.
Already this year, new mortality tables have been released, impacting the life expectancy underwriting used for evaluation and pricing.
Securitization of the asset class is also expected to occur this year, providing liquidity options for institutional investors and further establishing life settlements as an effective alternative investment option.
Furthermore, expect to see alleviation of issues associated with the subprime crisis, specifically the decrease in available marketplace capital, helping to refuel the industry in the monetary sense.
For financial professionals interested in entering this growing marketplace, and even for those already accustomed to these transactions, understanding the current trends and proposed regulatory changes can help promote success and better preparation for the anticipated industry changes.
Regulatory background. For the rest of the year, much of the regulatory focus is expected to relate to issues dealing with stranger-originated life insurance (STOLI).
STOLI transactions are different from life settlements because they are purposely initiated to benefit someone with no insurable interest in the insured, in violation of the insurable interest doctrine. The outcome of such fraudulent practices has negatively affected both the life settlement and life insurance industries, and confused those working in the marketplace.