Speakers: Life Settlements Positioned For Recovery

Sellers have a right to change their minds, just as the buyers do, added Rob Haynie, managing director of Life Insurance Settlements Inc., Fort Lauderdale, Fla. Too often, he said, the broker pushes the client to take a deal when it’s offered. “You can’t decide what the client must decide.”

The speakers also agreed there is too much red tape in the process of closing a settlement. A closing can take weeks, Balsam said.

Part of the problem is that there is often a continuous stream of requests for documentation from the buyer. “The consumer is making a commitment, but the buyer has no skin in the game,” she said. “We need to supply documents in an orderly fashion.”

Getting an illustration of a settlement case from the carrier also can slow down a deal, Pellegrino said.

Some carriers charge a fee for illustrations, which the broker presents to the buyer to help the buyer calculate whether the buyer will make an offer and for how much. If a carrier agrees to provide an illustration, it can take 14 days to receive it, Pellegrino said.

Pellegrino predicted a “big change” for the better in the second quarter in settlement sales to investors. “Life settlements are an uncorrelated asset,” he said, referring to the view that returns on the investment do not mirror what is happening in the stock market. “What we see in Europe and Asia, [is that] this is the kind of asset people want to be in. The capital will be there.”

Haynie agreed that there are “incredible opportunities” for settlement deals as consumers realize that their life insurance is the one asset they have to sell that’s not at the bottom of the market.

But a group in another panel disagreed with the brokers’ description of settlements as an “uncorrelated asset.” Life settlement investors often are large pension funds and other institutional investors that also are heavily involved in the securities markets, said Steve Stanton, president of Integrity Life Settlements L.L.C., Downers Grove, Ill.

Wei-Keung Tang, managing partner of Alpha Value Fund, Virgin Islands, said settlements are uncorrelated if one thinks only in terms of mortality.

“But you need a huge portfolio to diversify safely–500 to 1,000 lives,” he said. “From a portfolio management point of view, you need to have a reserve.”

Often, Tang said, building the reserve means going to a big financial institution for backing.