Life settlement brokers said here at the Life Settlement Summit that their business is poised for increased sales, despite the poor economy and recent revisions of mortality tables.
Jon Mendelsohn, president of Ashar Group L.L.C., Orlando, Fla., said capital is once again returning to the settlement market.
“We saw double and triple the number of offers in the last month as we did 3 months ago,” Mendelsohn told participants at the meeting.
The meeting was sponsored by National Underwriter and National Underwriter’s parent company, Summit Business Media L.L.C., New York.
Despite the general sense of optimism, panelists agreed that the industry needs to improve on a number of fronts.
Brokers and others that facilitate settlement deals should become more consumer-friendly to sellers, Mendelsohn said.
“No one likes to be hard closed,” Mendelsohn said of the sales tactics of some settlement firms. “The days of playing poker are done.”
Vincent Pellegrino, a director at Credit Suisse Life Settlements L.L.C., New York, a unit of Credit Suisse A.G., Zurich, said managing the seller’s expectations about a settlement would make sellers more likely to accept offers.
Jordana Balsam, president of Balsam Settlement Management L.L.C., New York, said a policy sales deal needs to be justified with strong reasons, and that every interested party, from the seller’s accountant to the seller’s family members, should have a say.
“Life settlements must be pro-consumer,” Balsam said. “The consumer should be able to take time to make a decision.”
A settlement is a very personal transaction to the consumer, Mendelsohn said. “We don’t say, ‘You have to sell this policy.’ The numbers have to make sense.”
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.