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September 24, 2009 at 08:00 PM
WASHINGTON BUREAU — Rep. Paul Kanjorski has acknowledged that life settlements may help consumers, but he says he worries about the consequences of permitting life settlement securitizations.
Permitting investment bankers to create securities backed by pools of life insurance policies, could create “a slippery slope that will lead to indexes based on divorce rates and swaps tied to gambling,” Kanjorski, D-Pa., chairman of the House Financial Services Committee capital markets subcommittee, said today at a subcommittee hearing on life settlement securitizations.
Kanjorski scheduled the hearing after The New York Times published a front-page article on the rise of the life settlement securitization market.
After hearing testimony the topic, “we may decide that the best policy is to keep this Pandora’s box shut,” Kanjorski said.
A life settlement industry representative who spoke at the hearing scoffed at claims that life settlement securitizations could be a threat to economic stability.
Steven Strongin, a managing director at Goldman Sachs Group Inc., New York, said the “handful of life settlement securitizations that have occurred to date, appear to have had little or no impact on the life settlement or life insurance markets.”
Only about $1 billion in life settlements have been securitized since 2000, Strongin estimated.
“This remains one of the smallest and most sporadic of the securitization sectors, and while we have never been involved in a life settlement securitization, we see little investor interest in such a market given its size as well as numerous structuring challenges,” Strongin said.
Life settlement securitizations do not appear to pose any special securitization-related risk, and they can be treated like any other securitization, Strongin said.
“However, there does appear to be special issues in terms of consumer protection in life settlement in general that may be appropriate for Congress or a regulator appointed by Congress to address,” he said.
Meanwhile, the current economic crisis, caused in part by problems with securitization of subprime mortgage loans, has caused the underlying level of volume in the life settlement market to decline about 50% to 75% between the first half of 2008 and the first half of 2009, according to Russel Dorsett, president of the Life Insurance Settlement Association, Orlando, Fla.
