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October 11, 2009 at 08:00 PM
A Congressional hearing last month on the securitization of life settlements was a mixed bag, people in the settlement industry agree.
The September 24, 2009 hearing discussed securitization of life settlements but concluded with no clear consensus about a need to regulate life settlements. (See Life Settlement Securitizations Pose No Systemic Threat.) The session was conducted by the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the House Committee on Financial Services.
J. Russel Dorsett, president of the Life Insurance Settlement Association, Orlando, Fla., felt the air go out of the securitization controversy during the hearing, where he testified on behalf of the industry.
“I think by the end of the hearing, the chairman (Rep. Paul E. Kanjorski, D-Pa.) and members of the committee were comfortable that life settlements were not a cause for further action, considering the size of the market and that the potential for systemic risk seemed rather far-fetched,” says Dorsett, who is also director of Veris Settlement Partners, Rockville, Md.
The hearing “did raise the profile of the industry and gave us a chance to tell our side of story,” he adds. “Anything that promotes awareness so that legislators and the general public are informed on how settlements really work, that’s a good thing.”
Dorsett doesn’t expect further inquiries into settlements from Congress in the immediate future.
“There had been some indication a similar Senate hearing might take the subject up, but I think as a result of the House hearing, there may be no further effort.”
David Mickelson, head of David Mickelson Insurance Services, Oceanside, Cal., labeled the hearings as “a knee-jerk reaction to a New York Times article about life settlements.” (See Settlement executives comment on Times article.) That article raised a red flag for potential problems reminiscent of the mortgage-backed securities that created the downfall of the world as we know it, financially speaking,” he says.
Mickelson argues that the hearings, along with the article that helped to instigate them, overplayed the idea that securitized settlements carried an underlying risk similar to that of subprime mortgage securities.
