MIAMI – The life settlement has been facing troubled capital markets, lengthened life expectancies and adverse state legislation backed by life insurance carriers, a settlement executive said here at the Life Settlement Summit.
Now the industry is waiting for the dust to settle, said Peter Mazonas, chief executive officer of Life Settlement Financial L.L.C., San Rafael, Calif. The conference was sponsored by the National Underwriter and other Summit Business Media publications.
The life settlement industry used to pride itself on selling an asset that is not tied to the performance of the stock market, Mazonas said.
“We forgot the capital markets,” he said, noting that, when the collateralized mortgage obligation marketplace collapsed, settlement securitization went with it.
The result of all that has been fewer life settlement deals: Volume has been down 40%, according to some estimates, Mazonas said. Moreover, in the face of increasing regulation of settlements by states leery of stranger-originated life insurance, some originators of settlements have unsuccessfully tried to dump their portfolios.
The funders, watching these adverse developments, have been slow to return, he noted.
He pointed to a number of lessons that settlement companies need to learn from these developments.
One is that any entity that puts $50 million to $250 million into an investment portfolio such as life settlements wants unequivocal liquidity. What is needed is consistent underwriting practices, including life expectancy tables used by providers to determine the value of life policies on the secondary market, he said.
“We need accurate LEs,” he said. “No more desktop underwriting for small face policies.”
The industry also needs to develop diverse sources of capital, Mazonas said.
He called life settlements an industry “in its infancy but becoming more mature.” Over the next 18 to 24 months, Mazonas predicted more consolidation in the industry, brought on by the increasing complication of compliance and reporting demands of regulators.
“Larger broker organizations will dominate, often allied with providers,” he said.
In addition, he predicted, funders will take advantage of improved auditing and accounting enforcement to aggregate policy pools with an eye on securitization.
Beyond 24 months, Mazonas foresees larger, more efficient networks of life settlement firms controlling policy sources. Providers will become part of large funders, he said, while large funders will be feeding inventory to banks for securitizations.
Meanwhile, many holders of those securities will be main line, publicly traded corporations, pension plans and endowments, he predicted.
He also expects to see a number of large insurers becoming funding sources for buying policies.
Ultimately, securitized investment pools of life insurance settlements could begin to fund their way into 401(k)s and other retirement plans, he predicted