A U.S. Securities and Exchange Commission (SEC) task force wants to classify life settlements as securities, and the U.S. Government Accountability Office (GAO) says Congress should consider taking action.
The SEC task force says in its report the the federal government should define life settlements as securities so that life settlement investors can get the protection of federal securities laws.
Orice Williams Brown, a GAO director, writes in a separate GAO life settlements report, that Congress should consider addressing inconsistencies in state regulation of life settlements.
Today, 38 states have some legislation addressing life settlement regulation, but 12 states and the District of Columbia have no laws governing sales of life insurance policies or investments in life policies, Brown writes in the report, which was prepared for the U.S. Senate Special Committee on Aging.
The SEC task force, which is made up of SEC staffers and was established by SEC Chairman Mary Schapiro in August 2009, says the market for life settlements has grown over the past decade, raising questions about regulation and oversight.
The SEC study team found inconsistent regulation of participants in the secondary life market, including those who arrange for the buying and selling of policies and those who estimate insureds’ life expectancy. In addition, investors in individual life settlement transactions, or pools of life settlements, would benefit from the application of baseline standards of conduct to market participants, the the task force argues.
The life settlements task force says the SEC should:
A. Consider recommending to Congress that it amend the definition of security under the federal securities laws to include life settlements.
B. Instruct the SEC staff to continue to monitor that legal standards of conduct are being met by brokers and providers.
C. Instruct the staff to monitor for the development of a life settlement securitization market.
D. Encourage Congress and state legislators to consider more significant and consistent regulation of life expectancy underwriters.
E. Instruct the staff to consider issuing an investor bulletin regarding investments in life settlements.
The task force says classification of all life settlement arrangements as securities would be especially helpful.
“A variable life insurance contract is a security under the federal securities laws, so the sale of such a contract by its owner would involve a securities transaction subject to the federal securities laws and the SEC’s jurisdiction,” the task force says in its report. “In the context of non-variable life insurance contracts, which constitute the vast majority of settled contracts, in two instances federal courts have considered whether fractional interests in viatical settlements are securities. The courts reached different conclusions and thus this issue remains unresolved.”