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Conning: Life Settlements May Affect Insurers, Reinsurers

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Policyholders have settled enough life insurance policies to have a noticeable effect on some insurers and reinsurers, according to Conning Research & Consulting analysts.

Although life settlement companies have bought a relatively small number of policies, and volume has dropped in recent years, many of the policies already purchased are universal life policies with high face amounts.

“Our analysis of the targeted firms’ universal life experience indicates that we may well see a significant impact to either primary insurers or to reinsurers to the extent that the primaries have been able to reinsure the higher face amount policies,” analysts say in a report released by Conning, Hartford.

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The existing block of settled policies could lead to a large increase in the average amount of benefits paid per death claim, the analysts say. The analysts add that lapse rates for high-value universal life policies could prove to be lower than expected because life settlement companies will be paying to keep settled policies in force.

“These potential impacts and others that stem from unique life settlements policy management techniques may well be felt the strongest by those insurers targeted by life settlements investors and their reinsurers,” the analysts say.

- Trevor Thomas