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July 11, 2016 at 10:30 AM
When the life insurance premium finance market blossomed around 2001, many saw this as a sales opportunity with a relatively short life span. We had just experienced five years with double-digit growth in the S&P, and LIBOR based borrowing rates had recently dropped to below 3 percent.
With traditional, company approved premium financing, the concept was based on the simple arbitrage between the borrowing rate and the crediting on UL policies, which was based on life company portfolio returns and was around 7 percent in 2001. All who stood to benefit — agents, attorneys, life insurance companies and lenders — were eager to market this new concept to high-net worth clients.
I had just left one of the nation’s largest life insurance companies, where I’d served as the UL product manager, and joined another division to help run their newly formed life insurance premium finance company. The lender and life company both grew their respective businesses, but I don’t think the corporate parent saw this as anything more than moving money from the right pocket to the left, and decided to sell off the finance company.
What followed was an interesting period with a number of large international banks bidding for the business, and our management team working with several entities to structure a possible buy-out or establish a new entity elsewhere. A big bank eventually won (they usually do) and I joined them for a while before going out into the field.
The years that followed were wild, with large banks taking fresh interest in the life insurance business. These companies were eager to provide funds to lenders and structures that capitalized on the projected returns in the senior market. During this period, I enjoyed trips to Las Vegas, Europe, the Caribbean and Latin America to design structures. I got to meet many successful agents and their clients. It was a wild ride.
But of course, after the party usually comes the hangover, and it often lasts twice as long as the good time that lead up to it. Consider that the Great Depression followed the roaring ‘20s, the dot.com crash followed the boom in the late ‘80s and early ‘90s, and it really should have come as no surprise that the roaring 2000s would lead up to where we are now: A stalled economy with little growth and much uncertainty.
Many of the people I worked with on the financing side back then are now scattered around the world pursuing other adventures and opportunities. Others still work in this space. Unfortunately, a few are working to repair damaged reputations due to charges and allegations resulting from deals that went wrong.
Although many feared that after 2008 the demand for premium financing would end, that is definitely not the case.
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