Colin Devine, a longtime life insurance consultant and analyst, has some ideas about possible threats to life insurers that may surprise plenty of other industry veterans.
Devine talked about the demons in the wings today in New York, at the eighth annual Life Settlement Institutional Investor Conference.
The Life Insurance Settlement Association (LISA) organizes the conferences to help representatives from life settlement firms network with representatives from banks, pension funds, private equity funds, hedge funds and other entities with a taste for alternative assets.
Devine, who is now a senior advisory partner at Grail LLC, told attendees that he thinks the future of the life settlement industry is bright, but that players in that sector should understand the risks they face when they buy life insurance policies.
Compared with how the life insurance industry looked two years ago, “I don’t think it’s any better,” Devine said. “I don’t think it’s any worse…. The chickens have come home to roost.”
Devine mentioned long-term care insurance obligations and the U.S. Department of Labor ‘s fiduciary rule.
Even though the Consumer Financial Protection Bureau is not supposed to have oversight over insurance, whether it does or does not is not absolutely clear, and no one in the life insurance industry should be eager to come face to face with Sen. Elizabeth Warren, D-Mass, at a Senate hearing, Devine said.
“That never goes well for anybody,” Devine said.
Devine also covered some lower-profile risks to life insurers. Here are three.
- Statement of Financial Accounting Standards Number 60
FAS 60 governs how insurers account for long-duration insurance contracts. It lets them lock in assumptions about future policy benefits at policy inception, unless a premium deficiency exists. If a premium deficiency exists, the insurer is supposed to recognize the deficiency with a charge to income, along with other adjustments.
If insurers get to the point that they have to acknowledge that, because of low interest rates, they suffer from premium deficiencies, that could suddenly make lines that look good today, such as whole life, look much worse, Devine said.