This paper attempts to summarize many of the dynamics
Life Insurance Settlement Series Edition No. V
2010 Life Insurance Secondary
Market – “Moving Forward”
By: Paul Siegert, President ISI
April 6, 2010
“Caution” has been the carryover by-word from 2009 for good
reason. Some would like to think the Life Insurance Secondary
Market (“LISM”) has faltered. However, the LISM is indeed
“moving forward!” This should be welcome news to seniors,
investors and many LISM players, but unfortunately not for all.
The capital markets turmoil has taken its toll and changes are
happening.
2009 marked the LISM’s first year of contraction after
experiencing over fifteen years of steady expansion. The
LISM will again expand. We expect that with this next wave
of expansion, the LISM will become more sophisticated and
create valuable investment structures. We expect the LISM will
continue to demand higher standards, fairer laws, consumer
protections and consumer notifications. Investors will return.
The life insurance secondary market is here to stay and will
continue to provide a valuable option to seniors who do not
want or need their life insurance policies.
Sophisticated investors are attracted to the life insurance
asset class because they have access to resources to help
them comprehend and understand the risks and the benefits.
Consumers and policymakers often do not have access to such
resources. For the LISM to truly materialize as a vibrant asset
class, more education is needed for consumers, policymakers
and industry stakeholders. If the LISM provides consumers
and policymakers with the research and knowledge necessary
to develop informed opinions, it will gain strength and value.
More research and education is needed.
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
occurring in the LISM as 2010 unfolds and to give perspective to
some of the changes and challenges that need to be managed.
In addition, ISI has visited with a strong sampling of executives
from leading LISM firms to solicit their views on issues that are
paramount in their minds. The topics and sections in this paper
include:
• General Status and Forecasts for 2010
• Capital, Investment Offerings and Securitization
• Life Expectancy Underwriting May See New Technologies
• Messaging to Consumers Needs To Improve
• Regulations Continue to Expand and be Refined, Making LISM
More Secure
• Life Settlement Databank and Research Continues to Move
Forward
• Stressed Portfolios Continue to be a Challenge
• Life Insurance Sales Bode Well for The LISM and Exits and
Consolidations Within the LISM Will Leave Stronger Players
• Assigning Accountability for STOLI Continues in Debate
• Conclusions
General Status And Forecasts For 2010
The general consensus of industry leaders is that the LISM
will grow during 2010, perhaps returning to the 2008 level by
4th quarter. The major driver is capital. When capital pulled
back from all markets in 2008 and 2009, investor demand
decreased and a “buyers” market evolved, driving prices of life
settlements down and yields up. However, capital is starting
to return as investors look for alternative investments and
are devoting more time to understanding investments in life
insurance policies. As reported by Mr. Trevor Thomas, “More
regulatory scrutiny, higher consumer awareness and a return
of buyers to the market are likely developments for the life
settlement business this year, according to industry experts.”
This assessment represents a summation of several industry
experts and was echoed in discussions ISI had with these and
other industry leaders.
1
Another set of LISM 2010 predictions found in Technorati,
Inc. seems to encapsulate the thoughts of many industry
leaders. The report summarizes that: (a) Buying activity will
return; (b) Talk of large scale life settlement securitization will
increase; (c) New institutional participants will be drawn into
the industry; (d) The number of newly licensed life settlement
providers will increase by 10-20%; (e) Buying activity will
continue to focus on quality policies and buyers will lower the
IRR’s; (f) Consumer awareness of secondary market option will
increase; (g) Expanding statutory and regulatory governance
of life settlements will push many of the less qualified brokers
and providers out of business; (h) Appeal of premium financed
policies will continue to erode; (i) European money will
become a bigger player on the buy side; and, (j) Intermediary
commissions will shrink. These predictions mostly parallel ISI’s
findings with the exception of an increase in the number of
newly licensed life settlement providers. Because of expanding
regulatory control and continuing limited investor capital,
some industry leaders believe the number of providers may
decrease.
Agents are starting to become more assertive in their efforts
to learn about the secondary market and to enter the market,
according to Roy Shellhammer, managing partner with
RTG Consultants, and Bill Boersma, owner and president of
The Insurance Studies Institute
ISI is a non-profit research think-tank focused
on: a) researching and analyzing challenges and
opportunities within the many paradigms of
insurance based risk management; b) publishing
research findings on industry relevant topics; c)
educating industry stakeholders, public policy
makers and consumers in insurance based
risk management, and advancing related
scholarship; and, d) promoting dialogue to
foster industry advancements, fair public policy
and greater risk protection for consumers.
Learn More
www.InsuranceStudies.org
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
Opportunity Concepts LLC. In spite of increased efforts by
agents, the Agent’s Sales Journal observes: “Producers Still
Lacking in Education.”
Overall sales of life insurance policies in the secondary market
were down in 2009, some estimating decreases of 50-60%
from 2008, and others estimating 25%. The fact is, nobody
really knows because of a lack of available data that can be
analyzed. A major industry initiative sponsored by ISI has been
the creation of a centralized databank to track policy sales
in the secondary market. The proposed databank would be
maintained by the Center for Retirement Research at Boston
College, and it is hoped this will be completed by mid 2010.
The Center for Retirement Research at Boston College has a
vested interest in tracking and maintaining information that
impacts the senior community.
The decrease in sales started with the capital markets turmoil
and general withdrawal from all markets in 2008. This created a
buyers’ market and decreased policy prices. The slower market
and lower policy prices reduced commissions to brokers and
agents, causing many to step away from the LISM. However,
signs of the market’s return and strengthening appear to be
occurring. ISI’s survey of investors, providers and brokers
indicates that they expect sales volumes will return to the 2008
levels by the fourth quarter of 2010. This growth will by fueled
by investor demand, leading to increased competition for
policies and higher prices paid to sellers. Agents and brokers
who act early to focus their business models on the LISM and
bring policies to market will be in position to benefit their
clients without delay and to earn commissions that otherwise
may be lost to lapsed and surrendered policies.
Concurrent with the 2008 capital retraction, demand for
policies decreased and a buyers’ market formed. This drove
prices down and yields up in late 2009. However, those in the
know do not expect this to hold, and in fact yields are already
decreasing as buying activity increases in early 2010. Insiders
expect yields ranging from 12-15% are more likely to be the
norm for 2010.
The Life Insurance Settlement Association (“LISA”) has stepped
up its work to offer webinars to educate agents. LISA is working
with the European Life Settlement Association (“ESLA”) to
share knowledge with investors. ISI has stepped up its research
on issues affecting the LISM. Conferences continue to offer
networking and sharing of knowledge. Regulations continue to
expand and refine. All in all, the LISM is moving forward.
2
What the insiders are saying about the LISM and its outlook:
• Law firms that help investors with due diligence, structures and
trust arrangements have been busier in January and February
than any time before. So investor activity level is up.
• The market has been out of balance (policy supply exceeding
investor demand), but as capital returns to the market it is
important that capital not exceed supply. However, capital will
continue to be difficult because most money is still parked.
• The Europe investor trade mission attracted mostly $10 million
investors, not the $100 million investors that are needed. New
forms of investment vehicles are needed for these $10 million
investors.
• 2010 volumes will remain down or below 2009 until the 4th
quarter because new capital will be too late to enable the year
to exceed last year.
• The number of provider firms has shrunk.
• Policy flow is down because producers have temporarily left
the space.
• Longer LEs and shortage of capital are driving IRRs too high so
producers are selling insurance instead of finding settlements.
• There is some reluctance to encourage producers to generate
insurance policies for settlement when buyers are not there …
it would backfire.
• The LISM will forever be a small market as compared to the
trillion dollar life insurance market.
• Some see 2010 returning to the 2008 level of $10-13 billion in
face value sales of policies.
Capital, Investment Offerings And
Securitization
Several new capital transactions in the magnitude of $150
million are reported to have occurred in 2010 . New investment
offerings are happening with increasing investor acceptance.
The overall opinion of industry insiders is that investors will
return.
Rated securitizations are not expected in 2010, but some
insiders are optimistic that one or two may be completed.
The major challenges to rated securitizations are life
expectancy confidence, longevity risk protection and portfolio
transparency.
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
Asian institutions have started to invest in life settlement funds
and the market is being tipped for further growth. UK-based
Managing Partners, a life settlement investment company, has
been pitching life settlement assets to Asian institutions in
an open ended fund form. Credit Suisse has been pitching a
synthetic pass-through risk structure to institutions, and other
investment banks are involved or looking to get involved in
the market. One Asia-based senior actuary at an international
insurer says there is “certainly potential” for such products in
the lower interest rate environments in Asian markets such as
Japan, Korea and Taiwan. Harvey Athwal, Managing Partners’
sales director for Asia, says insurers and pension funds are more
comfortable making investments in an asset where the use of
mortality tables is an important component to understanding
valuations.
In February, 2010 LISA and its European counter-part, the
European Life Settlement Association (“ELSA”), organized the
first joint International Life Settlement Trade Mission, an effort
to spur international interest in the secondary life insurance
market. The four day event included presentations in London,
Luxembourg and Zurich. Executives who participated have
reported optimistic expectations.
Two European firms have launched the Lux Life Opportunity
Fund in Luxembourg that will provide mezzanine financing to
life settlement funds. The fund is open to professional and “well-
informed” accredited investors outside the U.S. The minimum
investment for private investors is €125,000 ($170,000). The
fund has a four-year investment horizon with a target yield of
8%. It is an open-ended fund with a one-year lock-up period.
On a negative front, the American Council of Life Insurers
(“ACLI”) published a position paper in early February 2010,
claiming that “Securitization of life insurance settlements
exposes senior citizens and investors to increased risk of
fraud and the practice should be prohibited by legislation or
regulation.” However, ISI responded in its critique of the ACLI
paper by stating: “Such action by the life insurance industry is
a slap to all life insurance policyholders, particularly seniors.
3
Public policymakers should insist that consumers purchasing
life insurance deserve the option to sell such policies that a
secondary market may provide.” Further, ISI questions, “Why
ban investment products and the formation of capital for the
life settlement option if it is good for senior consumers? If
purchasing a life insurance policy is good for a consumer, then
why is selling a policy bad?” LISM business leaders point out
that securitization can reduce the cost of capital which in turn
increases prices paid to sellers of life insurance policies. Thus
the ultimate beneficiaries of securitization are the sellers of life
insurance policies.
What the insiders are saying about securitization:
• Some LISM participants do not believe securitization is needed,
but it would open investments to pensions and others who
prefer rated investment structures.
• Others believe securitization is needed for liquidity. Major
investors want securitization and pensions need it.
• Securitization of life settlements is required to attract capital
and provide liquidity because “buying and holding of life
insurance policies” is not for many. Any contract that provides
an investment interest in an underlying asset, without
actually taking title to the asset, is a form of securitization.
Securitization is not needed at the $12-15 billion market level.
But to get to $60-100 billion it will be needed.
• Representatives sent to Europe on the LISA/ELSA trade mission
came back encouraged about possible leads for new capital.
International investment demand should increase.
• Some see no “rated” securitizations in the near future. Ratings
are not available.
• Those who have capital and are actively purchasing life
insurance policies right now are less concerned about raising
capital.
• Non-rated securitizations are happening with funds, pensions,
institutions, etc., who are adding life insurance policies as part
of their larger portfolios. Investors can participate by investing
in the funds.
• Some investors are buying specific policies, versus an
investment unit, and are dealing with the holding issues.
• Securitization may actually create a transferability problem
in that policies purchased today with full information and
transparency may not have updated information needed to
facilitate resale in a few years later. But, if comprehensive
securitization procedures and standards were established such
that transferability issues were resolved by routine updating
of policy/insured information, then rated securitizations
would bring more capital to the secondary market.
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
Life Expectancy Underwriting May See New
Technologies
The leading life expectancy underwriting firms have finally
produced a standard mortality table that all firms can use to
report actual vs. expected deaths. However the effort is being
questioned by some for its applicability to existing policy pricing
models and for uniformity of support among the life expectancy
underwriters. The group’s charge was to create a table to be
a baseline for all life expectancy providers who can adjust it
according to how they develop their own actual to expected
life ratios. The final table of this “Best Practices” undertaking
is expected by April 2010 and will enable investors to make
“meaningful and comparable information on the accuracy of
life expectancy providers,” according to Mike Fasano, president
of Fasano & Associates. Scott Gibson, a consulting actuary in
Lewis & Ellis’s Dallas office, helped Fasano bring this project to
fruition. This best practices effort was sponsored by the Life
Insurance Settlements Association.
Some new developments are in the works for life expectancy
underwriting. The focus of these developments seem to
be the identification of characteristics that project a greater
or lesser probability of dying earlier when compared to life
expectancies created with current underwriting practices. The
incentive for developing these new methodologies stems from
investor demands to avoid the disruptions that occurred in life
insurance policy portfolios when the VBT 2008 table, along
with other changes to life expectancy underwriting, caused
life expectancy underwriters to extend their life expectancy
estimates in 2008. Some of these new systems are currently
being introduced and some may appear later this year. To
the extent that these efforts increase confidence in life
expectancies, capital will follow.
Another related development reported by Life & Health
National Underwriter in March 2010 indicates that life insurers
are beginning to create digitized “Personal Health Records”
for their insureds. Such records may prove valuable to life
expectancy underwriters, providers and investors for ongoing
updating of life expectancies and portfolio valuations. Google
(Google Health) and Microsoft (Health Vault) offer similar
services. Interactive Data Corporation recently projected that
the number of Americans with electronic health records (EHRs)
maintained by their healthcare providers will increase from 14%
in 2009 to 25% in 2010 due largely to the massive $19 billion
investment in health record adoption over the next five years
4
authorized by The American Recovery and Reinvestment Act of option. The best thing agents and brokers can do is to become
2009. Passage of the 2010 Affordable Health Care for America knowledgeable so that they can show how the life settlement
Act may accelerate adoption of electronic health records. As option works. Financial advisors need to enable seniors to
these systems are implemented, regional health information compare life settlement with other options that might meet
exchanges are being established to facilitate the sharing of their objectives. The LISM stands to gain significantly from a
health records with authorized entities. These networks aren’t change in its messaging to seniors.
very impressive looking today in terms of size and scope. But
then again, neither was the Internet in 1991 when Tim Berners What the insiders are saying about messaging:
Lee first released his World Wide Web software. • Promote use of the ISI Consumers’ Guide to Life Settlements –
Should I Sell My Life Insurance Policy?
Messaging To Consumers Needs To Improve • The LISM can benefit from a centralized message focused on
consumer options.
Extensive research and surveying conducted by The Carlson
School at the University of Minnesota (“Carlson”) has • By failing to focus consumer communication on options, the
LISM is letting the media and industry opponents craft the
indentified significant shortfalls in messaging employed by the message consumers are receiving, which is often unflattering
LISM to communicate the “option” of life settlement to seniors. and incorrect.
This research study was supported through grants provided by • The LISM needs funding to put forth a concentrated marketing
effort to educate consumers on the life settlement option.
ISI. Carlson found, among other things, that low awareness and
familiarity, coupled with negative perceptions and messages of
non-value, plague the life insurance secondary market and are
preventing the LISM from reaching its potential. The biggest
hurdle for seniors is not objections to life settlements, but
lack of awareness. The Carlson study found that less than half
of seniors are aware they can sell their life insurance policy,
and in part blames the entire industry for doing a poor job of
informing the public. Carlson found that the LISM must change
its messaging from technical definitions of “life settlement”
and “cash now” to one of “consumer options.” Low awareness,
poor messaging, and non-familiarity has led to skepticism of
life settlements as a legitimate option across a wide spectrum
of constituencies. For seniors, fear of the unknown heavily
influences the consumer decision-making process, and seniors’
fear of loss often overrides opportunity for gain. Seniors want
to “feel good” about their decisions and that is not possible
when they do not understand the option presented. To help Available on InsuranceStudies.org
educate seniors, policy makers, and the news media, ISI has Life insurance is a valuable asset. Policyholders purchase life
insurance with the intent of providing a financial safety net for
produced the “ISI Consumers’ Guide to Life Settlements.” survivors and beneficiaries, or as part of an estate plan, business
Every broker and agent can help bring greater awareness of arrangement, or savings. However, upon reaching retirement
age, it is important to re-evaluate the need for life insurance.
the secondary market option to seniors by distributing the ISI Deciding to keep a life insurance policy, surrender it, let it lapse,
Consumers’ Guide to Life Settlements. The ISI Consumers’ or sell it as a life settlement requires careful thought. Insurance
Studies Institute has created a Consumers’ Guide to help
Guide to life Settlements is available at www.insurancestudies. policyholders become more informed and greater understand
org. Copies of the Carlson report can be obtained from ISI. their options.

www.insurancestudies.org
The message consumers are receiving from financial advisors is
that a life settlement will return a sum much greater than the
cash surrender value. However, the message that resonates
most with seniors is that a life settlement provides an alternative

www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V 5

Regulations Continue To Expand And Be
Refined, Making LISM More Secure
2009 saw numerous life settlement regulatory bills introduced
in many states. New life settlement legislation has been
introduced in Rhode Island, Wisconsin, South Carolina, North
Carolina, New Hampshire, Michigan, Alabama, Washington DC,
Massachusetts, and New Jersey. Modifications to existing life
settlement legislation has been introduced in numerous other
states addressing STOLI definitions, life insurance holding
periods, LISM awareness notices to policyholders, and broker
compensation disclosures. Of course, the ACLI and insurers
continue to push for restrictive laws and regulations that often
deny or excessively control property rights of seniors, and
these efforts continue to require substantial lobbying to assure
fair laws and regulations. However, despite the efforts of the
ACLI and insurers, regulatory laws now exist in most states. All
of this activity points to the continuing support of legislators to
assure that the LISM provides fair and viable services to policy
sellers.
A major step in favor of consumer rights is contained in a bill
that has been introduced by Sen. Ralph Hudgens in the Georgia
State Senate, which would require insurance agents to inform
policyholders of life settlements when they are planning to
surrender or lapse their policies. The bill authorizes the state
insurance department to create a document for agents to give
to clients to tell them of their options if they no longer want
or need the policies, including their ability to sell them on the
secondary market. Hudgens told The Life Settlements Wire
that he plans to revise the bill, before any action is taken on it,
so that it will also require insureds to be told of the settlement
option at the time of life insurance purchase. If passed,
Georgia would join Maine, Washington, Oregon and Kentucky
in requiring notice to consumers before lapsing or surrendering
a life insurance policy. California law going into effect his year
stipulates that insurers cannot do anything to prevent a policy
owner from selling a life insurance policy. This pro-consumer
position was adopted uniformly in England by the Financial
Services Authority rules, specifically PS106, which dictates that
insurers must inform policyholders inquiring about surrender
of alternatives, including selling the policy as a life settlement,
policy loans or converting to a paid-up policy.
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
In an internal paper issued by Mr. Steve Finch, President of
John Hancock Life Insurance, apparently released on October
22, 2009 by MUNY and subsequently leaked to the public,
Mr. Finch says, “It is time for the industry to stop endorsing
“legitimate” life settlements, a market where public policy
and our own experience demands that none exist. It is time
for the insurance industry to take a more aggressive position
that speculation on human life is not okay.” This paper was
provided to all Hancock agents with the clear intent to
dissuade them from assisting Hancock policyholders with life
settlements. Focus on the statement, “a market where public
policy and our own experience demands that none exist.”
Stating that “public policy” demands life settlements should
not exist clearly shows the lack of regard of life insurers for
the welfare and best interests of consumers. And it belies the
endorsement of laws and legislation in nearly all states that
define and support a fair life insurance secondary market. If
as stated, Mr. Finch believes that ownership of life insurance
is “speculation on human life”, then why are the life insurance
companies selling life insurance, annuities and long-term care
insurance? Centuries of insurance practices and laws have
well defined the investment value and property rights of life
insurance. Mr. Finch is wrong in his pronouncements. In keeping
with efforts of the National Conference of Insurance Legislators
(“NCOIL”), some consumer focused states, regulators and
public policymakers would better serve consumers’ interests
by examining insurance carriers’ practices of restricting agents
from providing to seniors full and fair disclosure of all options
for management of life insurance policies.
A committee of the NCOIL that explored whether insurance
carriers are preventing their agents from discussing life
settlements has continued their discussion to a July conference
in Boston. Georgia State Sen. Ralph Hudgens, who is chairman
of the committee, said Michael Freedman of Coventry, testified
that there is a problem with carriers banning agents from
discussing settlements and the industry would like the issue
addressed. If the committee decides the gag on agents is a
problem, it could revise NCOIL’s life settlement model act or
develop a new one requiring disclosures to consumers.
6
Life Settlement Databank And Research
Continues To Move Forward
As previously mentioned, the Center for Retirement Research
(“CRR”) at Boston College has been working on a study of the
welfare value of life settlement to seniors. This research project
has been funded through grants provided by ISI. To complete
this research, CRR has been seeking data from the LISM provider
firms. However, gathering the data proved difficult and slow
as a result of complications on how to best protect the data.
Pending resolution of these issues, it is expected that data
collection will begin soon. When this project is completed, now
expected by July 2010, it will become the first comprehensive
databank for the LISM and will enable accurate reporting of
trends, volumes, characteristics and other statistics that will be
valuable to industry operators and to public policymakers.
During the past few years, ISI has undertaken substantial
research focused on the LISM. This was done because the
LISM is a relatively new market that is under micro-focus by
legislators, media and insurers. ISI sees little effort on the part
of government, media and insurers to provide meaningful
knowledge and education to senior consumers. ISI sees a
need to assure that the interests and property rights of senior
consumers are protected and plans to continue this effort.
What research do the insiders want?
• Need research on size of the seller market, excluding premium
finance and STOLI.
• Survey individuals to learn of their satisfactions, and their
disappointments if they lapsed because they did not know of
the life settlement option.
• Focus on how to make seniors aware of the life settlement
option.
• Micro focus on the press and public media. More short
articles.
• Comprehensive articles on attacks by others who are crying
“wolf” when there is no wolf. Focus on the “fear” that is being
promoted with no basis.
• Develop a paper that describes all of the options available
to a senior policyholder. Then demonstrate why someone
(government, insurers, agents, financial advisors) has an
obligation to notify the insured of these options … perhaps
when someone turns age 65 (similar to the requirement of
firms to notify 401k owners at age 70.5 that they have to start
withdrawing money).
• Carrier solvency: What happens when a carrier fails? What
assets are insurers holding in reserves? How does an investor
establish confidence that policy death benefits will be paid?
• Actual to projected analysis based on the new standard
mortality table that has been developed.
• What tax issues and solutions must investors address?
If the LISM can provide the necessary financial and collaborative
support, ISI will endeavor to undertake this research.
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
Stressed Portfolios Continue To Be A Challenge
Finance for Life L.L.C. says it has had a hand in the recent
purchase and sale of a life insurance portfolio valued at more
than $2 billion. This suggests that portfolio deals can be
made.
On the other hand, redemptions from the Keydata International
Fund SPC have been suspended as a result of defaulted
payments from the fund’s Lifemark life settlement bond assets
as well as other illiquid assets, the fund’s board of directors
said. “The Illiquid Assets were purchased in good faith by the
Fund in 2009,” the directors said in a statement to investors
yesterday. “However, it was subsequently discovered that the
Illiquid Assets did not match the description that had been
given to the Fund and there is now a question as to whether
and to what extent the Fund will be able to realize value from
these assets.” This suggests that surprises continue to exist
in stressed portfolios, mostly in the form of obsolete and
unreliable life expectancies, and in difficulty to identify STOLI
policies held in such portfolios.
What insiders are saying about stressed portfolios:
• Most activity in the secondary market is currently focused on
portfolios and tertiary trades. These will be difficult because
LEs are old and old HIPAA forms do not enable success in
getting updated medical records.
Life Insurance Sales Bode Well For The LISM
And Exits And Consolidations Within The Lism
Will Leave Stronger Players
According to the MIB Group, Inc., U.S. life insurers received
more requests for individual coverage in January 2010 than
they did in January 2009, and activity for older applicants was
much stronger. Activity volume fell 2.5% for applicants with
ages 0 to 44, but activity for applicants with ages 45 to 59
increased 2.5%, and activity for applicants with ages 60 and
older rose about 15%. This bodes well for the LISM’s long-
term future.
The 2009 slowdown will unfortunately cause some LISM
stakeholders to leave the space, but those who remain will be
stronger. Goldman Sachs announced that it has left the LISM,
but many believe the reason is simply to reduce the overall
attention Goldman receives from its position at the center of
many financial undertakings. Vida Capital, backed by Austin
Ventures L.P., Austin, TX, acquired a majority of Magna Life
Settlements Inc. in Coral Gables, FL. Other consolidations are
expected in 2010.
7
Assigning Accountability For STOLI Continues
In Debate
The ACLI claimed in its February, 2010 position paper that
“Securitization (of life settlements) will lead some settlement
promoters to target senior citizens and induce them to
commit fraud in connection with illegal stranger-originated life
insurance (STOLI) transactions.” Jack Kelly of the Institutional
Life Markets Association (ILMA) responded: “ACLI in the past
has repeatedly acknowledged the validity of life settlements
and in its recent statement fails to distinguish between valid life
settlements and the illegal origination of life insurance policies,
also known as STOLI.” In response to the ACLI paper, Steve
Piontek, Editor-in-Chief, National Underwriter Life & Health,
states, “This leads me to a dirty little secret that ACLI has been
loath to even acknowledge; this is that STOLI transactions
have to be done through life insurance companies. Who else
writes life insurance policies?” Piontek further says, “It is
hard to believe that life insurers, whose underwriting is truly
sophisticated, (and let’s face it, underwriting is involved in
any policy large enough to be worthy of settlement) cannot
identify an application that is made for STOLI purposes and the
agents who consistently bring in these types of apps. For years
there’s been scuttlebutt that certain companies—hungry for
business— had little compunction about accepting apps that
had STOLI written all over them.”
Of course the ACLI fired back in a statement on March 15, 2010
by Bruce Ferguson claiming of Piontek’s article, “Underwriting
a life insurance policy is not a simplistic process.” “Insurers
need better tools to identify and stop STOLI, which is the point
of the legislation we (ACLI) support.” What Mr. Ferguson did
not acknowledge is that LISA, LSI and ILMA all reject STOLI. One
has to ask, why should legislation curtail seniors’ opportunities
to sell life insurance policies because the ACLI and insurers
want to create a right to challenge payment of the benefits
upon the insured’s death? What information and facts do the
insurers have at the insured’s death that they do not have with
the insurance policy application that enables identification of
STOLI? All life insurance applications (STOLI or not) are initiated
by the life insurance carriers’ agents. Life insurance companies
examine the applications and have authority to demand
disclosure of policy ownership. Life insurance companies issue
the policies. Life insurance companies pay commissions to
agents for selling the policies. And, the established two year
contestability laws should provide ample opportunity for
insurers to examine questionable ownership and financing
structures of new life insurance policies, and rescind them if
www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V
necessary. Knowing the sophistication and depth of life insurer
organizations, one has to wonder why they cannot create the
“better tools” that are needed rather than rely on legislators
to pass laws that impair the value of seniors’ life insurance
policies.
The reality is that STOLI arguments continue to be used by
ACLI and insurers to stymie growth of the entire life insurance
secondary market, but no specific data has been published on
the actual activity level of STOLI. Phoenix Companies said in its
annual report for 2009 that it has been selling more policies
to older people, and issuing stranger-originated life insurance
despite attempts not to do so. However, the Olive Tree
Holdings L.L.C. and a trust administrator are suing the Phoenix
Companies Inc., Hartford, and two of its subsidiaries alleging
the companies used fraud to convince elderly individuals to
purchase multi-million dollar life insurance policies, telling
them the policies could be freely changed into life settlements.
It will be revealing when this case is resolved to learn who
knew what and when.
The focus of laws to prevent STOLI has been to preserve
consumers’ insurable interests. However, most such laws
actually curtail consumers’ rights rather than protect insurable
interests. This is evident in laws where consumers are prevented
from selling a life insurance policy until it has been owned for
at least four to five years, i.e., Oregon, Nevada, Nebraska,
Iowa, Ohio, West Virginia, Vermont and Minnesota. Such laws
are unfair to consumers. Laws to prevent STOLI should focus
on insurers and agents who issue such policies.
What the insiders are saying about the STOLI debate:
• In 2008 premium finance and STOLI created product, but that
is gone.
• Courts should not overrule established law to allow insurers to
keep premiums when a policy is rescinded for reasons of fraud
found in the policy application.
• Should insurers be entitled to know the reason someone
is purchasing a life insurance policy, or is this information
personal to the applicant?
• Is failure to disclose intent for purchasing a life insurance policy
an act of fraud?
• The principle of “insurable interest” in law has existed for
hundreds of years. Is insurable interest a right of the insured to
protect, or should insurers have a right to enforce an insured’s
insurable interest for the insurer’s benefit?
8
 Conclusions
Following a difficult environment in 2008 and 2009, the life
insurance secondary market is finding new footings in the
bedrock of the value it provides consumers and investors.
The LISM will become more sophisticated and create valuable
investment structures. It will continue to demand high
standards, fair laws, consumer protections and consumer
notifications. Investors will return. The life insurance secondary
market will continue to provide a valuable option to seniors
who do not want or need their life insurance policies.

But for the life insurance secondary market to truly materialize

as a vibrant asset class, more education is needed for
consumers, policymakers and industry stakeholders. If the LISM
stakeholders provide consumers and policymakers with the
research and knowledge needed to make informed decisions,
it will gain strength and value. ISI is currently working with
industry leaders to undertake more research and education,
but its success will be predicated on the industry’s willingness
to support such initiatives.
1. When a consumer embarks upon the sale of a life insurance policy, often the only communication
they receive is from their insurance agent or financial representative. That person in turn brings that In summary, leaders in the LISM are optimistic, but recognize
policy to market, which is made up of many parties who assist in the completion of the transaction. A life
settlement broker works with the insured’s financial representative to receive bids from life settlement that challenges continue.
providers, who purchase policies and have third-party investors. Medical underwriters assist in the
process by providing life expectancy estimates so that the providers can determine the value of the
policy. Other servicing firms include tracking agents, collateral managers, escrow agents, auditors, and
information service providers. Together, these parties make up the Life Insurance Secondary Market
About Insurance Studies Institute (ISI):
(“LISM”). ISI is a 501(c)3 non-profit research think tank focused on:
2. Trevor Thomas, National Underwriter Life & Health, 11 January 2010
3. Christian Evulich, Technorati, Inc, 6 January 2010. Technorati Inc. is a blog search service founded in a) researching and analyzing challenges and opportunities
2005.
4. Linda Koco, National Underwriter Life & Health “Agents becoming more assertive about settlement
within the field of insurance-based risk management; b)
market”, March 22, 2010. educating industry stakeholders, public policymakers, and
5. Christina Pellett, Agent’s Sales Journal Life Settlements Poised for ‘Natural Growth,’ but Producers Still
Lacking in Education February 24, 2010. consumers, and advancing scholarship in insurance-based risk
6. Source of these reported transactions requested anonymity.
7. Financial Risk News and Analysis,“ Life settlement funds hit Asia,” March 2, 2010. management; and c) promoting dialogue and informed actions
8. NU Online News Service, March 3, 2010.
9. Deal Flow Media, “New Fund Provides Life Settlement Fund Financing,” March 9, 2010.
to foster industry advances, fair public policy, and greater
10. ACLI News Release, “Life Insurers Urge Policymakers To Ban Securitization Of Life Settlements,” risk protection for consumers. To learn more link to: www.
February 3, 2010.
11. “A Critique of the February 3, 2010 request by the ACLI to ban securitizations of life insurance InsuranceStudies.org.
settlements.” Insurance Studies Institute, February 5, 2010.
12. American Viatical Services, 21ST Services, Fasano Associates, ISC Services, Advanced Underwriting
Solutions, Examination Management Services, Inc.
13. Life Settlement Review, February 2010
For questions regarding this article, contact:
14. Life & Health National Underwriter on March 8, 2010, “Creating Customer Value From Life Insurance’s Paul Siegert
Billion-Dollar Health Records Business”
15. Deal Flow Media, “Bill is Introduced in Georgia Legislature to Require Disclosure,” March 10, 2010 970.262.1047
16. Deal Flow Media, “NCOIL Committee Continues Carrier Gag Issue to July Meeting,” March 08, 2010
17. NU Online News Service, February 25, 2010. PSiegert@InsuranceStudies.org.
18. Keydata International Statement, March 3, 2010.
19. NU Online News Service, 2/11/2010
20. NU Online News Service, January, 21, 2010. To learn more link to:
21. Bill Kenealy, Insurance Networking News, “ACLI Securitization Stance Draws Fire,” February 9, 2010
22. Steve Piontek, National Underwriter Life & Health 2/15/2010 www.InsuranceStudies.org.
23. Bruce Ferguson, National Underwriter Life & Health, “ACLI Responds To Piontek,” 3/15/2010
24. Phoenix Companies, Inc., 2009 Annual Report
25. Trevor Thomas, National Underwriter Life & Health, “Trusts Sue Insurer Over Settlements,”
10/30/2009

www.InsuranceStudies.org | Life Insurance Settlement Series Edition No. V 9