US Regulators: Life-Settlement Industry Needs More

Monday, September 28, 2009

WASHINGTON (Dow Jones)--A growing corner of the insurance market, in which people collect cash for selling their life-insurance contracts, requires more scrutiny, state and federal regulators will testify in a U.S. House hearing Thursday.

Greater oversight is particularly needed because Wall Street firms have begun to securitize the financial product, known as life-insurance settlements.

"As banking interests purchase more and more life insurance settlements with the intent of combining them into securities products, there is an abject need for federal securities regulators to work together," Iowa Insurance Commissioner Susan E. Voss will say in prepared remarks.

In a life settlement, a life-insurance policyholder sells an existing contract to a third party for more than its cash surrender value but less than its net death benefit. For policy owners, the transaction can be a way of raising cash if they no longer need the policy or can't afford the policy premiums.

The Securities and Exchange Commission has set up an agency-wide task force to examine life insurance settlements amid concerns that buyers and sellers of the product may not know exactly what they are getting.

The task force will be looking into whether company sponsors of life-settlement securitizations are providing clear disclosure of the risks of their business model, SEC Associate Director of the Division of Corporation Finance Paula Dubberly will say in prepared remarks.

"Many securitizations in general, and life settlement securitizations in particular, are complex financial instruments," Dubberly will say. "Investors need the information necessary to understand these products, including the structure of the transaction and issues related to that such as provisions for payment of policy premiums."

The life-insurance settlement industry has grown from $2 billion in 2001 to $16 billion in 2008, according to Dubberly's prepared remarks, in which she cites an unnamed industry source.

Source: Jessica Holzer Dow Jones