Settlement Execs Blast ACLI Comment

Several life settlement organizations have reacted strongly to the American Council of Life Insurers' recent statement calling for a ban on the securitization of life settlements.

"Once again. ACLI has chosen to mix apples and oranges when condemning the life settlement market," said Jack Kelly, director of government affairs for the Institutional Life Markets Association, Washington. He was responding to a policy statement from the ACLI, Washington, holding that the securitizations of life insurance settlements should be prohibited by legislation and regulation.

The ACLI critique of securitization was "misplaced and incorrect," Kelly claimed.

"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 stranger-originated life insurance or STOLI," he said. "Since ILMA's inception, it has aggressively opposed STOLI transactions and has supported legislation in all 28 states that have made such transactions illegal."

In life settlement securitizations, many policies are packaged together for sale to investors.

Among other allegations, ACLI argued that the practice promoted STOLI by encouraging some sales representatives to try to convince seniors to buy life policies for the sole purpose of selling them to investors.

In his response, Kelly insisted securitization as a source of funding was "necessary to make valued insurance products available to consumers."

By increasing consumers' access to sources of capital funding for their policies, securitizing life settlements "will result in more competition, enabling consumers to obtain the maximum price for life insurance policies they wish to sell," Kelly stated.

ILMA believes a number of issues "need to be considered and resolved before life settlements become suitable for securitization," the statement acknowledged. "This asset class is relatively new, with a limited record. It traditionally takes a number of years for an asset class to mature such that a securitization is viable."

Russel Dorsett, director of Veris Settlement Partners, Rockville, Md., called ACLI's statement "sensationalistic nonsense."

"With all the issues public policymakers–not to mention the life industry itself–have on their plates, pushing an ill-thought-out and unnecessary proposal like this one borders on the absurd," said Dorsett, who is also president of the Life Insurance Settlement Association, Orlando, Fla.,

Another life settlement executive insisted that "securitization is not the villain."

"Securitization is a financing tool," said the executive, David Dorr, CEO and president of Life Exchange Inc., W. Palm Beach, Fla. "If bad assets are securitized and sold to investors, then losses will be the inevitable result. The opposite holds true as well."

Dorr also took issue with the ACLI suggestion that is against the public's interest to securitize life settlements.

"Securitization allows for a lower cost of capital for life settlement buyers," he argued.

Dorr insisted, too, that carriers are "well equipped to identify and combat STOLI, and so are the life settlement industry's licensed providers."

Our report on the ACLI's statement can be found by clicking here.