Despite Slow Market, Vida Capital Acquires Life Settlement Broker

Vida Capital Inc., a firm based in Austin, Texas, that structures and manages life settlement funds, has acquired Magna Life Settlements of Coral Gables, Fla., from BMI Financial Group. Financial terms were not disclosed, but the parties said BMI will continue to own a minority stake and Ramiro Rencurrell will continue to serve as president of Magna.

Rencurrell, a past president of the Life Insurance Settlement Association, told BestWire the deal will bring investor capital into the life-settlements market. "It's a very good deal not just for Magna, but for consumers and investors."

According to Rencurrell, the economic downturn beginning in 2008 has dampened activity in this asset class, which is considered uncorrelated to stock and bond markets. From 2004 to 2007, more capital was available for the purchase of unwanted life insurance policies than available policies. But since then, the equation has reversed, with more policies available than capital, he said.

"The economic downturn has parked adventurous risk capital," said Rencurrell. "At the same time, it has hurt consumers less able to afford premiums."

In October 2009, Conning Research & Consulting estimated that about $11.7 billion in face values on life insurance policies were settled in 2008 in the United States, down from $12.2 billion in 2007 (BestWire, Oct. 12, 2008). The credit crunch was the major impediment to growth, Conning said. The firm estimated that about $6.1 billion in face values were settled in 2006 and $5.5 billion in 2005 (BestWire, Oct. 27, 2006).

Rencurrell said a lot of Wall Street capital is no longer in play. Also largely out of the market are German investors, who were also previously buyers of life settlements but had experienced tax issues and have seen the values of their life settlements fall due to a change in methodologies used by major underwriters of life expectancy, he said.

Emmanuel Modu, managing director and global head of insurance-linked securities at A.M. Best Co., said that along with the economic downturn, the change in underwriting methodology is a key reason for diminished interest in purchases of life settlements. "The life settlements held by investors before the medical underwriting changes were instantly devalued after such changes took effect," he said. "And it's also true that the perception of the volatility of life expectancies will make the life settlement market less attractive."

Consumers who originally bought their policies to pay estate taxes upon their deaths may also have less reason to keep them. Rencurrell said many estates have fallen in value due to the economic downturn. At the same time, legislation passed by Congress in 2001 has systematically expanded estate values exempt from the federal estate tax, although exemption levels are scheduled to return to $1 million in 2011 absent Congressional action.

Similarly, some corporations holding onto key-person insurance policies may feel they no longer need the coverage or can no longer afford the premiums, Rencurrell said.

In 2009, Magna bought about $200 million to $215 million in life insurance face amounts, Rencurrell estimated. He said in a statement that the collaboration with Vida Capital brings Magna access to new resources for growth.

The Vida deal is the second purchase of a life-settlements company reported this month. Earlier, Roseland, N.J.-based Crump Life Insurance Services bought Cleveland-based Life Settlements Inc. (BestWire, Jan. 12, 2010).

(By Ron Panko, senior associate editor, Best's Review: [email protected])