ILMA States: ACLI Mixes “Apples and Oranges” to Mislead Consumers

Responding to the American Council of Life Insurers (ACLI) policy statement that the securitizations of life insurance settlements should be prohibited by legislation and regulation, Jack Kelly of the Institutional Life Markets Association (ILMA) said "once again ACLI has chosen to mix apples and oranges when condemning the life settlement market. The recent policy statement issued by ACLI concerning securitization of life settlements is misplaced and incorrect."

Kelly continued, "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'. Since ILMA's inception, it has aggressively opposed STOLI transactions and has supported legislation in all 28 states that have made such transactions illegal."

Additionally, "ACLI failed to recognize the long established process of utilizing securitization as a source of funding necessary to make valued insurance products available to consumers," said Kelly. Recently, ACLI's President Frank Keating stated "Securitization of life insurance policies transferred to third-parties is not necessarily a bad thing." In light of the long and well established history of securitization in the life insurance industry, it is only reasonable that such a tool would be explored for life settlements. For many years insurance carriers have utilized this vehicle to access increased capital in order to provide products to their customers. Increased access to capital funding sources for life settlements will result in more competition, enabling consumers to obtain the maximum price for life insurance policies they wish to sell. In fact, a recent article in the AARP Bulletin stated "Life settlements provide a new way to extract value from insurance policies that have lost their original value for the holder."

One of the objections to securitizations raised by the ACLI is that the longevity risk associated with the transactions cannot be underwritten. This risk, however, is the exact same risk that the members of the ACLI underwrite when they issue life insurance policies and annuities. By issuing life insurance policies and annuities, carriers believe that this risk is capable of being adequately underwritten.

Securitization provides a number of economic benefits. These include i) lowering the cost of borrowing; ii) giving consumers choices and creating liquidity; iii) providing risk transfer from entities that no longer want a risk to investors who are prepared to bear the risk; iv) separating credit quality from the owner of an asset and the asset itself; and, v) professionalizing the asset management and servicing of the asset.

However, ILMA is of the view that there are a number of issues that need to be considered and resolved before life settlements become suitable for securitization. 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.

Kelly asserted that "instead of trying to confuse seniors about the value of life settlements we urge ACLI to allow them to make an educated and informed decision whether participating in a life settlement is suitable for them." About the Institutional Life Markets Association, Inc. (ILMA) The Institutional Life Markets Association, Inc. (ILMA) is a not-for-profit trade association comprised of a number of the world's leading institutional investors and intermediaries in the longevity marketplace, formed to encourage the prudent and competitive development of a suite of evolving longevity related financial businesses, including the businesses of life settlements and premium finance. ILMA's members include: Credit Suisse; EFG Bank; JP Morgan Chase & Co.; Mizuho International plc; and WestLB AG.