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Regulation can be a great market driver; will US see TEP-style wave in life settlement fund growth?
By Ioan Roberts; Life Settlements Operations
Manager, SL Investment Management
It is a given that world financial markets are greatly
influenced by what happens across the pond; the life settlements
arena is no exception. One positive effect that SL believes
is taking place in this bourgeoning asset class is one similar to
that seen in the TEP industry whenUKlife insurance providers were
forced to inform consumers about the secondary market. Regulation
can be a great driving force and SL predicts it can drive the
supply of life settlements following adoption of similar laws in
The US National Conference Of Insurance Legislators (NCOIL)
adopted legislation requiring life insurance companies to inform
consumers of the alternatives to lapsing or surrendering a life
policy and this model has now been implemented in a number of US
According to a survey by the US Government and Accountability
Office, consumers who chose to sell their policy in the secondary
market received, on average,seven times morethan if they had chosen
to surrender the policy back to the insurer for the policy's cash
For older American citizens who may be looking to boost
retirement coffers or pay for large medical bills or ongoing care
costs, this makes selling unwanted life policies a highly
attractive prospect, almost a no-brainer.
Furthermore, a recent survey by industry commentators Dealflow,
revealed that $5.04bn face value worth of life policies were traded
in the secondary market in the US in 2011 - up 18.5% on 2010.
SL predicts the trend will continue as the NCOIL model ripples
from state to state and could, over time lead to an increase in
policy supply of up to 40% - a similar impact to that witnessed in
the UK following the introduction of disclosure requirements by the
FSA in 2002.
In turn, this is great news for investors. More policies
entering the secondary market in the US means Life Settlement
managers will have greater choice in terms of the quality and price
of policies they wish to buy for their portfolios. This is
continuing good news for the sophisticated, institutional investors
that the asset class is attracting in these turbulent times.