Viatical Settlements New Investments for Wall Street?

[Death Cab For Tootie]

Wow!
What could have been an interesting, intelligent, and stimulating discussion about something that could affect our industry deeply is drowned out by all of this partisan bullsh#t.
I think your both assholes for carrying on so much about something so pointless! lol
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But back to the original subject...

Are you sure they where talking about just life settlements?
There is talk on wallstreet these days about bundling LI in general, just as they did the mortgages.

Anything that is paid on installments can be bundled, securitized, and chopped up....

Some of the struggling LI carriers would jump all over this if given the chance....

Errr...no. When they price their life insurance, they take into account lapse ratios. Settlements screw with those lapse ratios (i.e., they go down, thus they have to pay more claims). Therefore, insurance companies pay more in death claims, which causes them to raise rates on new insurance to new clients, potentially cutting (I'm guessing here) commissions for the agent. Lose-Lose-Lose. I'm all for freedom of doing business how you want, but I fail to see how settlements are good for anybody other than the life settlement company and the investors.

 

[dgoldenz]

Errr...no. When they price their life insurance, they take into account lapse ratios. Settlements screw with those lapse ratios (i.e., they go down, thus they have to pay more claims). Therefore, insurance companies pay more in death claims, which causes them to raise rates on new insurance to new clients, potentially cutting (I'm guessing here) commissions for the agent. Lose-Lose-Lose. I'm all for freedom of doing business how you want, but I fail to see how settlements are good for anybody other than the life settlement company and the investors.

I've heard this argument before, but what is the difference between a settlement company doing this and someone converting their own policy? It's not like 100% of policyholders are doing life settlements....in the grand scheme, it seems like it wouldn't really change the percentage of people that convert term policies.

 

[scagnt83]

I wasnt talking about securitizing the settlements. Im talking about securitizing LI policies in general. Different concept, just like what was done to the mortgages.
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Anything thats paid in set installments is able to be securitized hypothetically.

 

[lifesettlementadvisor]

I've heard this argument before, but what is the difference between a settlement company doing this and someone converting their own policy? It's not like 100% of policyholders are doing life settlements....in the grand scheme, it seems like it wouldn't really change the percentage of people that convert term policies.

Life Settlements only touch a small percent of the overall life insurance market. SLS funds only want policies from HNW seniors over 70.

What some people seem to forget is that settlement funds are not out tricking people into selling their policy. Its currently a buyers market, with way to much inventory up for grabs. Seniors do not want the policy and want to get as much for it as possible compared to its CSV.

SLS = Win, Win, Win, Win,

Win for the insured = receiving a higher amount than lapsing
Win for the agent = new revenue source from the comission
Win for the fund = steady and predictable returns to sell to investors
Win for the investors = Current IRR on portfolios are in the high teens, low 20s.

 

[Death Cab For Tootie]

I've heard this argument before, but what is the difference between a settlement company doing this and someone converting their own policy? It's not like 100% of policyholders are doing life settlements....in the grand scheme, it seems like it wouldn't really change the percentage of people that convert term policies.

The insurance company charges a lot more premium in order to protect someone's life for as long as the client lives. In other words, the insurance company has protected themselves financially because they know they're going to pay a claim. They know how many people are going to convert their term policies and have priced that in.

On the other hand, you have settlements. The insurance company knows that they're going to have a certain percentage of permanent policies (usually UL) lapse. When settlement companies and settlement funds purchase these policies and take over the premiums, it's with the intent that the settlement company will not lapse. Why would they? They want to see an ROI. As a result, lapse ratios go down, and the unintended consequence is that the insurance company must raise rates because their lapse ratios go down.
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Life Settlements only touch a small percent of the overall life insurance market. SLS funds only want policies from HNW seniors over 70.

What some people seem to forget is that settlement funds are not out tricking people into selling their policy. Its currently a buyers market, with way to much inventory up for grabs. Seniors do not want the policy and want to get as much for it as possible compared to its CSV.

SLS = Win, Win, Win, Win,

Win for the insured = receiving a higher amount than lapsing
Win for the agent = new revenue source from the comission
Win for the fund = steady and predictable returns to sell to investors
Win for the investors = Current IRR on portfolios are in the high teens, low 20s.

Lose - insurance companies must charge more for insurance for future insured.
Lose - agent has a lower closing ratio, thus reducing income (although it could be argued higher premiums could make up for this)
Lose - client must pay higher rates for coverage, thus less people buy coverage or don't get enough coverage.
Lose - client forfeits permanent death benefit and it's benefits.

The problem, LSA, is you don't realize there are consequences for the products you promote. Unfortuantely, a lot of naive insurance agents don't see the full picture either.

 

[dgoldenz]

Are the amount of policies sold for life settlements really that much of an impact on the lapse ratios though? Out of thousands or hundreds of thousands or millions of policyholders, what percentage of them could even be considered for a life settlement, let alone go through with it? 1%? 0.5%? 0.1%? It can't have that much of an impact....if everyone did it, that would be one thing, but we can't even get offers for people who are total declines for coverage right now (two of them in the past 3 months). Like I said, the amount of people doing it can't be big enough to factor into lapse ratios at this point. Just my opinion, not sure what the actual numbers are.

 

[Freddie]

Wow!
What could have been an interesting, intelligent, and stimulating discussion about something that could affect our industry deeply is drowned out by all of this partisan bullsh#t.
I think your both assholes for carrying on so much about something so pointless! lol
- - - - - - - - - - - - - - - - - -
But back to the original subject...

Are you sure they where talking about just life settlements?
There is talk on wallstreet these days about bundling LI in general, just as they did the mortgages.

Anything that is paid on installments can be bundled, securitized, and chopped up....

Some of the struggling LI carriers would jump all over this if given the chance....

Securitization worked well for the mortgages....Not. Actually it could have until CRA, community organizer lawsuits, mortgages given to people who could fog a mirror under threat of liberal Uncle Sam to lend to anyone and anything.

 

[Death Cab For Tootie]

Are the amount of policies sold for life settlements really that much of an impact on the lapse ratios though? Out of thousands or hundreds of thousands or millions of policyholders, what percentage of them could even be considered for a life settlement, let alone go through with it? 1%? 0.5%? 0.1%? It can't have that much of an impact....if everyone did it, that would be one thing, but we can't even get offers for people who are total declines for coverage right now (two of them in the past 3 months). Like I said, the amount of people doing it can't be big enough to factor into lapse ratios at this point. Just my opinion, not sure what the actual numbers are.

I don't know about the numbers in the short-term, but the long-term trend would definitely cause lapse ratios to go up. It depends on the size of the settlement market, of course. However, it's a very slippery slope, one that insurance agents shoud fight against.

 

[scagnt83]

Securitization worked well for the mortgages....Not. Actually it could have until CRA, community organizer lawsuits, mortgages given to people who could fog a mirror under threat of liberal Uncle Sam to lend to anyone and anything.

Lol. Yes, very true.
Im not an advocate of securitizing LI policies; but they would at least be more stable than the government mandated high risk mortgages that recently blew up!

 

[Marpol]

Lapse rations are not a concern to insurance carriers in regards to Life Settlements. It is an industry misconception. The actual lapse ratio for large policies ($2mm+) on elderly individuals (70+) is very small. Think about it.....your average 80 y/o policy holder paying $200k a year for there $5mm policy is not going to regularly lapse their policy. We are not talking about 20 y/o buying $9 a month 10y terms here. The concern is that Life Settlements lead to STOLI/IOLI which could violate insurable interest laws. If that happens then the government could remove the tax advantages of life insurance crippling the industry. This is what the carrier are concerned about.