A Provider’s Reflection from Inside the Life Settlement Industry: Understanding the Chaotic Environment

Abstract

Now nine years into its life cycle, the life settlement industry is no longer a fledgling, early-stage sector of the financial community. Regulated by 30 state insurance departments (including Puerto Rico) and, in part, the Financial Industry Regulatory Authority (FINRA), this industry has validated itself by creating a secondary market for life insurance policies to the benefit of consumers as well as an asset class for investors that is uncorrelated with the credit and investment risk of the typical money manager’s portfolio. That said, the second half of 2008 through 2009 thus far has proven to be the most challenging of times this industry has experienced. For reasons brought about by the global economy as well as reasons indigenous to this industry, the life settlement community finds itself in a state of chaos. This article reviews the reasons behind such turmoil and examines the confluence of external and internal forces resulting in this financial perfect storm. It also explores the potential remedies and other factors that provide hope that this industry will not only survive, but prevail, in the long run.

TOPICS: Financial crises and financial market history, legal and regulatory issues for structured finance