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Elsa hits back at call to ban securitisation of life settlements


The European Life Settlement Association has hit out at a surprise call from the American Council of Life Insurers for policymakers to ban the securitisation of life settlements, simultaneously announcing a trade mission to help educate the market about the benefits of the asset class. 

Life settlement-backed investments – which turn US life insurance policies into tradable assets – have expanded rapidly as a result of the financial crisis, as investors have sought predictable returns that are not linked to the broader market cycle.

Once a little-known asset class, life settlement sales have increased in the last 24 months as investors have looked for high-yielding assets with no stock, bond or property exposure.
However the American life insurers association has now argued that allowing life settlements to be packaged into securities increases the risk of fraudulent policy applications being filed. The group also suggests that investors do not understand the risks when committing their capital.
Elsa has challenged these assertions, insisting that it is essential those in retirement are given the right to treat an unwanted policy as an investment that they can cash in on the secondary market.

It also points to growing interest and understanding exhibited by financial intermediaries, institutions, discretionary wealth managers, and high net worth investors.
Patrick McAdams, investment director at SL Investment Management and Elsa joint chairman, says: “It is absurd to suggest that all life settlements securitisation should be banned – it is through the issuing of bonds and shares that the secondary market operates. You would never dream of suggesting other big-ticket purchases such as a house should not be transferable, so why a life insurance policy that is no longer wanted or has simply become unaffordable? Without responsible securitisation, a secondary market would not exist at all – harming both policy sellers and investors alike.

“Rather than call for a ban, it is time for the life insurance industry to provide proper, transparent disclosure about the levels of both surrendered and lapsed policies among the elderly, many of whom simply cannot afford to maintain their life insurance. Giving them the freedom of a more generous cash sum on the secondary market, when their own retirement income is often stretched, is essential.”
Elsa’s trade mission, launched in partnership with the US Life Insurance Settlement Association, is intended to help investors better understand life settlements, encourage the setting of standards and greater transparency, and provide a realistic presentation of the risks and benefits of investing in life settlements. Starting on 23 February, the four-day conference will begin with a two-day conference in London, continue to Luxembourg, and conclude in Zurich.
The trade mission programme will include discussion about the favourable tax-environments of Dublin and Luxembourg, risk mitigation in life settlements, industry best practice, and regulation.

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