Career Center Powered by GreatInsuranceJobs.com
The ACLI, Washington, has put out a policy statement asserting that packaging life insurance settlements into securities increases the risk of fraud, by encouraging securitizers to lure seniors into participating in illegal, stranger-originated life insurance transactions; by encouraging seniors to help file fraudulent STOLI applications; and by encouraging investors to buy life settlement-backed securities without understanding the risks involved.
Life settlement securitizations should be prohibited by legislation or regulation, the ACLI says.
In STOLI transactions, investors or investors' representatives persuade seniors to buy life insurance policies for the purpose of selling the policies to investors.
Only a limited number of insured individuals are candidates for legitimate life settlements, so securitization promoters would have to build their inventories by generating STOLI transactions, the ACLI says.
In addition, uncertainty about life expectancy makes rating life settlements difficult, the ACLI says.
Because of the uncertainty, life settlements cannot be properly underwritten, and they are likely to fail economically, the ACLI says.
Life settlement industry representatives could not immediately be reached for comment.
Prudential Financial Inc., Newark, N.J. (NYSE:PRU), put out a statement of its own welcoming the ACLI's policy statement.
"This is an important step in an ongoing effort to protect consumers and investors from practices that prey on older Americans and that ultimately would increase the cost of the protection for loved ones provided by life insurance," Jim Avery, president of Prudential's individual life unit, says in the statement.
Life settlement securitization encourages companies and individuals to generate STOLI business, even though 28 states have banned STOLI transactions, Avery says.
But "the major concern now, and the reason why the ACLI’s position is so important, is that those seeking to profit from the deaths of ordinary Americans are now looking to use the same techniques to target people with annuities," Avery says.