Positive Trends on Horizon for Life Settlement Industry—LISA Fall Life Settlement Conference Conc

Tanya Powley InvestmentAdviser Published Monday , November 16, 2009

Assured Fund has warned that “unrealistic” calls for the securitisation of life settlements failed to take into account the complexities involved in such a move.

Andrew Walters, finance director at Assured Fund, said it was concluded last month that the market infrastructure did not exist for the securitisation of life settlements.

Mr Walters said it would be instructive to examine whether a wholesale securitisation of the market could really work. He said: “Some sceptics claim the market cannot handle the volume of policies required. There was $26trn (£15.5trn) of life insurance in force last year, but only $12bn traded.

“Undoubtedly, far more could have been traded if the sector, like the whole financial market, had not experienced a withdrawal of investment, which means many policies went to waste.”

Mr Walters said there was a fear overaggressive origination practices could occur to feed the industry, but he said these were often “short-lived” and “quickly weeded out”.

But he warned the “potential Achilles heel” of securitisation was the liquidity pressure that would result from marrying the asset and the investment product, particularly during the early “ramping” phase.

“To maintain the assets,” he said, “there is a continual cash outflow by way of premium payments, and at the same time there is a continual cash outflow by way of coupon on the bond and, ultimately, the repayment of expected repayment of capital.”