02/10/2009

ELSA defends life settlement risk accusations 

The European Life Settlement Association (ELSA) fought back today against media criticism that life settlements are set to be the next subprime disaster, as increasing numbers of hedge fund investors display an interest in the space.

It has been reported that credit reference agencies have been inundated with requests to review various life insurance-based packaged securities, but the major banks remain tight-lipped.
 
Some fear that life settlements will hinder the primary life insurance market as insurers depend on a level of lapsed or surrendered policies.
 
The ELSA argues that life settlements are not in any way relatable to subprimes, as the return is dependent on the life insurance policy maturing on the policyholder’s death, so they present very little market risk.
 
Patrick McAdams, Co-Chairman of ELSA, says: “suggesting life settlements are the new subprime scandal is simply an exercise in sensationalism by the media. There are risks in life settlements, principally relating to life expectancy, potential advances in healthcare, and liquidity to pay premiums. However, these can be well managed through rigorous actuarial modelling of returns, highly diversified fund portfolios in terms of profile and geography of policy, and conservative fund management.”
 
Life settlements are US life insurance-backed investments, and relate to unwanted policies which have been sold by the policyseller to a financial institution in exchange for a cash sum. These policies relate to individuals over the age of 65 with an anticipated life expectancy of less than 15 years.