Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

3524

Distinction made between life settlement and mortgage securitizations

RELATED TOPICS​

The Institutional Life Markets Association has outlined the major differences between life settlement securitizations and the securitization of mortgages during testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

Jack Kelly (pictured), ILMA director of government affairs, said it is critical to draw a distinction between the securitization of life settlements and the securitization of subprime mortgages. He also cited the need for uniform laws and regulations of life settlements.

When mortgages are securitized, or bundled and then cut up like a pie and sold to investors, there are two main parties at risk: the homeowner and the investor who purchased securities or pieces of the pie. This occurs because the homeowner or borrower may not be able to meet mortgage payments, said Kelly. Consequently, there is not enough cash flow to pass along to investors. The homeowner runs the risk of losing his or her home and the investor, the loss of cash flows.

In a life settlement securitization, the owner of the insurance policy who sells it receives payment right away. If the life settlement securitization fails, the only loser is the investor, Kelly told the subcommittee. Also, the source of payment here are high quality insurance companies. The major risk for the investor is the uncertainty associated with predicting longevity. Investors in life settlements are required to pay premiums to keep life insurance policies in the pool in force. Kelly also stated that because of the risk of loss, such investments are only suitable for institutional investors who can analyse and understand the risk in a life settlement securitization, as they should with any investment.

Due to this risk, ILMA believes that there needs to be strong, uniform laws and regulations and transparency. ILMA’s position is that strong regulation ensures that the consumer is protected and informed about the impact of such a transaction. Such uniformity would include uniform disclosure requirements, licensure of participants and enforcement procedures.

ILMA believes that both a life settlement broker representing the policy owner and the life settlement provider purchasing the policy should be licensed and regulated.

It also believes that transactional transparency in documents associated with a life settlement transaction should inform the participants of exactly how much money they will receive for their policies and how much money is being paid to the brokers representing the seller from the sale of the policy.

Latest News

GAM Investments and Sun Hung Kai & Co, a Hong Kong-based alternative investment firm, are..
PwC’s Global Entertainment & Media Outlook 2024-28, covering 13 sectors across 53 countries and territories,..
London-based Nickel Digital Asset Management (Nickel) writes that it has delivered a record first half..

Related Articles

Green energy
2024 has been the strongest ever year for green bond sales, with deals topping USD356 billion in the first six months, according to research from Bloomberg...
2024 has been the strongest ever year for green bond sales, with deals topping USD356 billion in the first six..
infrastructure headline
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the UK’s growth ambitions...
The new Labour government has launched a GBP7.3 billion National Wealth Fund which will target private capital to support the..
Tom McPhail, lang cat
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a widely predicted Labour win...
Today’s news of a landslide victory from the UK’s Labour party, finds that the markets had mostly factored in a..
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving the UK’s growth ambitions is increasingly on investors’ agendas...
Pensions might not feature at the top of the political parties’ manifesto promises this election, but their role in driving..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by