In an open letter to the US
Securities and Exchange Commission (SEC), the American Council of
Life Insurers (ACLI) has called on the regulator to back the SEC
life settlements task force’s findings and recommend to Congress
that it amends the definition of a security under the Federal
securities laws to include life settlements.
The ACLI stressed: “As documented
by the SEC task force [on life settlements] and as evidenced by the
persistent reports by officials and media of abusive investment
schemes involving life settlements, the secondary market for
insurance products is dangerous.”
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The ACLI also voiced its approval
of the task force’s recommendation that life settlements should be
excluded from the definition of security for purposes of coverage
under the Securities Investor Protection Act (SIPA).
The ACLI explained that the
exclusion of life settlements for purposes of SIPA coverage has two
benefits:
- it warns investors of the
relatively greater risks of the investment class; and - it eliminates the misuse of
SIPA coverage as a marketing tool for settlement investment
promoters attempting to assuage investor concerns about the dangers
of investing in life settlements.
The ACLI also threw its weight
behind another recommendation by the task force that securitisation
of life settlements should be prohibited. The ACLI is concerned
that securitisation will lead to an increase in the occurrence of
illegal stranger-originated life insurance (STOLI).
The ACLI stated: “Securitisation of
life settlements will exacerbate the STOLI problem. Securitisation
is a very effective means of market-making and encouraging rapid
expansion of a product, in this case life settlement contracts.
Promoters will use capital generated from securitisation to create
larger inventories of life settlement contracts which, in turn,
will fuel more securitisations and more STOLI.”
The ACLI also voiced its concern regarding reports that public
retirement and pension funds are considering investments in life
settlements. The ACLI urged the SEC to issue investor bulletins
emphasising the risks of investing in life settlements.
