House Financial Services capital markets subcommittee chairman Rep. Paul Kanjorski recently warned that unless “additional safeguards” are put in place, the growing securitization of life insurance settlements could lead to the next financial crisis. During a hearing on the issue, Kanjorski said regulators, Congress, and credit ratings agencies should have done a better job moderating the high demand for subprime mortgage backed securities. He says their failure to supervise contributed to the financial debacle.
Life settlements, also known as viaticals, are not securities, but they do fall under the purview of the Securities and Exchange Commission when they are pooled and put up for sale in the capital markets. They are, however, at this time not subject to a registration requirement and have been sold during private offerings. Because of this, the SEC only has limited authority over life settlements.
The agency has set up a task force to assess the issues involving life settlements. The task force will determine whether regulatory changes need to be made and if Congress should expand the SEC’s authority.
According to the SEC Division of Corporation’s associate director Paula Dubberly, life settlements investors need full disclosure so they can understand the risks that arise with the viaticals’ securitization. The task force will examine the “tension” between the insured’s privacy rights and providing investors with this type of disclosure.
Credit Suisse’s Life Finance Group global head Kurt Gearhart says that as only 35 states regulate life settlements, consumers are lacking protection in 15 states. National Association of Insurance Commissioners vice president Susan E. Voss, however, disagrees with Gearhart’s figures. He says there is some form of life settlement regulation in 45 states. Meantime, Life Partners Holdings Inc. chairman and chief executive officer Brian D. Pardo is calling for stronger federal regulation.
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