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Life settlement trade body backs FSA’s concerns

The European Life Settlement Association has backed the FSA after it warned life settlements present significant risks to unsophisticated retail investors.

Earlier this week, the FSA warned the products are high risk, toxic products and said it aimed to ban TLPIs from being marketed to retail investors.

TLPIs are known as ‘death bonds’ because investors are putting their money into a pooled investment or fund which invests in US life insurance policies. Investors are essentially betting on when a particular set of US citizens will die and if these people live longer than expected then the investment may not function as expected.

Life settlement policies were the underlying investment behind Keydata’s Lifemark products. The collapse of Keydata triggered an industry interim levy of £326m, with advisers paying £93m and fund managers paying £233m.

ELSA deputy chair Michael Fugler says: “I strongly agree with the FSA that historically many product structures sold to retail unsophisticated investors have been complex and opaque and a number of the past products were toxic and should have required a significantly heightened degree of warning and clarity before investment considerations were made.

“But one must remember that in the early stages of this industry there were few laws or regulations which tended to initially attract some unscrupulous people, so, unfortunately the life settlement industry like other industries before it, got off to a difficult start.”

“Maybe there are or will be structures and sponsors who can develop product in the future worthy of consideration, let’s keep an open mind and have a healthy dialogue.”



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There are 2 comments at the moment, we would love to hear your opinion too.

  1. I think the tragedy and irony here is that the FSA has just set off a fire sale in these funds which will damage the very people they are supposedly trying to protect. That doesn’t strike me as a responsible approach, more of a knee-jerk reaction to a sudden realisation that they have not put appropriate controls in place.
    I think the other tragedy here is that with appropriate regulatory controls, (for which incidentally there is already a blueprint established by AM Best) the “healthy” returns that can be derived from these investments, without the angst of current market volatility, will not now be enjoyed by a public that really could have benefitted.

  2. I think there is a misunderstanding by the author of this article as to the position of ELSA as well as my position on this issue.
    ELSA nor I are advocating a ban on Life Settlements.
    The FSA’s detailed analysis of the potential risks of retail investments in Life Settlements are timely and to be welcomed as are its announcement of a consultation process to be concluded in January 2012 in which ELSA intends to participate.
    I also made it clear that I believe that this asset class could be a stable alternative, non-correlated investment in the market as we move forward into 2012, but the market needs to be reasonable in valuation, realistic for returns, deal with advisors and service providers that are knowledgeable and trustworthy and as the FSA position correctly stated, conduct extensive research and be able to provide robust justification that a particular investment might be suitable for a particular retail investor. Maybe there are or will be structures and sponsors who can develop product in the future worthy of consideration, which is why I equally strongly suggested that all keep an open mind and have a healthy dialogue.
    This is a great assest class, historical problems have usually been with the Issuers/Sponsors or product structure. There is a future for Life Settlements, we just need to figure out the best way to approach it and protect the investors.

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