Life settlement ABS deals have been gaining traction in the securitization market in recent years, but some experts worry that recent proposals by the National Association of Insurance Commissioners (NAIC) will restrict the flow of underlying assets for premium financings, which fall under the same category, and cause that market to slip.
The group's life insurance and annuities committee voted to recommend that the organization impose a five-year ban on policies that are financed with the specific intent to be sold to investors. If the NAIC passes the measure, then individual state insurance regulatory agencies will have to decide whether they want to enforce the ban. In general, the ban amends its Viatical Settlements Model Regulation, which covers viatical settlements and related financings such as life settlements, senior settlements and premium financing. Life settlement bonds are backed by future proceeds from life insurance policies. They are also called senior settlement bonds, because most of the sellers behind the policies are senior citizens, usually 70 years old or older. In premium financing, a bank lends funds to an insured, to help them meet premium payments. Similar to life settlements, repayment is backed by future death benefits from the policies.