Found these tips from Wm. Scott Page. These tips are directed to those looking to potentially invest or purchase life settlement portfolios.

• Beware of adverse selection. The seller of the portfolio may keep the best performing policies and only sell the weaker ones. Risk gets passed to the buyer.
• Understand origination concerns. Aside from insurable interest, issues regarding transparency, trust agreements and corporate documents can arise.
• Differences in documentation and tracking can be significant. Lack of uniformity in documentation hinders policy evaluation, and tracking varies greatly from company to company.
• “As is” portfolios offer challenges. Some portfolios today are being offered “as is” and include policies that a manager would otherwise not purchase.

With the amount of premium financed policies and insurable interest policies created and sold in the last 3 years, buyers and investors need to beaware of these policies lowering the value of the portfolio.

Last Monday, a Delaware bankruptcy court allowed JGW Holdco LLC and affiliates J.G. Wentworth LLC and J.G. Wentworth Inc. to enter Chapter 11 bankruptcy protection after the company encountered liquidity problems amid a tightening credit market.

The three Bryn Mawr, Pa.-based companies buy and service structured settlements, as well as small-face-value life settlements. J.G. Wentworth has also securitized these settlements.

As funding dried up during the credit crunch, J.G. Wentworth had difficulties buying up these assets. The company is now reorganizing its business per the bankruptcy arrangement.

When a life settlement buyer files for bankruptcy, insured individuals who have already sold off their policies are often the ones who end up least injured, as they have already collected their lump sum. However, insurance policies and annuities in the process of being sold may be up in the air.

Source: InvestmentNews

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