Found this interesting article, I thought I would share with everyone…

The Financial Services Authority (FSA) has warned that the marketing of traded life policies carry ‘major flaws’ and said it would be ‘very concerned’ to see the market increase rapidly.

Peter Smith, head of investment policy and conduct policy division at the FSA, told the European Life Settlement Association conference the regulator had ‘significant concerns’ about traded life settlements.

‘We do not see them as mainstream products…From our supervisory work we do have some significant concerns in the way these products are brought to the market at present,’ said Smith.

‘We have had to take action with a number of firms already and so we would be very concerned to see a rapid increase in the size of this market.’

Smith warned delegates that longevity risk, on which the price of traded life policies are calculated, is the largest risk the market faces.

‘We have already seen this risk crystallise in the long-term care insurance market, where rapid advances in medical knowledge meant underwriters had mispriced the inherent longevity risk,’ he said.

‘Premiums were revised upwards dramatically, destroying the market.’

Smith listed the other risks associated with life settlement as:
life expectancies;
portfolio valuation;
carrier solvency;
credit;
premiums;
mortality;
reputation; and
moral hazard.

‘Already these risks mean that we have had to enter the market to take action. Firms are not achieving good customer outcomes on their own and we are concerned at the number of problems we are finding,’ said Smith.

‘Obviously, I cannot go into detail about these problems here, but I can say that we have identified major flaws in the marketing of the products. It is simply unacceptable to produce complicated products and downplay the risks to customers.’

Source: Michelle McGagh/citywire