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RECENT INNOVATIONS IN SECURITIZATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS, 

INSURANCE, AND GOVERNMENT 

SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 24, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–79 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

PAUL E. KANJORSKI, Pennsylvania, Chairman 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

CAROLYN B. MALONEY, New York 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

RON KLEIN, Florida 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

CHARLES A. WILSON, Ohio 

BILL FOSTER, Illinois 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

SCOTT GARRETT, New Jersey 

TOM PRICE, Georgia 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

JUDY BIGGERT, Illinois 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

ADAM PUTNAM, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

RANDY NEUGEBAUER, Texas 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 24, 2009 .......................................................................................... 1 

Appendix: 

September 24, 2009 .......................................................................................... 33 

WITNESSES 

THURSDAY, SEPTEMBER 24, 2009 

Curry, Daniel, President, DBRS, Inc. .................................................................... 19 

Dorsett, J. Russel, Co-Managing Director of Veris Settlement Partners, on 

behalf of The Life Insurance Settlement Association ....................................... 12 

Dubberly, Paula, Associate Director, Division of Corporation Finance, U.S. 

Securities and Exchange Commission ................................................................ 7 

Gearhart, Kurt, Global Head of Regulatory and Execution Risk, Life Finance 

Group, Credit Suisse ............................................................................................ 15 

Kelly, Jack, Director of Government Affairs, The Institutional Life Markets 

Association ............................................................................................................ 14 

Pardo, Brian D., Chairman and Chief Executive Officer, Life Partners Holdings, Inc. ................................................................................................................ 10 

Strongin, Steven H., Managing Director and Head of Global Investment Research, Goldman, Sachs & Co. ............................................................................ 18 

Voss, Hon. Susan E., Commissioner, Iowa Insurance Commission, on behalf 

of The National Association of Insurance Commissioners ................................ 8 

APPENDIX 

Prepared statements: 

Kanjorski, Hon. Paul E. ................................................................................... 34 

Curry, Daniel .................................................................................................... 36 

Dorsett, J. Russel ............................................................................................. 43 

Dubberly, Paula ................................................................................................ 51 

Gearhart, Kurt .................................................................................................. 63 

Kelly, Jack ......................................................................................................... 73 

Pardo, Brian ...................................................................................................... 85 

Strongin, Steven H. .......................................................................................... 92 

Voss, Hon. Susan E. ......................................................................................... 97 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Written statement of Joseph M. Belth ........................................................... 103 

(1) 

RECENT INNOVATIONS IN SECURITIZATION 

Thursday, September 24, 2009 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS, 

INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:35 p.m., in room 

2128, Rayburn House Office Building, Hon. Paul E. Kanjorski 

[chairman of the subcommittee] presiding. 

Members present: Representatives Kanjorski, Sherman, Scott, 

Maloney, Minnick, Kosmas, Grayson, Himes; Garrett, Manzullo, 

Capito, and Jenkins. 

Also present: Representatives Watt, Green, and Hirono. 

Chairman KANJORSKI. This hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises 

will come to order. 

I ask unanimous consent that Ms. Hirono of Hawaii have permission to participate in today’s hearing. Pursuant to committee rules, 

each side will have up to 15 minutes for opening statements. Without objection, all members’ opening statements will be made a part 

of the record. 

We meet this afternoon to examine recent innovations in our securities markets, especially those related to life insurance settlements. While the life settlement industry is now well established 

and quickly growing, the securitization of life settlements remains 

in its infancy. Investors, however, have already gained access to securities products like life settlement funds, mortality indexes, and 

derivatives linked to life settlements. 

Today’s hearing offers us an incredible opportunity to employ the 

lessons that I hope we all learned, even though we paid too dear 

a price to learn them, about issuing toxic securities. By asking 

some fundamental questions about this industry, we can prevent 

trouble using foresight rather than later undergoing disaster in 

hindsight. 

Specifically, we should ask how one would securitize life settlements, what is needed to properly securitize these products, and 

whether or not we should securitize them. We should also explore 

how we can protect those who invest in these products and better 

safeguard those who sell their life insurance policies. 

Perhaps most importantly, we must examine whether or not securities products based on life settlements actually contribute to 

2 

economic growth or merely prolong the casino culture on Wall 

Street that got us into our current economic mess. 

Generally, I see enormous value in securitization. Pooling assets 

together to create new products can effectively allocate limited economic resources. Securitization has mobilized trillions of dollars of 

capital from around the world to enable Americans to purchase 

cars and homes, obtain a college education, and start new businesses. Through securitization, we have also created new sources 

of liquidity and helped investors to diversify their portfolios. In 

short, the securitization of home mortgages and other assets still 

has the potential to produce enormous societal benefits. 

That said, we must remember that securitization is only an engine and not an end in itself. Like other engines, for it to run as 

intended, securitization needs strong, reliable inputs, responsible 

operators, and clear rules of the road. In the case of the subprime 

crisis, we failed on all three fronts. 

Wall Street’s insatiable demand for subprime mortgages fueled a 

Frankenstein-like engine that allowed originators to hit full throttle and bundle tens of thousands of toxic mortgages without regard 

for the consequences. 

At the same time, regulators ineptly monitored these activities, 

underwriters dangerously relaxed standards, and far too many investors failed to fully understand the purchases they made. 

Perhaps most troubling, the gatekeepers to our markets, credit 

rating agencies, negligently if not recklessly stamped nearly everything with a AAA. Their widely inappropriate investment grades 

nearly drove our economy off a cliff. 

Before life settlements have the chance to give securitization another black eye, we ought to consider the need for additional safeguards. Today’s hearing will therefore focus on whether or not life 

settlements are an appropriate input for the securitization engine, 

or whether or not its operators can appropriately drive this vehicle. 

Life settlements can provide retirees with a source of liquidity to 

fund unexpected expenses or to sell an asset that they no longer 

need at a better price. But this industry also has the potential for 

substantial abuse. Presently, States inconsistently regulate life settlements. Many States have also failed to require the registration 

of life settlement brokers. 

Moreover, because of the opaqueness of life expectancy estimates, 

some investors in life settlement funds have already lost money on 

inaccurate predictions. The financial gains made by a select few 

middlemen from the transaction costs related to life settlements 

are also estimated to be 4 times that associated with the sale of 

masterpiece paintings. 

In sum, we face many problems with this budding industry. The 

improper securitization of life settlements could ultimately leave 

countless seniors penniless and innumerable investors broke. The 

idea of institutional investors profiting from a person’s death also 

seems, to say the least, unsettling and immoral. It leads us down 

a slippery slope that might eventually result in indexes based on 

divorce rates and swaps tied to gambling losses. 

We are hopefully now emerging from the worst recession of our 

time. This committee is also working diligently to strengthen the 

regulation of our financial system to withstand future crises. It is 

3 

in this spirit of reform that we should examine the life settlement 

industry and its connections to our securities markets. By doing so 

today, and before we face another crisis, we may also decide that 

the best policy is to keep this Pandora’s box shut. 

I will now recognize Mr. Garrett for 5 minutes. 

Mr. GARRETT. Thank you, Mr. Chairman. 

And thank you to all the members of the panel and on the additional end table of the panel here as well. 

I thank the chairman for holding this hearing today. 

You know, due to the problems that we have experienced over 

the last couple of years in the secondary mortgage market, it is 

really timely and appropriate that this subcommittee fulfill its role 

and conduct proper oversight over any new advances in 

securitization and how these new advances in securitization might 

affect consumers and investors. 

Now, the main asset class that we are focusing on today is life 

insurance settlements. These products have been around, as you all 

know, since the 1980’s, and the industry has continued to grow 

since its inception. As I understand it from talking to some of the 

folks in industry, that looking at an industry around $31 billion in 

size, and it is slated to grow even more. 

I believe that the number one focus of this hearing today should 

be the well-being of our senior citizens and their families. It is 

these people that we want to make certain that we are looking out 

for. 

While we want to do our best to protect the seniors and their 

families from any harmful financial products, we really don’t want 

to limit their consumer choices and deprive the elderly of ways for 

them to enhance the current quality of life. 

Prior to the development of the life insurance settlement marketplace, policyholders really had two options before them for dealing 

with their life insurance policies: they could stop paying the premiums and allow the policies to lapse; or simply surrender the policy for the cash value that life insurance would offer. Well, life insurance settlement provides seniors a third option that they consider while they try to maximize the value of the assets that they 

hold. 

In some studies I have seen, they have shown that life insurance 

settlements routinely offer 3 or 4 times the return to the policyholder in comparison to simply surrendering it in for cash value. 

So while there are numerous stories out there about seniors benefiting from this type of settlement, there are other stories out 

there we read in the paper about fraud and malfeasance in the industry. 

So I look forward to this hearing today, Mr. Chairman, about any 

ongoing initiatives by the States to enhance both consumers’ and 

investors’ protection as well as their privacy rights of anyone selling these policies. 

I am also interested to learn from the NAIC more about their 

model life settlement act and how States are applying it, and 

whether we need—or whether they need to do anything else to update that as well. I do believe that transparency and accountability 

in this industry must continue to improve. 

4 

The other main focus of this hearing today should be to delve 

into the concerns that the chairman has mentioned about 

securitization of these assets, because, in the wake of the recent financial market collapse where large problems occurred and are 

really still occurring in the mortgage securitization market, it is 

really appropriate that we examine other new forms of 

securitization that at least have the potential, we think, to grow 

and expand. 

Now, there is that recent New York Times article, that I am sure 

we are all familiar with on this topic, that led a few people to believe that there is an imminent chance for explosion of life insurance settlement securitization. But as I understand it, there have 

been, to date, only a couple of real specific securitizations that have 

occurred in this area of around $3 billion. And when you consider 

that the total outstanding dollar amount of life insurance policies 

in general is around $27 trillion, I find it hard to believe that these 

few securitizations pose a threat to the broader life insurance market and industry. 

With that said, I do recognize the potential for growth in this 

market and this industry, and I do feel it is appropriate that we 

take time right now to learn more about these products before it 

potentially, if it could, get out of hand, much like Fannie Mae and 

Freddie Mac and the GSEs did in the secondary mortgage market, 

and Congress just didn’t act in time. 

I know the SEC recently announced the formation of a task force 

to examine these issues, and I do look forward to hearing what 

they are doing and considering on a regulatory front, because, at 

the end, protecting consumers and investors and ensuring the integrity of our capital markets are critical tasks before this subcommittee and this Congress, and I believe we are moving in the 

right direction by having this hearing today. That is why I thank 

this panel, and I thank the chairman for doing so. 

I yield back. 

Chairman KANJORSKI. Thank you very much, Mr. Garrett. We 

will now hear from Mr. Sherman of California for 3 minutes. 

Mr. SHERMAN. I look at this from four directions. 

First, from the standpoint of investors in the securities, do they 

understand the investment? Are they marketed correctly? I would 

rely on the SEC to make sure that is the case. 

Unlike everything else we are doing in this committee, at least 

what we are talking about today does not pose a systemic risk to 

the entire economy. I would say an investment in a pool of life insurance policies is no more difficult to understand than buying the 

common stock of a life insurance company. 

Second is the overall ghoulishness, which is why I think we are 

here. But we should keep in mind that there are many investments 

in which you benefit from a misfortune. You buy oil futures, and 

if Iran blocks the Strait of Hormuz, you sell the S and P short; and 

if our economy goes down or you sell short the stock of a life insurance company; and if people don’t live as long as we currently suspect, you make money. There are plenty of investments in which 

the investor makes money due to the misfortune of others. 

Third is from the policy owner’s perspective. Let’s face it, life insurance companies are selling whole life and similar policies as inVerDate Nov 24 2008 17:39 Mar 18, 2010 Jkt 054870 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\54870.TXT TERRIE
5 

vestments, and then when you want to surrender the policy, they 

provide you far less than the actuarial value as the cash surrender 

value. Policy owners who bought these investments should try to 

get as much of the actuarial value of their investment as possible. 

The way to do that is to have people—well, the real way to do it 

is to have the life insurance industry dramatically increase cash 

surrender value to something approaching actuarial value. But if 

they won’t, then we have to allow or ought to allow policy owners 

to sell their policies to the highest bidder. The more bidders, the 

more they will get. And if some of those bidders are involved in 

securitization, that brings in more bidders. Otherwise, people who 

have paid for decades are going to get only a small fraction of what 

their policy is worth. 

Finally, from the insurance company’s standpoint, I am told that 

roughly 90 percent of the policies are surrendered or abandoned. 

Obviously, if the cash surrendered value is far less than the actuarial value, the insurance company makes more money. Do they 

pass this on to consumers, or is this just a profit center for the insurance industry? 

I don’t know whether Congress should intervene in the markets 

to prevent policy owners from getting fair value on the expectation 

that means life insurance companies will make more money and 

that is somehow good for consumers. 

I yield back. 

Chairman KANJORSKI. Thank you very much, Mr. Sherman. 

We will now hear from Mr. Scott of Georgia for 2 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. 

There are certain concerns with the interaction of the life settlement industry and the securities markets, so this hearing is very 

timely, how this interaction will have an impact on investors and 

how those investors will actually benefit from those life settlement 

deals regarding life insurance. I am concerned with the standards 

of underwriting that I believe, as we move forward in looking at 

all areas of the financial service industry, we must remain focused 

on the very important aspect of transparency. Also, when assets 

are securitized, it gives investors new hurdles in addressing the authenticity of the policy. 

Securities and Exchange Commission Chairman Mary Schapiro 

has expressed her own concerns over the role of securitization in 

life settlements and believes that there are many questions to be 

asked relating to sales and practice and privacy rights, serious 

questions. The interaction of the life settlement industry with securities markets raises the question of, how will investors be protected? We certainly need answers to that question. Should we 

more intently focus on the transparency of underwriting standards 

used as well as mortality estimates? Does the securitization of life 

settlement produce unintended consequences for the State guarantee funds, especially if more policyholders obtain life settlements 

and fewer life insurance policies lapse? These are very serious 

questions that we have to examine. The hearing is very timely, and 

I look forward to each of your presentations. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you very much. 

6 

I will now recognize the gentleman from Florida, Mr. Grayson, 

for 3 minutes. 

Mr. GRAYSON. Santayana said, ‘‘Those who cannot remember the 

past are condemned to repeat it.’’ So it certainly is important that 

we learn from history, but it is also important that we learn the 

real lessons of history and not delude ourselves. 

For instance, some people have adopted the view that 

securitization must be evil, because when we started to securitize, 

we ended up with great economic problems. 

I have a really different point of view about that. I don’t think 

there is anything inherently wrong with securitization at all. I 

don’t think there is inherently anything wrong with securitizing 

any kind of asset. It depends on how you do it. 

So if those people who believe that securitization is evil come to 

dominate our economy, then the result of that will be that we will 

miss out on the economic opportunities that good financial reform 

can provide to us. So if you came here today to try to convince us 

that we should shut down life settlement securitization, I am not 

going to be with you. 

However, we do need to learn from our experiences. And one 

thing we have learned is that monopoly is not good. 

In the case of life insurance policies, there has a monopoly buyer 

of life insurance policies that are in existence. It is the issuer. The 

issuer is the only one who can buy back from you except for the 

life settlement companies. They are the only competition that is 

provided to the issuer in a situation like that. So when we have 

a monopoly, when we have a monopsony, actually, the result of 

that is that the policyholder doesn’t get fair value for that policy. 

And we have seen that over and over and over again. 

What we want is we want an industry that provides competition. 

Life settlement actually is an industry that promotes and provides 

competition and provides value to the holders of these insurance 

policies they wouldn’t otherwise have. 

When we look back on the experience of the last couple of years, 

the real enemy, as I see it, is the enemy of leverage. It is the 

enemy of zero capital requirements or insignificant capital requirements. In the case of AIG, there were no capital requirements. 

They could issue anything they want and call it some kind of insurance policy, and they didn’t have to have any reserve requirements 

at all. No capital requirements, no reserve requirements. AIG blew 

up, and it cost each one of us, every American, substantial amounts 

of money. 

In the case of Fannie Mae, Fannie Mae had 200 to 1 leverage 

and that is why Fannie Mae blew up. Not because Fannie Mae was 

securitizing mortgages, but rather because Fannie Mae was abusing the concept of leverage by 200 to 1 leverage. 

Now, ask yourself, how does that apply here to the life settlement industry? What is the leverage in the life settlement industry? It is zero. The life settlement industry doesn’t revolve around 

borrowed money at all. So it simply doesn’t present to us the same 

kind of policy issues as the unbridled abuses that came with 200 

to 1 leverage and estimated leverage. 

So as I look at this, I say to myself, what this industry is doing 

is it is helping people get the full value of their policies. And I don’t 

7 

think that this industry should be called upon to answer for the serious abuses that pervaded this economy in other areas over the 

past 2 years. And the sins of others should not descend on you. 

Thank you, Mr. Chairman. 

Chairman KANJORSKI. Thank you very much, Mr. Grayson. 

Now we will have an introduction of the panel. 

Thank you all for appearing before the subcommittee today, and 

without objection, your written statements will be made a part of 

the record. You will each be recognized for a 5-minute summary of 

your statement. 

First, we have Ms. Paula Dubberly, Associate Director, Division 

of Corporation Finance, United States Securities and Exchange 

Commission. 

Ms. Dubberly. 

STATEMENT OF PAULA DUBBERLY, ASSOCIATE DIRECTOR, DIVISION OF CORPORATION FINANCE, U.S. SECURITIES AND 

EXCHANGE COMMISSION 

Ms. DUBBERLY. Good afternoon, Chairman Kanjorski, Ranking 

Member Garrett, and members of the subcommittee. 

I am pleased to testify on behalf of the United States Securities 

and Exchange Commission on the topic of life settlements and new 

developments in securitization. I appreciate the opportunity to discuss with you the Commission’s work in this area. 

We recognize that securitization plays an important role in the 

financial markets. However, recent experience with securitization 

in the mortgage markets argues for the careful review and analysis 

of all developing securities activities. In this regard, the Commission is taking steps to address issues with securitization. The staff 

currently is engaged in a broad review of the Commission’s regulation of asset-backed securities, including disclosure, offering process, and reporting by asset-back issuers. The securitization market 

continues to develop, and we recognize that securitization of life 

settlement appears to be a growing practice. 

Life settlements generally are considered securities when a thirdparty purchaser sells a fractional interest in a single policy or pools 

the life settlements and sells interests in the pool through 

securitization. To date, we are not aware of any securitized life settlement pools being registered with the SEC and publicly sold to 

investors. But securitized pools are sold as private placements, and 

we will continue to monitor this developing area. The SEC has the 

ability to use its civil enforcement authority to combat fraud and 

other unlawful securities-related activity in this market and has 

done so. The Commission has brought a number of cases in this 

area since the mid-1990’s. 

In light of the potentially far-reaching consequences of the recent 

movement towards securitization of life settlements, Chairman 

Schapiro has established a multidisciplinary Life Settlements Task 

Force comprised of senior officials from throughout the SEC. The 

task force will examine emerging issues in life settlements and advise the Commission whether market practices and regulatory 

oversight can be improved. The task force will consider, among 

other things, the application of the Federal Securities laws to life 

settlements, the emerging role of securitization, the life settlements 

8 

marketplace, including trading platforms, and market intermediaries. 

Various groups of investors are affected by life settlement 

securitizations, including investors and the companies that sponsor 

the securitizations, investors in insurance companies, and investors 

that purchase securities backed by life settlements. Not only will 

the staff be looking at the issues raised with respect to these 

groups, but we will also be looking at the disclosure provided to 

these groups of investors. 

We also will consider sales practices regarding both the sale of 

existing life insurance policies by contract holders and the sale of 

interest in life settlement pools to investors. The Commission is especially concerned that life settlement brokers may be targeting 

policyholders who are particularly vulnerable to abusive sales practices, including seniors and the seriously ill. We will consider possible issues raised by the business model of creating securitized 

pools of life settlements, how that model relates to the interest of 

investors, and what kinds of fees are generated for securitizers. We 

also will consider whether securities offerings that purport to rely 

on exemptions from registration under the Federal Securities laws 

are doing so properly. 

Life settlement issues draw on the expertise of regulators 

throughout the United States. Thus, Chairman Schapiro has asked 

the task force to reach out to regulators and other interested parties to coordinate regulatory efforts and analyze whether gaps in 

oversight exist that could be filled through legislation or other action. 

By incorporating a multidisciplinary approach and working with 

fellow regulators and other interested parties, the Life Settlement 

Task Force will make a fresh in-depth analysis of the issues raised 

in the securitization and life settlements market so that we can 

make sure investors are informed and protected. 

Thank you again for inviting me to appear before you today and 

for the subcommittee’s support of the agency at this critical time 

for the Nation’s investors. I would be happy to answer any questions you may have. 

[The prepared statement of Ms. Dubberly can be found on page 

51 of the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Dubberly. 

Next, we will hear from the Honorable Susan E. Voss, commissioner, Iowa Department of Insurance, on behalf of the National 

Association of Insurance Commissioners. 

Ms. Voss. 

STATEMENT OF THE HONORABLE SUSAN E. VOSS, COMMISSIONER, IOWA INSURANCE COMMISSION, ON BEHALF OF 

THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS 

Ms. VOSS. Chairman Kanjorski, Ranking Member Garrett, and 

members of the subcommittee, thank you for this opportunity to 

testify at today’s hearing. 

My name is Susan Voss and I am the commissioner of the Iowa 

Insurance Division. We have jurisdiction over insurance and securities regulation through my division. I am also the vice president of 

9 

the National Association of Insurance Commissioners, and I am 

here today on behalf of the fellow regulators of the NAIC. I want 

to commend the subcommittee for today’s hearing assessing the impact of securitization on life settlements. 

The first life insurance settlement was developed as a viatical 

settlement during the 1980’s in response to the HIV/AIDS patients 

who wished to sell their life insurance policies in order to raise 

much-needed funds for personal and health care expenses. Today, 

the marketplace has expanded to roughly $3 billion to $4 billion 

annually, so that individuals who no longer need or want their coverage for economic or personal reasons can sell their policies as an 

alternative to surrendering it for its cash value or letting it lapse. 

Life settlements are necessary transactions for some consumers, 

but they require appropriate regulation with a focus on disclosure 

and consumer protection. As such, nearly all States have moved to 

pass regulations or laws specifically establishing strong oversight 

of life settlement transactions. But it is important to note that all 

States have the authority to protect consumers from fraud and misrepresentation in this area. 

All State insurance regulators enforce licensing and form requirements and have examination enforcement authority and require mandatory disclosures to the consumers about his or her 

rights. This oversight is critical, particularly as stranger-originated 

or owned life insurance, or STOLI, has emerged in recent years. 

Under STOLI, investors solicit a healthy and high net worth individual, who is typically at least 70 years of age, to obtain a life insurance policy with a certain minimum death benefit. The individual buys the insurance with the specific intent of selling it to 

those investors. And after a minimum period of incontestability 

ends, ownership of the policy is transferred in exchange for a taxable lump sum. The investors then receive the death benefit when 

the insured individual dies. 

This concept violates State insurable-interest laws that require a 

direct interest and relationship between a policyholder and beneficiary, but it is difficult to determine a policyholder’s true intent 

when purchasing a policy, making it challenging to distinguish between STOLI and a legitimate life insurance settlement. 

As such, the States are implementing requirements to target the 

timing of these transactions to make them unappealing to wouldbe STOLI investors while preserving a policyholder’s right to sell 

his or her policy. Likewise, insurers are improving their underwriting guidelines to better determine a policyholder’s intent when 

purchasing life insurance. 

As you can see, State regulators already conduct significant oversight of life settlement transactions. However, the concept of 

securitizing life settlements is a relatively new phenomenon. While 

such securitization is outside the jurisdiction of insurance regulators, we are concerned that securitization of life insurance settlements would incentivize would-be STOLI investors to attempt to 

expand the marketplace, much as securitization of mortgages 

helped dramatically expand that marketplace. 

It is also important to note that life settlements in general and 

securitization of them in particular would diminish the number of 

10 

life insurance policies that would otherwise lapse, requiring insurers to raise their premiums. 

Finally, we would want to ensure that any securitization of life 

insurance settlements does not compromise the original policyholder’s rights and privacy. We commend the SEC for creating 

their agency-wide task force regarding life settlements, and we 

would like to work with them on this critical issue. This issue is 

a clear example of where securities and insurance regulators need 

to work collaboratively to ensure that policyholders and investors 

are informed and protected. 

Mr. Chairman, thank you again for the opportunity to testify before this subcommittee, and I welcome any questions. Thank you. 

[The prepared statement of Ms. Voss can be found on page 97 of 

the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Voss. 

And now, Mr. Green of Texas will introduce our next witness. 

Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairman. I thank you for allowing 

me to be a part of the subcommittee. 

I am honored today, Mr. Chairman, to introduce Mr. Brian 

Pardo, who is the founder, the president, the chief executive officer, 

as well as the chairman of the Board of Life Partners Holdings. He 

is also a person who has served his country, having been a veteran 

in the Vietnam war. 

Mr. Chairman, I believe we will find his testimony to be informative, insightful, and engaging. 

And I will yield back to you, Mr. Chairman. 

Chairman KANJORSKI. We are a little out of order here, but that 

is the way it goes. We will be right back to Mr. Dorsett. 

Mr. Pardo. 

STATEMENT OF BRIAN D. PARDO, CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, LIFE PARTNERS HOLDINGS, INC. 

Mr. PARDO. Thank you, Mr. Chairman, and Ranking Member 

Garrett. It is a privilege for me to be here. It is a privilege to be 

here to provide you with our company’s insight into the need, especially in today’s financial environment, for uniform regulations 

with Federal oversight of this asset class to provide older Americans unimpeded access to the market and to provide investors with 

a reliable asset-based investment which is not correlated to financial markets and/or other types of indices. I am going to skip part 

of this. 

The severe recession and the meltdown has caused severe financial problems, especially in IRA, 401(k), and other retirement accounts for senior Americans. The purpose of life settlements as we 

see it is simply to provide these people access to cash many never 

knew was available to them. Of all the life insurance in force today, 

only approximately 8 percent make up these kinds of policies. So 

we do not see that this is a problem to the life insurance industry. 

These special-purpose policies are usually universal life policies. 

Since they are not purchased for wealth accumulation, policyholders usually only pay a minimum amount of premiums to keep 

their policies in effect. The surrender value on these types of policies is typically 1 percent or less of the value of the policy. 

11 

The Wall Street Journal reported last fall that, with a life settlement, policyholders can typically net more than is available by surrendering a policy to the insurer for a lump sum payment, or in 

the case of letting it go entirely, letting it lapse, in other words, 

getting nothing for it. 

This has been a policyholder’s right since the 1911 court ruling 

of Grigsby v. Russell, which allowed people to sell their life insurance policies and consider life insurance policies personal private 

property. And along that regard, I would like to point out that as 

a personal property asset, the sale of this asset has been ruled by 

the courts as not the business of insurance. 

Currently, life settlements are regulated by a patchwork of State 

insurance departments. Each claims jurisdiction to regulate the 

transactions with inconsistent and frequently conflicting statutes 

which vary from State to State. Some States have regulations 

which effectively prevent insurance consumers from any access to 

the secondary life insurance market, while a few have no regulations at all. 

Life Partners is domiciled and registered in the State of Texas, 

and as a life settlement provider, we are licensed and regulated by 

the Texas Department of Insurance. All forms are approved and require us to file annual copies. 

On top of that, the lack of uniformity in State regulation creates 

another problem. A lot of times the participants in the life settlement transaction may involve persons or entities throughout the 

United States. For example, the life settler who may be selling the 

policy may be a trust under the laws of New York with a trustee 

in Connecticut, while the insured may live in Arizona. Determining 

which State has jurisdiction over the transaction can be very confusing. Federal oversight regulation can remedy this problem. 

Life settlement transactions are not derivatives, and when the 

investor actually obtains ownership of the policy or a fraction of the 

policy, life settlements are not a security either, as the lady pointed 

out here. It is merely an assignment of the value of a contract 

right. However, as with many types of assets, the securitization of 

life settlements is very possible, and indicated by the recent news 

articles in the Wall Street Journal, Wall Street is looking at life 

settlements as a replacement for mortgage-backed securities. 

This is nothing particularly new. In 2000 through 2003, the industry—Wall Street, that is, opted out of this class because it 

couldn’t see how to transform it into a derivative. To the extent life 

settlements are bundled and transformed into derivative securities, 

they would be subject, of course, to the statutes and regulations 

governing securities. 

In order to provide older Americans with unfettered access to the 

valuable secondary market for the life insurance policies, a uniform 

minimum level of Federal regulation for life settlement transactions in the United States, in our opinion, is advisable. Life insurance and settlement providers should not shy away from Federal regulation. Life Partners actually went public in 2000, not to 

raise capital, but to voluntarily bring itself under meaningful oversight and regulation required by public companies. We are the only 

public company as a life settlements provider in the United States, 

and as such, we are subject to the reporting requirements of the 

12 

SEC, including those rules mandated by the Sarbanes-Oxley Act of 

2002. 

I strongly believe that Federal law should set a minimum standard for State regulation of life settlements. If a State does not provide at least this minimum level of regulation, I believe that the 

new U.S. Consumer Financial Protection Agency should supervise 

life settlement activity in that State, because life settlement transactions are not the business of insurance but rather a financial 

asset transaction, so they do not constitute the business of insurance. Thus, any Federal regulation of life settlements does not run 

afoul of the public policy expressed in the McCarran-Ferguson Act. 

Thank you very much, and I will certainly be happy to answer 

any questions. 

[The prepared statement of Mr. Pardo can be found on page 85 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Pardo. 

And next, we will hear from Mr. J. Russel Dorsett, co-managing 

director of Veris Settlement Partners, on behalf of the Life Insurance Settlement Association. 

Mr. Dorsett. 

STATEMENT OF J. RUSSEL DORSETT, CO-MANAGING DIRECTOR OF VERIS SETTLEMENT PARTNERS, ON BEHALF OF THE 

LIFE INSURANCE SETTLEMENT ASSOCIATION 

Mr. DORSETT. Good afternoon, Chairman Kanjorski, Ranking 

Member Garrett, and members of the subcommittee. 

My name is Russel Dorsett, and I am delighted to have the opportunity to appear before you representing the Life Insurance Settlement Association, or LISA. LISA is the oldest, largest, and most 

inclusive body serving the life settlement industry, and it is an 

honor and a privilege to serve as LISA’s president. 

LISA’s mission is to promote an orderly and transparent marketplace, sound regulation, and best practices to enable well-informed 

consumers to maximize the value of a financial asset, a life insurance policy which is no longer needed, wanted, or in some cases, 

affordable. LISA members hold nearly 75 percent of all the provider licenses which have been issued by the State regulators. 

The average life settlement pays policy owners 4 to 6 times the 

policy’s cash value. Over the past decade, the life settlement industry has delivered to policy owners approximately $6 billion above 

what they would have received had they simply lapsed or surrendered their policy. In doing so, we have made it possible for these 

policy owners to better afford retirement, medical care, or simply 

to enjoy the lifestyle they have earned. 

Life settlements are not about Wall Street. They are about a consumer’s property rights. A famous decision in 1911 authored by 

Justice Oliver Wendell Holmes affirmed the right of a legitimate 

policy owner to treat their policy as financial property and to sell 

to the highest bidder if they so desire. 

This appearance is occasioned by the committee’s concern that 

the growth of the secondary market and the potential for 

securitizations might somehow be seized upon by Wall Street’s 

rocket scientists and grow to the point where it constitutes a systemic threat to the American economy or to the health of the life 

13 

insurance industry. We are a niche residing rather uneasily between two colossuses, the institutional capital markets and the life 

insurance industry. In comparison to either, the life settlement 

market is miniscule. In the best of times, perhaps $3 billion to $4 

billion of capital was actually employed to purchase policies, which 

might translate to $10 billion to $12 billion in face amount purchased in any one year. While this is certainly not an inconsequential sum, it is tiny in comparison to the $20-plus-trillion mortgage 

market or the life insurance industry, which has some $19 trillion 

of face amount in force; we think about $10 trillion of that is individual policies. 

Consumers attempting to utilize the life settlement option have 

suffered from the current financial crisis. Completed life settlement 

transactions during calendar year 2009 will, at best, approach 50 

percent of those completed in the prior year primarily due to the 

dearth of investment capital available to purchase policies. In the 

5 years preceding the financial crisis, however, the secondary market did experience sustained growth driven both by increased 

awareness on the part of consumers that such an option existed 

and the undeniable appeal of life settlements as an asset class. 

Securitization of life settlements has been a topic of considerable 

interest for some time, but the number of transactions actually 

completed can be counted on one hand, in fact, with several fingers 

left over. 

Demographic trends alone make it certain that more and more 

Americans will find themselves in a position where a life settlement becomes a valuable option. But a viable market requires both 

willing sellers and credible buyers. To the extent the 

securitizations are underwritten in a financially sound and transparent manner and, in so doing, increase the capital available to 

purchase unaffordable, unneeded, or unwanted life insurance policies, we cannot help but believe that both social and economic utility are indeed enhanced. 

Even under the most optimistic growth scenarios, only a very 

small fraction of the insured population would ever qualify as a 

candidate for a life settlement, and the total face amount of policies 

purchased is unlikely to even approach $200 billion over the next 

decade. While this is a substantial sum, it is several orders of magnitude away from the potential for creating systemic problems comparable to those experienced in the mortgage markets. 

The potential impact of life settlements on insurers is also negligible, and the settled policies are unlikely to approach even a 

fraction of 1 percent of the insurance enforced over the foreseeable 

future. 

We believe that life insurance contributes greatly to society at 

large. It is a well recognized engine for wealth creation, and it 

helps to foster a culture of self-reliance and planning for the future. 

A secondary market for those policies which become at some point 

unneeded or unwanted enhances the already tremendous value 

proposition that life insurance represents. It will result in more 

people buying more policies and keeping them for longer. Should 

their health decline or they reach an age where they need the 

money now rather than later, the life settlement option can provide 

funds to meet their needs at a time when other assets may have 

14 

been depleted or declined in value due to adverse market conditions. 

Thank you again for the opportunity to appear before you today, 

and I will happy to answer any questions that anyone might have. 

Thank you. 

[The prepared statement of Mr. Dorsett can be found on page 43 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Dorsett. 

Next, we will hear from Mr. Jack Kelly, director of government 

relations at the Institutional Life Markets Association. 

Mr. Kelly. 

STATEMENT OF JACK KELLY, DIRECTOR OF GOVERNMENT 

AFFAIRS, THE INSTITUTIONAL LIFE MARKETS ASSOCIATION 

Ms. KELLY. Thank you, Mr. Chairman. 

Thank you, Mr. Garrett. 

My name is Jack Kelly. I serve as director of government affairs 

for the Institutional Life Markets Association, ILMA, a trade association comprised of a number of the world’s leading institutional 

investors and intermediaries in the longevity markets. Our members include Credit Suisse, EFG Bank, Goldman Sachs, JP Morgan 

Chase, Mizuho International, and WestLB. 

ILMA was formed 2 years ago to create best practices and to encourage transparency and standardization of documentation, and to 

encourage and educate consumers and investors and policymakers 

about the benefits of longevity-related marketplace. ILMA members, through lending or by direct purchase, have provided consumers in excess of $2.9 billion through purchases of life insurance 

policies no longer needed by the owners. 

ILMA’s first action was the creation of the Life Settlement 

Transaction Disclosure Statement that clearly discloses the amount 

of money consumers receive when they sell their life insurance policy, and how much money their broker will receive in the transactions. ILMA has advocated in every State that has considered life 

settlement legislation to adopt this form. It has also created a set 

of uniform HIPAA-compliant release forms to ensure the participants in the market use forms that protect the identity and the 

personal privacy records of individuals. 

It is difficult to determine the actual size of the life settlement 

market. An upcoming report by Conning Research concludes the 

value of policies settled in 2008 to be $12 billion, and at the end 

of 2008, approximately $31 billion of policies will be in force. They 

conclude, by 2011 and 2012, the market will reach a saturation 

point with an annual growth after that of 2 percent to 3 percent. 

Compare this to the almost $20 trillion to $25 trillion in force today 

of life insurance. The size of the life settlement market is less than 

miniscule. 

Recent news reports have advanced the story that the capital 

markets have initiated an effort to issue rated securitization of life 

settlements. I think it is important to distinguish between facts 

and speculation in this reporting. 

As for life settlement securitizations, there have only been two 

rated life settlement securitizations reported: In April 2009, an internal company transaction by AIG that was valued at $2 billion 

15 

and rated by A.M. Best. This capital relief transaction was done in 

part to reduce some of AIG’s ongoing borrowing from the Federal 

Reserve by $1.2 billion. 

In 2004, Legacy Benefits Corporation concluded a Moody’s rated 

securitization that included both life settlements and annuity assets. Since these are the only known transactions, it brings to question why suddenly there is such increased attention to the 

securitization of life settlements. 

As the use of securitization by the insurance industry is widespread, it is only reasonable that such a tool would be explored for 

life settlements. In fact, Frank Keating, the president of ACLI, recently stated: ‘‘Securitization of life insurance policies transferred 

to third parties is not necessarily a bad thing.’’ 

The analogy presented by some that life settlement securitization 

is the next subprime crisis is completely inaccurate. The most significant participants in mortgage transactions are the homeowner 

and the investor. Securities that were linked to subprime mortgages relied on a continued stream of payments by the homeowners. When homeowners failed to make payments, the 

securitizations failed, resulting in two losers, the homeowner and 

the investor. 

In a life settlement securitization, an investor buys a security 

backed by a pool of insurance policies that have been settled. It is 

critical to note that the original owners of the insurance policies 

are paid in full for the policy at the time their ownership is transferred. They have no further financial participation in the process 

and cannot be adversely impacted as a result of the securitization. 

If the life settlement securitization fails, the only loser would be 

the investor, which is the case in all investments, and there would 

be no financial impact on the insured or any original policy owner. 

Accordingly, such investments would only be suitable for institutional investors who can analyze and understand the risks. 

ILMA’s position is that life settlement transactions should be 

regulated to ensure that the consumer is protected and informed 

about the impact of such transaction, and we have argued for these 

protections in every State. As life settlements are regulated by 

State insurance regulators, there is a lack of uniformity in the laws 

governing these transactions. ILMA seeks the adoption of uniform 

laws and including all requirements of that uniformity. 

We look forward to working with you, Mr. Chairman, and the 

members of the committee, and thank you for your time today. 

[The prepared statement of Mr. Kelly can be found on page 73 

of the appendix.] 

Chairman KANJORSKI. Thank you, Mr. Kelly. 

And next, we will hear from Mr. Kurt Gearhart, global head of 

regulatory and execution risk, Life Finance Group, Credit Suisse. 

Mr. Gearhart. 

STATEMENT OF KURT GEARHART, GLOBAL HEAD OF REGULATORY AND EXECUTION RISK, LIFE FINANCE GROUP, 

CREDIT SUISSE 

Mr. GEARHART. Thank you. 

Good afternoon. My name is Kurt Gearhart, and I am Credit 

Suisse’s global head of regulatory and execution risk in the firm’s 

16 

Life Finance Group. The Life Finance Group employs approximately 90 professionals, and the group’s mandate is to intermediate mortality and longevity risk. 

Credit Suisse has been an active participant in securitization 

markets, with considerable experience with insurance 

securitizations. Based on this experience, we would like to make 

three points today: 

First, insurance securitizations are nothing new. And, as described in our written testimony, there are various types of 

securitization structures that have been used by the life insurance 

industry, with none of the experiences of the mortgage markets. 

Securitizing life settlements would be similar to other traditional 

insurance securitizations. Credit Suisse has never in fact done a 

life settlement securitization, so we have no direct experience to 

offer in that area. 

Second, Credit Suisse conducts its life settlement business in 

complete conformity to industry best practices. We have been a 

leader in creating industry best practices, and we believe that they 

protect consumers as well as institutional investors. 

Finally, Credit Suisse welcomes greater Federal regulation of life 

settlements. We would be pleased if a strong Federal regulator, 

such as the SEC, were given jurisdiction over life settlements. 

We appreciate the committee’s invitation to be here today, and 

our discussion will be divided in three parts: life settlements; life 

insurance securitizations and Credit Suisse’s activity in life settlements; and the regulation of life settlements and life settlement 

securitizations. 

Life insurance securitizations. I think that it is important to understand that securitization of longevity and mortality risk is not 

a new concept. Over the last decade, insurance companies have 

securitized these risks in closed block; redundant reserve; embedded value; and extreme mortality securitizations, as described in 

our written testimony. 

Although Credit Suisse has never done a life settlement 

securitization, they would be similar to other life insurance 

securitizations. The only difference is that a life settlement provides income to consumers rather than to the life insurance companies themselves. 

The reality is that there have been very few life settlement 

securitization deals. And although we expect the securitization 

market to be relatively small, we believe that a potential 

securitization market can be good for consumers and institutional 

investors. 

For consumers, securitization will bring two primary benefits. 

First, increased liquidity to the life settlement market will result 

in higher cash offers for policy. Second, securitizations would ensure the protection of the insured’s privacy as institutional investors will not have access to any information that would allow them 

to identify the insureds. 

For institutional investors, life settlement securitizations provide 

a tool for portfolio diversification and satisfy demands for investments that are not dependent on capital markets. 

The next topic I will discuss is Credit Suisse’s activity in life settlements. Credit Suisse began participating in life settlement marVerDate Nov 24 2008 17:39 Mar 18, 2010 Jkt 054870 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\54870.TXT TERRIE
17 

ket in 2006, initially by purchasing policies through third-party life 

settlement providers. In 2007, we formed our own licensed life settlement provider to purchase policies. We opted to form our own 

platform to ensure the quality of the policies we acquired and to 

provide adequate protection to policy sellers. We employ numerous 

best practices in our business, including requiring policy sellers to 

be represented by an adviser, providing comprehensive disclosures 

to policy sellers and insurers that identify all the risks and alternatives to life settlements, and disclose all the transaction fees paid 

to third parties so the consumer knows exactly how much we are 

paying for their policy. And, we conduct closing interviews with 

both the policy sellers and the insureds to ensure that they understand the substance and economics of the transaction. 

Credit Suisse has paid approximately $500 million more to seniors than they would have otherwise received by surrendering their 

policies to the insurance companies. On average, we pay policy sellers approximately 10 times more than the cash surrender value offered by the insurance companies. 

Seniors typically sell their policies to Credit Suisse because premiums become unaffordable, or because they need funds for health 

care, retirement, or other purposes. We manage and distribute the 

mortality and longevity risk with sophisticated institutional investors, including insurance companies, reinsurance companies, fund 

managers, and pension funds. We employ rigorous risk management practices to limit the amount of exposure we have in the life 

settlement business. 

Finally, I would like to discuss the regulation of life settlements 

and life settlement securitizations. Life settlements securitizations 

would be securities subject to SEC regulation. They would also be 

subject to any general securitization reforms currently being considered by Congress. The acquisition of life insurance policies from 

policy sellers is currently regulated at the State by State insurance 

departments. We have worked with the NAIC, NCOIL, and States 

on life settlement regulation. 

Today, 35 States regulate life settlements. Notwithstanding the 

efforts of the NAIC, NCOIL, and State regulators, consumers in 15 

States still have no regulatory protection. The State regulatory 

model has led to a patchwork of inconsistent regulation, and this 

is confusing to consumers and impacts the effectiveness of regulation. 

We have implemented a variety of best practices in our life settlement business to protect consumers regardless of whether required by State law. We do this because we value our reputation 

and because it protects our institutional investors who do not want 

to own assets that were acquired with abusive practices. Credit 

Suisse would support Federal regulation and oversight of this business by the SEC or another Federal regulator as a means to provide greater protection to policy sellers, insureds, and investors. 

To close my testimony, I would like to restate our three primary 

points: First, life insurance securitizations are nothing new, and 

while Credit Suisse does not have direct experience, any application of securitization practices to life settlements should be the 

same as traditional life insurance securitizations; second, we believe strongly in the implementation of industry best practices; and 

18 

third, we would welcome strong Federal regulation from the SEC 

or another appropriate Federal agency. 

Thank you for the opportunity to appear today. And I will be 

happy to answer any questions that you may have. 

[The prepared statement of Mr. Gearhart can be found on page 

63 of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Gearhart. 

Next, we will hear from Mr. Steven H. Strongin, managing director and head of Global Investment Research, Goldman, Sachs & 

Company. 

Mr. Strongin. 

STATEMENT OF STEVEN H. STRONGIN, MANAGING DIRECTOR 

AND HEAD OF GLOBAL INVESTMENT RESEARCH, GOLDMAN, 

SACHS & CO. 

Mr. STRONGIN. Chairman Kanjorski, Ranking Member Garrett, 

and members of the subcommittee, we thank you for inviting us to 

present our thoughts on recent innovations in the securitization 

market and their impact on the financial crisis. We hope our 

thoughts prove helpful. 

Mr. GREEN. Sir, would you pull your microphone a little closer, 

please? 

Mr. STRONGIN. Is that better? Okay. 

I am head of Global Investment Research at Goldman Sachs. I 

have been involved either directly or indirectly with the 

securitization markets since starting at the firm 15 years ago, as 

well as during my tenure at the Federal Reserve in the 12 years 

prior to that. I am pleased to answer your questions on behalf of 

the firm regarding the securitization market and, more specifically, 

the life settlement and life settlement securitization markets. 

Before delving into detail on these topics, I would note that Goldman Sachs has never executed a life settlement securitization. We 

currently have no client mandates or plans to execute one. 

In addition, the life settlement business is very small. We estimate that our total investment in this space represents a small 

fraction of the total capital in the market and is very small relative 

to what several of our large institutional competitors have invested. 

The business is also very small as a percentage of the firm’s total 

business at considerably less than one-tenth of 1 percent. 

As Goldman Sachs has not executed any life settlement 

securitizations, we cannot offer any experience-based view of the 

life settlement securitization market, but we do not believe it poses 

systemic risks. It is small, unlikely to grow rapidly, and it is also 

unlikely to impact things like lending standards, which can have 

far-reaching economic consequences. 

We believe that the life settlement market offers significant positive benefits to the insured facing changing circumstances. That 

said, it could also have the potential for consumer abuse. Hence, 

we would emphasize the need to address consumer-protection-related issues in this market rather than systemic ones. 

We do have significant experience in other securitization markets. Based on that experience, we see a few key areas where 

securitizations, particularly mortgage securitizations, increased 

systemic risk and contributed to the financial crisis. We believe 

19 

that the rules and regulations related to securitization need to be 

changed to address these problems. 

Specifically, some financial firms used the relatively favorable 

rules around securitization to reduce the capital held against poor 

quality loans. They also made their balance sheets appear 

healthier than they were by reporting they were holding ‘‘good’’ 

public securities rather than the high-risk loans underlying these 

securities. This was true even for securities that had never actually 

been sold in a market, but were instead simply repackaged and relabeled with the help of ratings agencies. In some cases, these rules 

even allowed firms to make risks disappear entirely from their balance sheets. 

These abuses led to wholesale concerns about the balance sheet 

integrity of all financial firms, regardless of whether they had engaged in such practices or not, and greatly contributed to the panic 

at the peak of the crisis. They also drove the need for widespread 

massive governmental assistance for even the most healthy of financial firms. 

To address these issues and to make the financial system more 

robust to financial shocks, as well as to reduce the future need for 

government assistance in times of stress, we think that 

securitizations should only qualify for favorable regulatory treatment after significant parts of all risk tranches have been sold to 

a true third party. To prevent misreporting of risk exposures, large 

financial holding companies should consolidate all assets and liabilities onto their balance sheets and mark those assets to market. 

Further, to prevent the regulatory and accounting arbitrage that 

allowed massive under- and unreported risks to build and inflated 

profits to be reported, the rules around affiliate transactions should 

be strengthened. Specifically, assets should not be permitted to be 

held off balance sheet, and firms should not be allowed to crosssubsidize business across regulatory or accounting boundaries. We 

believe these changes in rules would go a long way toward reducing 

systemic risk. 

Thank you. And I look forward to answering any questions you 

may have. 

[The prepared statement of Mr. Strongin can be found on page 

92 of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Strongin. 

Finally, we will hear from Mr. Daniel Curry, president of DBRS, 

Incorporated. 

Mr. Curry. 

STATEMENT OF DANIEL CURRY, PRESIDENT, DBRS, INC. 

Mr. CURRY. Thank you, Chairman Kanjorski, Ranking Member 

Garrett, and members of the subcommittee. My name is Dan 

Curry, and I am president of the U.S. subsidiary of DBRS, one of 

the registered credit rating agencies. 

Securitizations in the mortgage and credit markets contributed 

significantly to the recent global financial crisis. As the markets 

continue to recover, policymakers, regulators, and market participants must understand what went wrong and take appropriate action to ensure that past mistakes are not repeated. 

20 

However, because our financial markets thrive on innovation, we 

must also recognize that a regulatory environment that prohibits 

new investment products will ultimately impede rather than enhance the health of our economy. Fostering innovation while limiting unnecessary risk is a delicate task. DBRS commends the subcommittee for tackling this challenge in the area of securitization 

of life settlements. 

My testimony today will focus on three areas: An overview of the 

life settlement securitizations; the role of rating agencies in this 

market; and suggestions for prudent regulation. 

To the best of our knowledge, the volume of life settlement 

securitizations has been relatively low and sporadic. However, 

there are several factors which may stimulate growth in the coming years. These include longer life spans, the decrease in defined 

benefit retirement plans, and other factors that may force older 

Americans to seek alternative sources of cash. Growth may also be 

spurred by increased interest in such products by institutional investors. 

The role of a credit rating agency in a life settlement 

securitization is to issue an opinion about the ability of a transaction to repay principal and interest on bonds sold to investors. 

These agencies do not purchase or arrange for the purchase of life 

insurance policies nor do they structure, underwrite, or sell life settlement transactions. 

Because responding to market proposals is a core part of part of 

the service we provide, last year, DBRS published the methodology 

for rating U.S. life settlement transactions. This methodology, 

which is publicly available on our Web site, calls for both quantitative and qualitative approaches to review in a life settlement 

securitization. It does not, however, involve the creation of mortality indexes; instead, we rely on publicly available third-party 

mortality tables. 

Although DBRS has reviewed 14 proposals for life settlement 

transactions, so far we have not rated any of these deals, and our 

market share remains at zero percent. Only two of these transactions are currently under active review. 

Now, I would like to offer some ideas on prudent regulation. The 

turmoil in the securitization markets arose from a number of factors involving mortgage brokers, appraisers, homebuyers, underwriters, issuers, arrangers, and investors. Of course, rating agencies also were to blame since their methodologies and models failed 

to keep pace with the products rated, and the rating process at 

times lacked transparency. 

DBRS believes that the lessons learned from the recent past can 

form the basis for a prudent regulatory basis for life settlement 

securitizations. First, there must be a focus on consumer protection, including mandatory licensing of parties who buy policies and 

robust disclosure of information about those transactions. On the 

securitization front, those who structure life settlement transactions should be required to retain a portion of the risk arising 

from such details. This would align their interests with those of investors and promote safety and soundness in the life settlement 

market. 

21 

DBRS also believes that investors should be given the information they need to make informed decisions about purchasing life 

settlement securities. 

We are pleased that the SEC has established a life settlement 

task force and we look forward to working with them in this area. 

Finally, we believe that the regulatory regime established and 

still being refined under the Credit Rating Agency Reform Act of 

2006 is well suited to ensure the quality, integrity, and transparency of the credit ratings on life settlement products. 

Thank you. I look forward to answering your questions. 

[The prepared statement of Mr. Curry can be found on page 36 

of the appendix.] 

Chairman KANJORSKI. I think we will take my questions, and 

then we will move on. 

Ms. Dubberly, the task force the SEC is putting together and 

taking on, has there been a full examination made of what authorities under the law you have to regulate these entities, and do you 

need any further action by the Congress? 

Ms. DUBBERLY. Thank you, Congressman. 

That is one of the issues we will be looking at. The chairman has 

directed us to take a broad look at this entire area and to see if 

we think there are some types of regulatory gaps between, say, 

State regulation or Federal securities law regulation. We certainly 

haven’t completed that task yet, but that is one of the mandates 

of the task force. 

Chairman KANJORSKI. There is no question, you feel you are considering this as a security as opposed to insurance; is that correct? 

Ms. DUBBERLY. When you take life settlements and you pool 

them and you securitize it, there is absolutely no question that is 

a security. 

The issue of life settlement, a participation in life settlement, the 

Commission has also taken the position that that is a security as 

an investment contract. A separate, just standalone life settlement 

would be a different question. 

Chairman KANJORSKI. Very good. 

How many people think we are being premature in even holding 

this hearing, and that we should put in any time or effort into this 

question? Or is it a question that should be before the Congress at 

this time? 

Could you show your hands? Those who think we should be pursuing this, could you raise your hands? 

Okay. Those who think we should not be pursuing it? 

There is a recent article in Der Spiegel magazine indicating that 

there is some disappointment among German investors that Americans are not dying fast enough. 

Do you think we should alleviate that risk and take some action 

to discourage that bad feeling? That could cause international implications. 

But seriously, I am interested—if we go to securitizing death settlements, what would be the outer limits of what we will 

securitize? 

Does anybody want to take that question? 

Mr. KELLY. What would the value be? Are you trying to say the 

value? 

22 

Chairman KANJORSKI. No. What areas should we not securitize? 

I mean, I humorously in my opening statement mentioned the 

fact that we could probably structure a policy to involve divorce. 

But would it be wise and good public policy to do that? Or if there 

is an enterprising individual who at every wedding day wants to 

issue the odds that the marriage will last to 50 percent in 5 years, 

and lesser percentages thereafter, and then we could bet on whether it will last a lifetime. 

Is that good policy, or are we causing some innate destruction to 

some reasonably good values in our society? 

I just throw it out to you. My compass is twirling; I want to get 

it set. 

Mr. KELLY. One of the things, Mr. Chairman, I think that you 

are saying, is the fundamental question about insuring risk; is that 

correct? 

Chairman KANJORSKI. If you look at it as only insurance of risk 

in the product, the result. 

Mr. KELLY. But ultimately that is what the insurance markets 

do. 

Chairman KANJORSKI. But everything can be reduced to risk, can 

it not? 

What is the risk that I will get 21 at a blackjack table? 

Mr. KELLY. Actually, on the top of the table it says the insurance 

line when you make your bet. 

Chairman KANJORSKI. Should we securitize that bet? 

Mr. KELLY. I think the insurance industry has used models with 

securitization on a regular basis, and where it is appropriate, they 

have found a need for it. We have seen that in the many examples 

that were provided here today with closed block, with CAT bonds, 

with mortality CAT bonds. 

So there are any number of insurance options that are 

securitized now, and they are securitized at the juncture that they 

have a value to the underlying risk that they are securitizing. 

Chairman KANJORSKI. I want to throw this out: 

Just before I came here, I was making a speech downtown to a 

group of regulators; and as we were leaving, I posed the question 

to my staff—they have not given me a full answer yet—but has 

anybody securitized or made life settlements on key man insurance 

on corporations where the key man has already left the corporation 

and is no longer there? And if you securitize that, how close is that 

to not having an insurable risk? 

I understand corporations can keep the insurance policy even if 

the person the policy is on has left the corporate interest, which 

shakes me up a little bit. 

Mr. KELLY. It goes back to the fundamental fact that there have 

only been two known securitizations of life settlements and neither 

has included a key man life. 

Chairman KANJORSKI. But you think it could? 

Mr. KELLY. I didn’t say I think it could. I said it has never occurred at this juncture. 

Mr. PARDO. I think the multitude of transactions that we see, in 

general, whether they are securitized or not, once the policy has 

been sold by the insurance company to the initial insured, the insured—since 1911—then has the right to do what he wants to with 

23 

that. If you take away the insured’s right to sell that policy 

through some mechanism, then you are depriving him of his private property, his right over private property. 

Chairman KANJORSKI. But that is all dependent upon if he has 

an insurable interest on whomever he has bought the policy for. 

Mr. PARDO. The insurable interest goes to the original purchase 

of the policy. I can’t take out one on your life and you can’t take 

one on mine. 

Chairman KANJORSKI. You could at one time in the United 

States. 

Mr. PARDO. That was before 1881. 

Chairman KANJORSKI. Right. We may be able to get you to—is 

it Antigua? They are selling policies on other people’s lives. We can 

find a jurisdiction in the world that is going to do incredible things, 

and you will find that they will write a policy on somebody’s life 

where you have no insurable interest. 

Now assuming that they did that, the question is, should that be 

able to be securitized and is that good public policy? 

Mr. PARDO. I don’t think anybody involved in the industry or 

anybody sitting at this table would even consider looking at buying 

a policy like that, because obviously you would have problems down 

the road. So it would solve itself; it is just not an issue that is going 

to arise. 

The primary issue that I think we should be concerned with is 

this patchwork of regulation between the States that is inhibiting 

access to the market by seniors. Senior citizens are in desperate 

need of liquidity right now because of the market meltdown. And 

the one in 2001, don’t forget also, that helped lead in to their problems. So suddenly they find out, gee, I can sell this policy and I 

can get back maybe 60 or 70 percent of what I have paid in—considerable amounts of money. 

Keep in mind that in our case, we buy for our clients, the average face value is $3.8 million. So these are not insignificant policies; these are large policies. They can get significant amounts of 

money, millions of dollars, and it means a lot to them. 

So we have to be careful that we don’t take that right away from 

them, but we also have to have some clarity in the regulatory 

structure. 

Chairman KANJORSKI. So I take it you are making a pitch for, 

if there is a Federal option for insurance, that we include life settlement insurance in the Federal charter? 

Mr. PARDO. I think there has to be some clarity in the law, and 

this patchwork of regulations has to be standardized in some form 

so that there is more access to the market. Because we are talking—this is a very strange set of situations when it comes to consumer law. 

What we have here is, the regulated party is the buyer. I am 

buying your insurance policy. Normally, in consumer law, you 

would be regulated; you are selling it. But actually in this case, we 

are being regulated. But we are the buyers. All of us sitting at this 

table are the buyers, so why are we being regulated? 

And in a large-scale transaction like this, where everybody is so- phisticated—say the policy is over $500,000—nobody, I don’t think, 

would disagree with me, here at this table or anywhere, that if we 

24 

had more clarity in terms of the regulations—and I think only Federal, some Federal guidelines are going to straighten this out as to 

what the basic rules are so that we know that every State has a 

certain set of standard rules that are the same and not this patchwork of slight nuances and differences. 

And they may argue that we have the right to do what we want, 

and we have only made this minor little change over here, but this 

minor little change over here requires a fleet of lawyers to make 

sure that everybody is in compliance. 

So what we would like to see, as a company, and I am sure for 

securitization to get started, which is a good thing, I think, as long 

as they don’t get carried away, is access to the market. 

Chairman KANJORSKI. So what I gather is, if we move towards 

an optional Federal charter, you want us to make sure we include 

life insurance policies that are dealt with; and then also we want 

to discourage the use of lawyers in our system. 

Mr. Garrett? 

Mr. GARRETT. Thank you. 

So basically we are talking about two different issues here. We 

are talking about the securitization issue and life settlement products in general. 

On the securitization issue, you can reiterate for me with regards 

to the SEC’s position, as far as when you have securitization, the 

SEC’s responsibility in that area is— 

Ms. DUBBERLY. The SEC has authority over the securities. A pool 

of life settlements is a security, so the offer and sale would come 

under their jurisdiction. 

To date, all of them have been offered privately, not in registered 

transactions. So we have less authority over the disclosure and private transactions than we do in registered transactions. 

Mr. GARRETT. You do have some. 

Ms. DUBBERLY. We do have antifraud authority. 

Mr. GARRETT. So the sale disclosure, marketing, fraud aspects of 

those, and if it is registered, then it is a complete line of authority 

that the SEC would have? 

Ms. DUBBERLY. They would have to comply with all of our disclosure rules. 

Mr. GARRETT. So I was looking at the life settlement products 

issued, then, moving over to the next set of issues, since it sounds 

as though on the security side, when it is securitized and registered, we already have the SEC out there responsible. And we 

also found the SEC has set up the task force to look further, so 

looks like we are going in that direction. We will see what the end 

results are, and Congress can respond if they don’t like the results. 

So the next step is the life settlement products aspect. The question there comes to a couple of them. And I will open this up to 

a couple of you to answer at the same time, with Ms. Voss being 

on the defensive end on one end of it and saying that things are 

confusing and inefficient when the State is involved on the one 

hand. 

But I always guess, on the other side, in light of all the morass 

that we have gone through and the problems we have gone through 

in the last 12 months, and you consider that, unfortunately, with 

all due respect, it was Federal regulators who were involved with 

25 

things at the SEC and the other banking regulators where there 

are some problems there, I guess hope springs eternal that this 

time the Feds will actually get it all right when you defer to us to 

actually to get the regulations in this area. 

So, Ms. Voss, I know you wanted to—it looked like you wanted 

to make a point with regard to Mr. Pardo’s comment. 

Ms. VOSS. Thank you. I just want to clarify. 

Actually, 45 States have some specific regulation of life settlements; and I think we would readily admit that a life settlement 

transaction, in most cases, is an appropriate transaction, and nobody that is regulating at the State level wants to deny somebody 

their property rights. 

But we also want to make sure that consumers understand what 

they are doing with their insurance, that there is disclosure, and 

they know all of the information about how that transaction happens. 

Mr. GARRETT. Mr. Kelly raised the point with regard to something out of the organization, the life settlement disclosure statement, which you have. 

And how many clients are members of the organization? 

Mr. KELLY. We have six institutional members of ILMA. And 

then we have five allied members. 

Mr. GARRETT. And how much else out there? 

Mr. KELLY. On the institutional side, we represent probably, I 

would say, 70 percent of the institutional side that is active in this 

marketplace. 

Mr. GARRETT. So you folks came up with the life settlement exposure document. That lays it all out there. That is something, as far 

as I understand from the NSC, you don’t quite—haven’t adopted 

that as complete disclosure; is that correct? 

Ms. VOSS. We have some disclosures in the model log that States 

are looking at, and also—the National Conference of Insurance 

Legislatures also has a model. So States are looking at disclosure 

very carefully. 

Mr. GARRETT. Is there something that Congress can do in this 

area—I don’t like us to be the heavy hand on this thing—but to encourage the States that take the proactive role on this, to go back 

and take a look at the—not to say that Mr. Kelly’s organization has 

the 100 percent answer on these things, but to open the book up 

again, as this area begins to expand, to make sure that we are having as much transparency, particularly in the area as far as agents’ 

compensation and all of that information? 

As you said, the consumers are really what you are trying to protect. 

Ms. VOSS. You make a good point; and any time you want to, 

write us a letter and encourage those States who may not have not 

adopted the model. 

I am also very encouraged with the SEC. I just met with them 

this morning on a variety of issues, and I think by us getting together and talking about our concerns, as investors, we may come 

out with a joint agreement on how to, overall, protect consumers 

and regulate these products. 

Mr. GARRETT. I will give Mr. Pardo 10 seconds. 

26 

Mr. PARDO. I just wanted to say, Mr. Garrett, if you wrote that 

letter, you would be writing it to every single State because, to my 

knowledge, no State has adopted that act. They have adopted parts 

of the model act, but not all of the model act. 

We agree that disclosure is a good thing, but when we are talking about sophisticated investors, these are investors who are exempt by the SEC as accredited investors. People who own multimillion dollar policies, who have lawyers, who have access to professional help, don’t want to be told by regulators, quite frankly, 

what to do with their assets. 

And so the ones below, say, $500,000, they do need a level of protection. But there is a group of people who do not—not only do not 

need it, but don’t want it. 

Mr. GARRETT. I see my time is up. I am going to ask one last 

question and that is on this line. 

Were the Congress to get involved in this area and try to set up 

some minimum levels in order to provide the consistency that—the 

argument always is, we need consistency across the 50 States. The 

flip side of that, we often hear from—particularly, depending on 

the issue—from one side of the aisle, is that going to be the floor 

or the max? 

So if you do it on the floor on this side and, for consistency, you 

may end up and you still allow the States, in due deference to the 

States, to say they can still put on X, Y, and Z as consumer protections, do you end up with the exactly what you want? Or do you 

end up with the worst of both worlds, the floor and also, still, 50 

State regulators? 

Nothing against State regulators, but that is the argument on 

the other side of that, always. 

Mr. PARDO. My feeling from 19 years in the industry is that we 

have—the States have a pretty good regulatory system going. 

There is not a lot of tweaking that needs to be done here, to be 

honest. I think it is just getting a standardization of this patchwork so that everybody at this table that is on the buy side of these 

transactions understands what it is they are dealing with and for 

that matter, the sellers understand it as well. 

Mr. GARRETT. Maybe that is how we can—if we are not revisiting 

in an official capacity or some other capacity, maybe that is something we should look at to see how we can encourage to get to that 

level of standardization, so you do have that consistency. 

Again, I thank the panel for their testimony. 

Chairman KANJORSKI. Now we will hear from Mr. Green. 

Mr. GREEN. Mr. Chairman, while they are not witnesses, I do 

have two State representatives who are here today with Mr. Pardo. 

They are Representative Jim Dunham and Representative Garnet 

Coleman, and I wanted to acknowledge their presence. 

Let us for just a moment continue with what the chairman started, which was building a record. I am always concerned about 

whether or not there is systemic risk, but my suspicion is that all 

of the members of this panel will agree that there is not systemic 

risk at this time. 

If there is someone of the opinion that there is systemic risk at 

this time, will you kindly extend a hand into the air? 

There is. 

27 

Ms. VOSS. I think you really have to be careful about the effects 

of the securities market on what is happening in life insurance. 

And I think when we have these discussions with the SEC about 

expanding on the securitization of life settlement, what does that 

do in the back end to life insurance companies, their assumptions 

on the pricing of these products, that you could have something 

that would affect the insurance markets. 

So I am giving you a half-hand. 

Mr. GREEN. I take it. 

What you are saying is, using the example of AIDS, which, of 

course, many persons bought policies assuming that there would be 

a life expectancy of a certain number of years; and then with the 

drug treatments that became available, the life expectancy increased and that caused some persons to lose some of their investment. 

Is that the type of example that you are talking about? 

Ms. VOSS. No. I am talking about, if the securitization of life settlement becomes a growing product, there is going to be a greater 

demand for the settlement of more policies, which could have an 

effect on how companies look at their assumptions when they price 

these products. And it could have some kind of an adverse impact; 

we just don’t know at this point. 

Mr. GREEN. I concur with you. But at this moment, would you 

see that as a problem today, is my question. 

Ms. VOSS. Not today. 

Mr. GREEN. Let the record reflect that as of today, we don’t have 

the systemic risk, but do you agree or disagree? 

Perhaps I should say, would you agree that we do need some consumer protection in the marketplace? And if there is someone who 

differs, if you think we don’t need consumer protection, that the 

market is fine as is, would you kindly raise your hand? 

I would like for the record to reflect that all of the witnesses are 

of the opinion that we do need some consumer protection. 

If you think that sophisticated investors should be a part of this 

process—and you mentioned sophisticated investors, Mr. Pardo. Of 

course, to be a sophisticated investor, one does not have to have a 

certain level of intelligence always, but it also has to do with the 

amount of capital that one has available to invest. And you have 

spoken of sophisticated investors. 

So let me ask Ms. Dubberly and Ms. Voss, if you would, is there 

a means by which sophisticated investors—persons who are not sophisticated investors may become involved in this to the extent 

that they can be harmed? 

Ms. VOSS. If you are talking about the securitization and then 

purchase, if in fact you get to a market where the individual investor may be interested, yes, I think there could be harm. 

Mr. GREEN. Do you think that this patchwork that has been alluded to is something that should be addressed because of the inconsistencies and perhaps the lack of transparency in one State 

versus another State? Is this something that we should address, 

the patchwork? 

If you think that the patchwork is something we need to address, 

kindly extend a hand into the air. 

All right. Maybe it is easier to do it another way. 

28 

If you think that we shouldn’t address the patchwork and leave 

it as it is, would you extend your hand into the air? 

Ms. DUBBERLY. I have to say that part of the purpose of the 

chairman’s task force that she has formed on life settlements at the 

Securities Exchange Commission is to look at all of the questions 

you are asking and do a holistic analysis of the whole situation. 

I don’t know that we would have answers to any of those particular questions at this moment. 

Mr. GREEN. I am in complete agreement with you. But I am trying to find out from the other experts, are they in agreement that 

this should be looked into? I think you are doing the right thing, 

but I do want to find out if our other experts agree. 

Is there anyone who is in disagreement? Anyone? 

As my time is about to expire, let me ask Mr. Pardo one additional question. 

You were involved with some litigation that has somewhat 

helped to define this area. Do you want to have just a comment on 

that at this time, Mr. Pardo? 

Mr. PARDO. Are you talking about the SEC v. Life Partners? 

Mr. GREEN. Yes, sir. 

Mr. PARDO. In 1994, the Securities Administration brought suit 

against Life Partners claiming that the purchase of life settlements 

for sophisticated investors constituted the sale of securities. We 

took the position that it did not. 

The ultimate resolution of that case here in Washington, D.C., at 

the U.S. Court of Appeals, was that it was not a security in any 

rendition or iteration, as they put it in a U.S. Court of Appeals ruling in July of 1996 and reaffirmed by the court in December of 

1996. 

So the U.S. Court of Appeals all the way back in 1996—this was, 

however, fact-specific to Life Partners’ business model with it: It 

was not a security. 

But this patchwork I am talking about is that since that time, 

some States have chosen to ignore that Federal litigation and say, 

oh, well, we don’t agree. And it is like me disagreeing with a cop, 

I wasn’t speeding; I am still going to get the ticket. 

Mr. GREEN. I will have to yield back because my time has expired. 

Chairman KANJORSKI. Mr. Manzullo of Illinois. 

Mr. MANZULLO. Thank you, Mr. Chairman. 

Would anybody here like to see the securitization of these mortgages governed under the new or the proposed Consumer Financial 

Protection Agency? Do you guys know what that is? 

Do you know what that is, Mr. Pardo? 

Mr. PARDO. I am sorry. I am a little hard of hearing. 

Mr. MANZULLO. Have you heard of the proposed Consumer Financial Protection Agency? 

Mr. PARDO. Yes, of course, I have. 

Mr. MANZULLO. Would you like to be regulated by them? 

Mr. PARDO. I think they should have a regulatory role, some 

oversight of life settlement, yes, I do. 

Mr. MANZULLO. Do you know what they would do? 

Mr. PARDO. I hope they would do what Congress asked them to 

do. 

29 

Mr. MANZULLO. That is not what an agency does. The first thing 

that they would do is, they would tell you the minimum amount 

that you can buy a policy for. 

Mr. PARDO. I do not believe that you can price fix, either the government or privately. Are you talking about putting a minimum? 

Mr. MANZULLO. You bet. They will come in with life ratings and 

take a look at the product and take a look at the premium and the 

amount. 

Mr. PARDO. What is going to happen there, Congressman, if that 

happens, you are going to then be denying the market to the owner 

of the policy because if that doesn’t agree with our numbers—and 

I am talking collectively at this table—the policy is not going to get 

bought. 

Mr. MANZULLO. I am just saying, I am against this organization, 

but that is exactly what they will do because they want to make 

sure that the consumer gets a fair price for the product. They will 

find some way to do that. 

I don’t think you want that, do you? 

Mr. PARDO. Not that, no. 

Mr. MANZULLO. Be careful what you ask for when you want the 

Federal Government involved in this stuff. 

Ms. Voss, when you were saying that you know of no State that 

has adopted the model disclosure, you were shaking your head. Ms. 

Voss; is that correct? 

Ms. VOSS. The model act has been introduced and passed in 

many States, including Iowa, and there are two different versions 

of regulation of life settlement that are out there. 

We have 45 States that have some version of the different models 

that have been enacted. So, yes, there is regulation out there. 

Mr. MANZULLO. But you disagree, Mr. Pardo? 

Mr. PARDO. Yes, I would disagree. There are variations of regulations, and most States do regulate. But my statement was that no 

State has adopted the total model act, which they started working 

on in about the early 1990’s. 

Mr. MANZULLO. They have adopted the disclosure. 

Ms. VOSS. We are happy to get you all of the different details of 

all of the different States and what they passed. And we updated 

that model in 2007, and many States have adopted it and even 

made it better, working with the life settlement industry to make 

sure it was appropriate. 

Mr. MANZULLO. So you guys disagree with each other, correct? 

I want to get some life into this boring hearing. 

Mr. PARDO. The parts that have been adopted have been fine. 

But I am saying if you got the impression from the Commissioner 

from Iowa that all of the recommendations have been taken up by 

every single State, I don’t think that is true. 

Mr. MANZULLO. But you want the Federal Government to preempt that and come in with something? 

Mr. PARDO. No. I didn’t say that. 

Mr. MANZULLO. What exactly do you want this town to do for 

you? What is it that you want or don’t want? 

Mr. PARDO. What we want is some minimum regulation from the 

Federal Government, minimum regulation from the Federal GovVerDate Nov 24 2008 17:39 Mar 18, 2010 Jkt 054870 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\54870.TXT TERRIE
30 

ernment that standardizes the regulations between the States. Because these so-called nuances are—it is easy to say ‘‘nuance.’’ 

Mr. MANZULLO. What you want is preemption then? 

Mr. PARDO. No. 

Mr. MANZULLO. Nuance is called federalism. States have a right 

to pass their own laws with regard to the jurisdiction that exists 

there. 

Mr. PARDO. In the case of insurance, but this isn’t the business 

of insurance. 

Mr. MANZULLO. Are you saying this is a gray area? 

Mr. PARDO. I don’t think it is gray. 

Mr. MANZULLO. I am just trying to figure out, you know, what 

it is that you want from us because you never ask Washington for 

something and then be surprised at the product. 

Mr. PARDO. I think I told you what we wanted. But maybe I 

didn’t make myself clear. 

Mr. MANZULLO. Could you take a minute or so and tell me what 

that minimum regulation is that you want? 

Mr. GREEN. [presiding] The Chair will allow the gentleman to 

answer, and the time has expired afterwards. 

Mr. PARDO. I am not prepared to sit here and go through the entirety of it, but I will be happy to have one of my attorneys here 

behind me— 

Mr. MANZULLO. No. Just an idea of what it is you want. 

Mr. PARDO. We would like to see—Life Partners, a 19-year participant in this industry, would like to see a standardization between the States of a minimum set of regulations such that instead 

of having to have two compliance lawyers and a staff looking at 

every single State and the differences between every single State, 

we can be dealing with standardized regulation. 

For instance, one thing would be reciprocity. We are licensed in 

the State of Texas. If we are licensed in the State of Texas and we 

are complying with Texas law—which I will say, for the most part 

adopts the NAIC model, but not entirely, and we comply with it 

and we are in good standing, then why should we have to go 

through the same regulatory process as a buyer now? 

Remember, we are not selling anything. Why should we have to 

go through that same process in Florida or New York or Iowa or 

any other State? Why can’t there be reciprocity or some other 

mechanism that could be put into place that would allow— 

Mr. GREEN. We will ask that additional questions be placed in 

writing. Mr. Pardo can respond in writing. 

We will now recognize Mr. Grayson from Florida for 5 minutes. 

Mr. GRAYSON. Thank you, Mr. Chairman. 

Looking down the table here, I want to know, are any of you 

looking for a bailout? 

Come on, be honest. Nobody? Well, that is refreshing, I must say. 

I just want to know because a lot of hearings that we have been 

having lately are focused on the question of taxpayer money going 

to private industry. I don’t think that question has been raised 

today. 

Harm to the financial system, I don’t see that question being 

raised today either. 

31 

So I want to make sure, are any of you too-big-to-fail? I don’t 

mean you personally. I mean your organizations. Are any of your 

organizations too-big-to-fail? 

No? Good. I am glad to hear that. 

Are any of you going to cause the destruction of the world financial system? Come on. Be honest. If you are going to cause the destruction of the world financial system, I want to know about it. 

Anybody? This is your last chance. 

No? None of you? 

Are any of you actually regulated already by any of the laws that 

we have passed on this committee? 

No? 

Oh, hey. We have somebody here. Okay, I am starting to see why 

we might be here today. But I think that, as I understand it, a big 

part of the reason we are here today is because of an article in the 

New York Times. 

So let me hear from Mr. Dorsett, your view of that article, since 

that is why we are all here. 

Mr. DORSETT. I would have to say we found that article to be 

rather poorly researched and quite misleading in its implications. 

We were told by the reporter that they did extensive research in 

the area, including trolling the LISA Web site, but somehow they 

couldn’t find a phone number for Doug or myself to actually talk 

with anyone in the industry. 

I don’t want to slam the New York Times, and certainly I will 

have to say we got a lot of calls because of that, both our individual 

members and LISA, by people saying, I didn’t know you could sell 

a policy; how do I go about that? So it wasn’t all bad. 

Mr. GRAYSON. Tell me exactly what it was you thought was 

wrong about the article. You said it was misleading. 

Mr. DORSETT. The numbers were vastly inflated, as you have 

heard from a number of testimonies today, as far as how big the 

industry is and what is going on. The implication that there was 

some relationship between the potential securitization of life settlement, which actually has not happened, and the subprime market 

was somewhere completely out of left field. 

So, as we said, we didn’t see a whole lot of accuracy to the article. But it did point attention to the industry, and I suppose that 

is a good thing. 

Mr. GRAYSON. What were the scary things that the article mentioned that you feel aren’t valid? 

Mr. DORSETT. The primary one was that life securitization was 

a train out of control, that the numbers were large, that it was not 

a regulated industry, and that somehow this was out of control and 

a train heading our way, which I think the testimony would indicate is not the case from pretty much anyone here. 

Mr. GRAYSON. What percentage of life insurance policies have 

been secured this way? 

Mr. DORSETT. There have been, to my knowledge, two private 

securitizations. One of them, the Coventry securitization; the AIG 

book was relatively large and involved 3,400 policies, and it was 

like $8 billion worth of life settlement. That, however, was a transaction done purely internally within AIG to move money from one 

place to another. 

32 

Outside of that, legacy benefits today are a fairly small 

securitization. There are certainly a number of people who would 

like to securitize life insurance settlements and a lot of transactions are being looked at. But there are a number of hurdles to 

doing that, not the least of which is getting through the rating 

methodology. 

I have seen a lot of deals pitched here recently where, by the 

time you go through the process of creating the pool, adding capital 

support, future premium payments, overcapitalizing, the sorts of 

yields they were talking about weren’t going to get anybody too terribly excited. 

Whether it is going to work in the market is an open question. 

Mr. GRAYSON. I do believe, Mr. Chairman, that we should not 

close the barn door after the horses have escaped from the barn. 

But here I see a situation where there is no barn, there is no barn 

door, and there are no horses, as far as I can see. 

But just to be absolutely clear about that. I don’t want you coming back 6 months from now and saying you want a bailout. Are 

we clear about this? You are not asking for any Federal money, correct? 

All right. 

And you are not asking us to regulate something that is not regulated now by the Federal Government, are you? 

Mr. DORSETT. We are not. 

Mr. GRAYSON. Thank you very much, Mr. Chairman. I yield my 

time. 

Mr. GREEN. I thank all of the persons who are here testifying 

today, and I do so on behalf of our chairman who had to step away. 

Before we adjourn, we will have to make a part of the record the 

statement of Mr. Joseph M. Belth on life settlements. Without objection, it is so ordered. 

And the record will remain open so that persons who desire to 

submit additional questions may do so. The record will remain 

open for 30 days, such that we may receive the questions and responses. 

This panel is dismissed, and the hearing is adjourned. 

[Whereupon, at 4:20 p.m., the hearing was adjourned.] 

(33) 

A P P E N D I X 

September 24, 2009 

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