The Role of Life Insurance Company Ratings
The services that issue life insurance company ratings are major players in the life settlement industry. Their opinions of the financial soundness of a life insurance company are extremely important to prospective buyers. This is because buyers consider life insurance company ratings to be an indicator of a life insurance company's ability to pay a claim. And, because the buyer's return may come several years after purchasing a policy, they must stay abreast of any future changes in the life insurance company ratings applicable to the policies in their portfolios.
The Expanded Role of Life Insurance Company Ratings Services
Due to the rapid expansion of the life settlement industry, portfolios of policies are now being securitized and traded by institutional buyers. As a result, some of the life insurance company ratings services now also assess the securities that are backed by life insurance policies. In addition to rating blocks of policies, at least one life insurance company ratings service reportedly rates life settlement providers.
Impact of Life Insurance Company Ratings on Individual and Institutional Sellers
Life insurance company ratings can impact the amount a seller receives for their policy in a number of ways. Because buyers often have minimum standards, an otherwise desirable policy may become ineligible for a life settlement if the life insurance company ratings of the issuer do not meet the established minimums. This scenario could either totally eliminate the market for a policy or reduce the pool of prospective bidders. Another possibility is that buyers would still be interested in a policy from a carrier with marginal life insurance company ratings, but extend a lower offer to compensate for the increased risk of a future insolvency.
From an institutional seller's standpoint, the life insurance company ratings services assessment of a portfolio they hold could impact its value in a future trade.