Executives from life insurance settlement provider The Lifeline Program have uncovered some disturbing trends during the evaluation of life settlement portfolios. Issues with insurable interest and concerns regarding policy origination have led the company to mark some portfolios as “polluted.”

“We are seeing portfolios that are littered with questionable policies,” said Wm. Scott Page, president and CEO of The Lifeline Program. “In some, the lack of transparency is disturbing, and we are very wary of some of the trust agreements and corporate documentation.”

While investments correlated to the stock market have taken a significant hit in the last year, life settlements are now an attractive emerging alternative investment option due to their non-correlated nature. However, many investors need to be cautious on how they enter the market.

Page cites these additional caveats for fund managers who are considering the purchase of complete or partial portfolios:

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

According to Page, the time investors spend on due diligence for an existing portfolio would be better spent working with a provider that can aggregate a customized portfolio. Depending on portfolio size, the time involved to aggregate one from scratch is no more than the time an investor would spend conducting due diligence of an existing portfolio, and by aggregating a new portfolio, investors can better manage their risk and be more selective about the product they purchase.

“In the last several years we have evaluated hundreds of policies with insurable interest issues and other origination concerns,” said Page. “Most of them were eventually purchased by other funding entities and bundled into portfolios. Investors need to know there are many ways to get into the market, and aggregating a portfolio with a provider may be the better solution for their investment model.”

The Lifeline Program, based in Atlanta, Ga., is a division of Wm. Page & Associates, Inc. Founded in 1989, the company offers alternative investment opportunities for financial institutions, partners with insurance agencies and broker dealers to establish life settlement business lines and assists seniors with retirement planning options. For more information on life settlements, contact Wm. Scott Page of The Lifeline Program at 770-724-7300 or visit www.thelifeline.com.