Life settlements: mainly an American market

By Alain Thériault | April 23 2014 10:00AM

Scandals have not dampened the enthusiasm for viatical (life) settlements in the United States, where this market has hosted the Annual Spring Life Settlement Conference for almost 20 years. There is also a dedicated group, the Life Insurance Settlement Association.Many of the players in the Canadian market originate in the United States and buy pools of policies there. Situated in Mississauga, Ontario, but registered in Nevada, Crown Alliance Capital announced in July that it intended to buy a pool of policies belonging to American seniors for several million dollars.

Incorporated in Wyoming, MaxLife Fund Corp. has a Toronto office. The company says it acquires individual policies.

There are Canadian firms as well. Chartwell Asset Management runs the mutual fund Magna Life Settlement Fund, established in 2008. A footnote on its website indicates that this private manager is registered with the British Columbia Securities Commission. The site also states that company president Greg Cameron holds the title of Chartered Life Underwriter and Certified Financial Planner (CFP).

Daniel Kahan, president of Elder-Care Life Funding, says this market boasts success stories, including that of Magna LS Fund. At the 16th Annual Spring Life Settlement Conference in 2011, he announced that this fund had earned a 25% return in three years with a portfolio of 36 policies and assets of $12 million.

The robust growth of the life settlement market in the United States was fuelled by the aging population and the 2008 recession, Kahan says. “The market is now more for seniors that have 5 to 10 years to live. The market is also growing because more people are living longer. More people need money because they’ve lost money in the market,” he explains.

Marred by scandals

In the late 1990s, firms advertised openly in provinces where life settlements were permitted. At the time, ABC Services d’Avantages Anticipés waged a campaign in Québec, in coordination with its Florida head office. Seeking policy holders aged 70 and over, ABC offered to buy their policies for between 60% and 80% of the insured amount. It promised advisors acting as intermediaries a commission statement ranging from 1% to 2.5% of the client’s insured capital.

This market’s reputation was marred by series of scandals. In Florida, the executives of ABC Viatical, including CEO Keith LaMonda, were found guilty of fraud against both investors and life insurance companies in the mid-2000s. Their sentence was upheld in 2010 despite an appeal LaMonda filed from his prison cell.

New Life Capital, an Ontario life settlement player, was forced to declare bankruptcy after its executives, Jeffrey Pogachar, Paola Lombardi and Alan Price, were found guilty in 2008 of defrauding investors by the Ontario Securities Commission (OSC). The sentence included a restraint order.

In a decision handed down in May 2012, both Pogachar and Lombardi were ordered to pay $1.5 million in fines and $260,000 in expenses. The OSC also sentenced New Capital to pay $22 million, to be jointly honoured by the trio of executives, three subsidiaries and four numbered companies listed in Ontario.