April 18, 2012
ELSA NEWSLETTER 2012
18th April 2012
I take up the role of ELSA Chair for the third time at a particularly challenging moment. The SLS market has been hurt by sensationally negative remarks from the Financial Service Authority which have not gone unnoticed by the rest of the world. My last trip to Asia – where the echoes of this attack on a supposedly “toxic” asset class still reverberated heavily – reinforced my belief that it is critically important for ELSA to make a difference as an association and to prove to the regulators that the SLS market can be self-regulating.
One of my key objectives for 2012 will therefore to be to work closely with European regulators to determine the best possible outcome for all parties. I will also give high priority to engaging further with the FSA regarding the future of life settlements in the retail space. Thanks to our newly-formed Risk Mitigation Subcommittee, ELSA has successfully contributed to the latest FSA consultation process and we are determined to do the same in the summer. Hopefully, we will help to avert the danger, threatened by the FSA, of an unnecessary broad-spectrum ban.
Just as important, we continue to be fully committed to total transparency. As an industry, we need to take a long look in the mirror. We must be honest with ourselves and ask why the FSA have felt the need to issue such statements. Unfortunately, a minority of SLS product promoters/managers continue to undertake bad practices that will likely have a negative impact on their investors and result in additional negative press about the SLS market. Yet, just as importantly, there is also a highly ethical approach to working in this industry: the ELSA approach. Our members can rely on our potent Code of Practice and be both exemplars and advocates of transparency, self-regulation and investor education.
As has been the case since the Association was founded in 2009, I am committed to ensuring that the good practices embodied in the ELSA Code are spread throughout our entire industry. We must raise standards and, above all, create the expectation among investors that anyone promoting a life settlement product will be observing the Code. Most investors are unable to analyse and compare products, or decide which product is most suitable for them. We therefore also need to standardise valuation methodology. Such vital measures will, I trust, give investors the protection, security and confidence they need.
Finally, I would like to pay tribute to the excellent job done my predecessor, Anna M. Bailey, who has proved herself a positive, diligent and committed leader. At the last AGM, with general agreement, Anna was appointed “ELSA Ambassador at large". She has also received a "lifetime achievement award” at the last BVZL conference in Munich. We are grateful she will continue as chair of the ELSA Investor Summit Planning Committee, playing a vital role organizing the Second ELSA Investor Summit, which is planned for late September 2012. I would also thank the retiring Deputy Chair, Michael Fugler of Welcome Life, for the enormous amount of time and expertise he has given to ELSA during the past year. Michael will continue to chair the ELSA Education Committee.
I would like to congratulate the newly-appointed officers and members of the Executive – Simon Erritt of Coventry Capital, Daniel Beckmann of Maple Life, Mike Fasano of Fasano Associates, Nemo Perera of Griffin Risk Capital, Jim Maxson of Morris, Manning & Martin –and I look forward to working with them. I would also thank the chairs of the ELSA committees and subcommittees for their energy and commitment.
Here is an update on ELSA’s latest activities.
ELSA Meetings with the FSA on 5th January and 20th March 2012
ELSA had two meetings with the FSA Conduct Policy Division, led by Milton Cartwright, to discuss the unprecedented warning on “toxic” life settlements. The minutes of the meetings are available on request.
The ELSA response to the FSA Guidance is available on the ELSA website. The response was widely reported: “ELSA warns FSA life settlement fund ban has major implications” (Citywire, 6th February); “Life settlements body blasts FSA over ‘toxic’ warning” (FT Adviser, 6th February); “ELSA Says FSA's Proposed Ban Could Hurt Non-Retail Market Players” (The Life Settlements Report, 6th February).
ELSA’S WORKING COMMITTEES
There are ten ELSA committees and subcommittees undertaking the important work of the Association. The various committees are: Membership, Finance, Education, Code of Practice, Fractionalisation, Regulatory, Risk Mitigation, Industry Collaboration, LEPr Best Practices and Investor Summit Planning. Their work is reviewed on a quarterly basis by the ELSA Executive, whose meetings are open to all members.
The Education Committee, chaired by Michael Fugler of Welcome Life, sets the strategy and monitors the implementation of ELSA’s public relations, marketing and educational activities. This effort is targeted at the European investment community, financial media in all 27 EU members, European regulators, parliamentarians and opinion leaders.
The Committee is also responsible for the development of the ELSA website, the implementation of the media programme and the ELSA Investor Summit planning. The Committee also looks after publications and research in conjunction with ISI (Insurance Studies Institute) and the London Business School.
ELSA Education Award Programme
The Education Committee will be part of the judging panel for the ELSA Education Award Programme, which was launched in September 2011 during the First ELSA Investor Summit. The panel is chaired by Prof. Narayan Naik of the London Business School, which also includes Panos Kostakos, Director of European Operations at the Accreditation Council for Business Schools and Programmes.
The Award Programme was designed to raise awareness of life settlements among future opinion leaders in the financial services and investment industry.ELSA has been inviting final year students, post-graduate students and MBA students of finance, investment and insurance at 150 European business schools, colleges and universities to write original essays on key issues affecting life settlements as an asset class.
Topics include: evaluating investment structures and its risks for life insurance policies and insurance-linked securities; use of investments in life insurance policies and insurance-linked securities by pension funds or institutions which incorporate longevity risks in their business models; comparison between mortgage-backed securities market, life settlement and the life and longevity markets; the use of social networks in promoting investments in life insurance policies and insurance linked securities.
Second ELSA Investor Summit
The First Investor Summit was held on 21-22 September 2011 at the Institute of Directors, Pall Mall, London. It offered an opportunity to explore the world of life settlementsand the potential of this growing asset class from a global perspective.
The event was livestreamed by Policy Review TV and it was sponsored by Coventry, MLF LexServ, Surrenda-Link Investment Management, Life Equity, Carlisle and Asset Servicing Group. Speakers included: Stuart Hersch of Cantor Insurance Group, Sam Rosenfeld of Carolus Capital Advisors, Francisco Portillejo of Coventry, José Garcia of Carlisle, Prof. David Blake of the Pensions Institute, Dr Jochen Russ of the Institute for Financial and Actuarial Science, Prof. Markus Kerber of Technology University Berlin.
Comments included: “The day was splendid, thought-provoking and the start of an institutional rallying cry that shouldin time lead to an exchange for this asset class”. And as an investor put it: “Thank you for showing me alternatives forms of investment for myself and my clients. I will give all of this some very serious thought and, hopefully, action.”
ELSA is now organising the Second Investor Summit to take place in London on 26th September 2012. This year’s event will focus on regulatory issues, longevity and best practices. The London Business School is planning to present its latest ground-breaking research, which will change our perspective on the asset class.
ELSA is inviting the FSA, ESMA and the CSSF.
CODE OF PRACTICE
The ELSA Code of Practice was published in July 2010. It is a “living document” with teeth: members found in breach of the Code will face expulsion or suspension in accordance with the Rules of the Association. The Code of Practice Committee, chaired by Simon Erritt of Coventry Capital, continues to assess possible additions to the Code and welcomes comments from the media, investors and regulators to improve it further. The Code is being revised in light of the latest discussions with the FSA. ELSA is continuing to move forward with research on various industry “best practices” to further its efforts to set high standards for the industry and to provide sound information to regulators to help establish prudent policies.
The Regulatory Committee, chaired by Brian Casey of Locke Lord Bissell & Liddell, focuses on building close working relationships with the FSA, the Irish Financial Regulator, Luxembourg’s Commission de Surveillance du Secteur Financier and the EU’s Economic and Monetary Affairs Committee. The Committee’s objectives are: protection of investors, disclosure of risks based on a full assessment, and agreement on risks that need to be considered by regulators in Europe. The Committee is currently working on the publication of detailed ‘Mini-White Papers’ calling for disclosure of relevant risks and proper structuring of investments. These papers will cover subjects as diverse as origination process, high returns, low correlation, highly-rated insurance companies, fund vehicles, structures, dead instruments and portfolios.
Chaired by Nemo Perera of Griffin Risk Capital, the Risk Mitigation Subcommittee submitted a detailed response to the FSA on 6th February and made a valuable contribution to the FSA Consultation process. It is currently assessing a rating risk review and valuation methodology in order to provide an investment rating and due diligence service to potential investors.
The Membership Committee, composed of Mike Fasano, myself and two independent members, Mike Jones, former CEO of the Association of British Insurers, and Peter Bradley of Stephenson Harwood, meets regularly. It assesses criteria for membership and membership applications, considers complaints in light of the Code of Practice and looks at issues relating to suspension and expulsion.
In conclusion, I would like to invite all responsible stakeholders to join us to help develop ELSA’s long-term vision