some competition
Stone Street 'bets on death' by buying insurance
policies
Eric Winig Staff Reporter
Stone Street Financial is looking to get into the life insurance business. Well,
sort of.
The company, a financial
services firm based in
Bethesda, plans to launch
a new product March 8
called "Liquidity for Life"
that it says could unlock
large amounts of cash for
people with outdated
policies.
The firm has secured a
commitment for up to $1
billion over four years to
be used for "senior
settlements" -- in other words, to buy senior citizens out of their life insurance
policies for cash.
The financial backing comes from Maple Financial, an international banking
firm based in Toronto, which also has made an undisclosed direct investment
in Stone Street.
Senior settlements -- also called life settlements -- are not the same as viatical
settlements, which typically involve terminally ill patients. Instead, Stone Street
is targeting healthy seniors who simply have an insurance policy that no longer
may be necessary.
"People look at insurance as an illiquid
market," says Larry Brown, co-CEO of the
firm (http://www.stonestreetfinancial.com).
"There really hasn't been a market to create
liquidity for consumers."
The reason, he says, is that insurance
companies have a captive market.
Therefore, they have no incentive to offer
more for policies than their cash surrender value. Stone Street believes it can
introduce competition into the market, and plans to use actuarial tables to
determine the fair market value of policies. Ultimately, the company plans to
package the policies and sell them to investors as an investment-grade bond
product.
While the idea sounds good, however, it is reasonable to ask why others have
been unable to make the business work, at least so far.
"It's an interesting product," says Mike Goodman, CEO of
Pennsylvania-based J.G. Wentworth & Co., "but betting on death is very
difficult." Goodman says his company looked at the business several years ago
but decided not to get involved.
One firm that has entered the business recently is Pennsylvania-based
Coventry Financial. Coventry has been in the life settlements business since
last November, but already has purchased $200 million in policies and says it
controls 40 percent of the market.
Coventry CEO Alan Buerger says Stone Street's entry is good for the
industry. The firm, he says, is well-respected for its work in the structured
settlements area -- providing lump sum payouts for lottery awards and other
annuities -- and should provide a boost to the industry's reputation.
Stone Street has set up a national network of insurance brokers to sell its
product, giving certain firms exclusive rights to a territory for one year.
Locally, the firm has partnered with Greenberg Wexler & Associates, a
D.C.-based insurance consultant and broker.
"What they're doing is pretty unique," says Scott Greenberg, a partner at the
firm.
Besides seniors with outdated policies, Stone Street plans to target individuals
with business insurance that no longer is necessary.
The big question for Stone Street seems to be whether this can be translated
into a profitable enterprise. None of the firms already in the senior settlement
business has been able to expand on the scale envisioned by Stone Street.
"We're entrepreneurs," says Stone Street co-CEO Lee Jundanian, "but we're
also calculated risk takers. We're in the process of turning the spigot on." |
