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B. Andres (Drew) Plant
FOR IMMEDIATE RELEASE
Association lauds FASB decision on valuation of life settlement contracts
Atlanta, April 04, 2006 The Life Insurance Settlement Association (LISA) today praised the Financial Accounting Standards Board’s (FASB) amended position on the valuation of Life Settlement Contracts.
A life settlement contract generally referred to more simply as a life settlement is the sale to a third party of an existing life insurance policy for more than its cash surrender value but less than its net death benefit. Such transactions are usually undertaken for the purposes of estate- or financial planning.
The amended position, announced Monday, March 27, is set forth in FASB Staff Position No. FTB 85-4-1, Accounting for Life Settlement Contracts by Third-Party Investors. Previously, FASB required that Life Settlement Contracts be accounted for based solely on their cash value a method which seriously undervalued most settlement contracts.
“FASB’s new position reflects the realization that the generally accepted accounting principles under which life settlements had been accounted for in the past did not recognize the tremendous value inherent in Life Settlement Contracts,” says Doug Head, Executive Director of LISA.
M. Bryan Freeman, president of Atlanta-based Habersham Funding, LLC, and board president of Orlando-based LISA, adds that, “for a long time, the disparity between the actual market value and the book value of life settlements has made investment in our industry less attractive than other assets. FASB’s recognition of the more accurate accounting treatment of life settlement contracts brings it into line with other mainstream assets, and affirms the value of life insurance for consumers and buyers of life settlements alike.”
Head notes that FTB 85-4-1offers two methods of valuation for accountants and auditors looking at the purchases of settlements on the books of companies.
“With either alternative, consumers and investors are better off because of the added legitimacy the FASB’s decision brings to life settlements as an investment instrument,” says Freeman. “This is truly a development to celebrate and a milestone for the settlement industry.”
“This action really represents a new recognition of the bright future of the life insurance industry,” he says. “People understand that when a governing body like FASB moves to recognize the proper accounting of an asset, it is a sea-change. We expect that this decision will be adopted by the International Accounting Standards Boards as they consider future action. And now, more American investors will have the confidence to enter our market as have investors from other nations”.
“This decision combined with the positive recognition of the settlement industry by the National Association of Insurance Commissioners, the National Conference of Insurance Legislators, the United States Congress, the thirty nine states that currently regulate some or all parts of the business, and the recognition by financial institutions worldwide is a significant step forward for life settlements as a conservative and mainstream financial planning tool,” says Head.
“In complex financial matters, it takes a while for new realities to be recognized,” Freeman concludes, “but this is a very gratifying outcome for us, for our members, for the future of this industry, and, most especially, for consumers.”
Founded in 1995, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity and reputation of the life settlement industry, and to promote a competitive market for the people it serves. LISA now represents 90 members with a wide variety of interests in the industry. www.lisassociation.org
Habersham Funding, LLC, is an Atlanta-based life settlement provider that does business nationally. www.habershamfunding.com In addition to founding and helming Habersham, Freeman previously founded and has since sold Benefits America, NA, Inc., one of the nation’s oldest life settlement brokers. He is now serving an unprecedented fourth term as president of the board of LISA.
The mission of the Financial Accounting Standards Board is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. www.FSB.org