The life settlement investing space is slowly gaining traction in the financial industry both by the growth of assets in the space and the performance of those specializing it. In fact the trade organization Life Insurance Settlement Association (LISA) confirms that up until now “capital from Wall Street, such as hedge funds and pension funds, still view this asset as too exotic, complex, and not transparent enough.”

However, that may change in 2009 after use of these instruments and understanding of them grows. In 2009 AIG used a securitization of an $8.4 billion pool of life settlement policies to repay its $1.2 billion loan to the Feds. British Virgin Islands-based Tranen Capital’s +2.49% return for March 2009 (+11.5% YTD) hopes that recognition from its top spot on the Barclay Hedge Rankings provide another indicator that these markets are not only viable, but have returns completely uncorrelated to the larger markets.

Tranen Capital, which also has offices in Boston, launched in July 2008. The Tranen Capital Alternative Investment Fund is now two months shy of its first anniversary and has managed to return 27%.

Tranen Capital’s strategy is to trade life insurance policies in the Life Markets Space, more commonly referred to as the Life Settlements Market. The Life Markets Space enables seniors to sell their life insurance contracts for more than the cash surrender value than they would otherwise receive from the Insurance Company. The credit crisis has helped create more supply as Seniors (65 or older) are looking for other ways to generate cash. In fact, the life settlements market is expected to grow to over $160 billion over the next several years, according to a Sanford Bernstein report.

According to the firm website: “Utilizing the various benefits of Life Insurance products, Tranen Capital operates a diversified strategy by managing variables of value, contestability and projected maturities, carrying the strategy forward by selecting from two options of the realization of profits, being a classic buy and hold strategy, where policies would be held until maturity.

For more information about Hedge Funds, visit Life Settlement Funds.

Source: HedgeCo and Opalesque

If this ruling would have went the opposite direction, it could have opened the door for some crazy lawsuits.

Nebraska Supreme Court has ruled against a group of investors who sought to force the Nebraska Life and Health Insurance Guaranty Association to cover nearly $1 million in losses incurred as the result of a bad investment in life insurance contracts.

In Harvey v. Nebraska Life & Health Ins. Guar Assn., the investors argued that they were entitled to recoup their losses from the guaranty association, which is designed to protect residents who own life or health insurance policies or annuity contracts issued by carrier companies that become insolvent.

Doug Head, Executive Director of the Life Insurance Settlement Association (LISA), noted that “life and health insurance guaranty associations are an important safety net and serve a critical role in our overall insurance system. To allow unhappy investors to seek compensation where no carrier insolvency has occurred is fundamentally inconsistent with the reasons for the existence of such guaranty associations.”

A great time for the LISA Conference to begin right after the IRS has released additional taxation codes for life settlement transactions…

IRS Issues Two Groundbreaking Rules on Life Settlements

The good news is that we should have more clarification today due to discussion at the conference.

LISA will convene its 15th Annual Spring Conference and open this subject for discussion and clarification.

“For many years, this industry has needed and called for a more substantial federal framework for understanding the tax implications of life settlement transactions,” commented Doug Head, LISA executive director. “Well, now we have it. It is now incumbent upon us all to seriously consider these rulings and act in accordance with our understanding of them.” The life settlement industry has evolved in complex and varied ways since its inception in the late 1980s and the need for greater guidance on the tax treatment of life settlements is a commonly held aspiration.

More details will be posted here at Life Settlement News!