Posted on 09/06/2009 3:32:40 AM PDT by TigerLikesRooster
Wall Street Pursues Profit in Bundles of Life Insurance
By JENNY ANDERSON
After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.
The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.
The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.
Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.
The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.
“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.
(Excerpt) Read more at nytimes.com ...
Ping!
Wonder how many trillions this is gonna cost us taxpayers, when it blows up...
Imagine if the Street encourages underwriters to do with life insurance what it did with mortgages.
No documentation life insurance. State your age, state your health status, sign, date it and you got a policy. The Street bundles the policies, sells them to town councils in Norway, pays its execs hundreds of millions and shorts what it just sold.
Don’t like to bring it up because it does sound tin-foilish but I do wonder if Obama’s plan to cut $500 billion from medicare is connected to the Street all of a sudden deciding to head in this direction.
From Oscar Brand’s “Three Prominent Bastards”!
The Banker, The Broker and The Washington Joker.
I saw a story recently about how there were MANY upset buyers in Germany .... these have been oversold and we’re not dying fast enough to make the buyers happy.
It may or may not be true, but it is not that far-fetched to me. I don’t see it as tin-foilish.:-)
Haven’t heard that song in years.
“Our parents forgot to get married...”
Love it. Everythting that led to the financial meltdown is still in place, still in use, and still legal. But hey, we put Madoff behind bars, so I guess we cleaned up Wall Street.
Neidermeyer wrote: “I saw a story recently about how there were MANY upset buyers in Germany .... these have been oversold and we’re not dying fast enough to make the buyers happy.”
..... Perhaps Obama’s high interest in the establishment of “Death Panels” begins to make more sense. Only half-sarcasm intended.
Yes....they’re going to have to change the actuarial tables if Obama gets his “health plan” passed....hahahaha....(not that its really funny but it is....ironic)
Prolly not a good idea.
I hope the SEC is all over this. /sarc
"Viaticals can end up costing investors a lot of money. The North American Securities Administrators Association (NASAA) calls viaticals one of the top ten investment scams. According to Joseph Borg, former president of the North NASAA and director of the Alabama Securities Commission. Securities regulators are “concerned that the inherent risk of viatical investments - gambling on when someone will die - aren't being adequately disclosed, and second, many investors have been outright defrauded by some viatical companies or their sales agents." A Florida Grand Jury in 2000 found as much as 40-50% of the life insurance policies viaticated by viatical settlement providers may have been procured by fraud. The Securities and Exchange Commission has taken action against one company that allegedly defrauded 30,000 investors of $1 billion."
Quote source, the AARP, believe it or not.
Great.
So unlike regular life insurance companies (who WANT you to live a good, long time, because the longer you live, the longer they defer the payout), now we have a bunch of crooks who figured out how to short life insurance.
So the situation is reversed. The sooner you die, the more they get.
“Comeon, grandma. There’s no reason for some guy in a black ninja outfit to be staring in your window late last night.
Grandma? Grandma?
You still there?”
/pop/click/dial tone......
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