Thursday, November 18, 2010

Comet Money Desk: Life Settlement Securities

You know we have a wide array of interests:

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. (NYT, Jenny Anderson, 9/05/09)

Sounds like there are clear risks for the initial purchasers and for the investors in the bonds these policies ultimately become -- and then in the long run, risks to the insurance market and to conventional purchasers of life insurance policies for whom this might make the whole business more expensive. And, at the end of the road, possibly more bubbles and crashes.

However to those who would initially sell these policies, it seems like the main risk is simply that it has yet to be attempted on any kind of major scale, so investors and bond ratings agencies alike would take very long and careful times in valuing and underwriting these investment vehicles. Maybe more so than it might sound like in a preliminary sales pitch.


  1. I wonder how many Fortune 500 companies I could get to take the under on me continuing to live.

  2. Right now, it's just Arby's and Chrysler, but I don't know if those are Fortune 500 anymore.

  3. are you concerned about illiquid assets bram?

  4. TED:

    That probably depends on the liquidity (or viscocity) of blood.

  5. Bram:

    You're really dating yourself with the photo selection, man.

    Yesterday was Panzerfaust, today, is that a screenshot of a (finishing move) from the video game "Mortal Kombat?"

    Man, you're getting old.

  6. They're still coming out with MK sequels -- and movies (ugh). If I was dating myself I would have went with Tron -- oh wait they're coming out with a brand new Tron movie. Everything old is new again.

    Don't think we can't cast the entire Mortal Kombat lineup with local political figures if we don't want to. Jax, Sonya and Johnny Cage pretty much cast themselves.