Back to Business -- Wall Street Pursues Profit in Bundles of Life Insurance

[Frank Booth]

Source: NYTimes

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.

Read more: http://www.nytimes.com/2009/09/06/business/06insurance.html?_r=1&partner=rss&emc=rss&src=igw

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This is sure to end well. . . .

[Name removed]

1. Deleted message

Message removed by moderator. Click here to review the message board rules.

[OwnedByFerrets]

2. Fuckers

[Mika]

25. A salient old DU thread: I Know! Let’s Rape Grandma!

I Know! Let’s Rape Grandma!
By David Glenn Cox
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x341688

[Paulie]

3. That's a sure fire way to kill the insurance industry

Insurance companies are not setup to pay 100% of all policies written. A large portion expire, so that allows them to keep the pools working. If they have to pay off each and every policy, price will need to be near 100% of payout else it's not worth the risk of underwriting.

Can we have them securitize health insurance? I want single payer, this would make it happen quick. LOL

[Alcibiades]

11. You're right about that

It has occurred to me several times that many folks are cheaper to the insurance industry dead than alive, and that the only way to make sure they approve your care is to have a whopping big life insurance policy with your health insurer.

[tomm2thumbs]

4. and I didn't think they had any more Stupid left in 'em...

they continue to prove me wrong

[Oceansaway]

5. K&R...n/t

[varelse]

6. I see Death Panels

no, really...

[xxqqqzme]

21. That was my reaction as well.

'Death Panels' realized!! Calling sarah palin

[bobshin]

7. So this is why corporate is fighting health care reform.

Longer lives mean smaller payouts. But not to worry, when it all goes bad, when the insurance companies run out of money from paying out almost all policies, the capitalist, er, socialist government of America will bail them out.

[Frank Booth]

8. It seems almost too evil to be true, but

look at this passage from the article:

"The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet."

So, basically, these bonds will create multi-billion dollar incentives to not find cures for leukemia and similar diseases.

[bemildred]

10. Not only that, you want to sell policies to people with no coverage.

What a great deal.

[leveymg]

16. Also provides an incentive for bondholders to block funding of health care for these people.

Every extra day that this population survives, the value of the bond declines.

[lurky]

20. They are short-selling humanity. n/t

[Ghost Dog]

24. "create multi-billion dollar incentives to not find cures"...

Although that is, of course, already the case...

[ashling]

12. And no doubt the Corps. that hold these deat derivitives

are also huge investors in the death insurers.

[scentopine]

9. Its what they will do with our health insurance if we let them

For some time I have had a sick feeling that bundling health insurance policies up and trading them as derivatives is the next frontier for health "reform" as well.

We are turning into a nation of cockroaches.

[Sub Atomic]

13. This is nothing new. When AIDS was widespread and medication wasn't as effective

there were companies that would buy life insurance of those with HIV.

I'll get banned if I post what I want to say about these type of people.

[leveymg]

14. Another meltdown coming - once a private-sector plan is passed, they'll crash this market.

This is the subprime crisis and the mortgage Credit Default Swaps all over again. Once a private-centered plan is passed, they'll crash the industry, and expect another bailout. Bastards.

[Mark D.]

15. Alert Progressives

Dennis Kucinich, Ralph Nader, others like them need to learn of this and protest. It is self-explanatory. The sooner the old folks insured pass on, the more profit. I am not kidding when I say we should fear for their lives. As the past has proven, financial elite are good at hiring hit-men. Where are the reforms we are supposed to see that have real teeth from Obama on this kind of 'buy ridiculous shit for short profit no matter what it messes up'. Only now its not forclosures that are the potential end-game.

[slay]

17. Die! Die! Everybody die!

http://www.youtube.com/watch?v=WYZm-_4Kiqk

[bluesbassman]

18. Yeah, because Wall Street handled the mortgage industry so well.

Has it not become clear to even the thickest freeper that Wall Street cannot be trusted with anything that directly involves the consumer? So what are the pols doing right now? Are they sitting around saying "Well, the Insurance Industry and Wall Street surely know what they're doing, let's just let the market handle this". Are they that stupid, or are we for letting them get away with not doing their jobs?

Jeez, this is a disaster in the making, and it's going to end up costing the American taxpayer trillions to bail out Hartford, Fireman's Fund, and AIG (again!).

You know, come to think of it, I smell a big Goldman Sachs rat here. I would bet hard cash that if you dig deep enough, the sleaze balls at GS are up to their Armani collared necks in this swindle.

[lurky]

19. Aw, they just want a bailout like Wall Street.

The bankers have been having all the fun, making insane investments and getting Washington to fork over huge piles of cash, no strings attached.

Can you blame the insurance guys for wanting a piece of the action? I can almost hear them calling: "Hey! We're too big to fail, too! Look, we'll prove it!"

Edited to add: Just in time for swine flu, too! I wonder how that will affect the elderly and seriously ill people?

[Joe Bacon]

22. Way to go, Wall Street! Another way to steal money! Way to go!

We need to revive the 99% tax bracket for these racketeers.

[Ghost Dog]

23. Revolution! They are just asking for it, IMHO.

Send them all off to re-education camps, "Great Leap Forward"-style.

[varelse]

26. Even in a "free market economy" we don't allow people to sell their own organs

why would we make it legal to buy and sell their lives? Because basically, that's what this amounts to.