Wall Street's new Bundle of Joy.. your life insurance

They just want to bring to insurance, the "value" they brought to sub-prime loans :grr:

Wall Street Pursues Profit in Bundles of Life Insurance

http://www.nytimes.com/2009/09/06/business/06insurance.html?hp

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By JENNY ANDERSON
Published: September 5, 2009

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.

In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products — credit-default swaps, structured investment vehicles, collateralized debt obligations — that proved far riskier than anticipated. The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.

In addition to securitizing life settlements, for example, some banks are repackaging their money-losing securities into higher-rated ones, called re-remics (re-securitization of real estate mortgage investment conduits). Morgan Stanley says at least $30 billion in residential re-remics have been done this year. Financial innovation can be good, of course, by lowering the cost of borrowing for everyone, giving consumers more investment choices and, more broadly, by helping the economy to grow. And the proponents of securitizing life settlements say it would benefit people who want to cash out their policies while they are alive. But some are dismayed by Wall Street’s quick return to its old ways, chasing profits with complicated new products.

“It’s bittersweet,” said James D. Cox, a professor of corporate and securities law at Duke University. “The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days.” Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout. But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies. “When they set their premiums they were basing them on assumptions that were wrong,” said Neil A. Doherty, a professor at Wharton who has studied life settlements.

Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies. Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group.“It’s not an investment product, a gambling product.”

snip

......are destined to work on Wall Street.

The problem is that they did learn from history, not that they didn't.

And no one looks like they're about to stop them.

:wow:

They want to make a bet on diminishing life expectancy.

Is it wise to let them, given the proven influence they have over our government?

What would a bailout on these products look like?

Instead of getting the full value of that life-insurance policy--people will cash out earlier and take
less money.

Sounds like they are betting on the notion that Americans are going to become pretty desperate--real quick--and
that we'll need that cash to survive.

Now many of those people can't pay on that debt. But that was just your home. Now they want you to take out money on your life.

...that people will want to cash out those policies and take the money.

Makes sense. If people are poor, losing jobs, living on stagnant wages--having a life-insurance
policy would seem like a luxury that you can't afford.

Same thing the credit-card people did. They started betting against the consumer---as they raised
rates, slashed credit lines and cut people off. The credit card companies knew the party was over
and they attempted to piss off people into cancelling cards. What credit-card company wants their card
in your hand when the whole thing blows sky high????

Ever seen what premiums are on term life for say a 75 year old man who smokes?

Most people in that situation simply stop paying and insurance company pays nothing.

If you were in a situation with say a $100K policy but the premiums were now $18K per year (which you don't have) Would you take $40K cash from the bank of simply let the policy lapse for $0K?

companies sprung up to buy life insurance policies of HIV+ patients. Then new drugs were developed and these new policy holders were SOL, the big returns they were expecting didn't materialize.

You are placing a bet in the amount of your monthly premium that you will die this month and the life insurance will pay off.

If you lose (i.e. don't die) the insurance company wins the bet and pockets the premium.

“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said.

Some academics who have studied life settlement securitization agree it is a good idea. One difference, they concur, is that death is not correlated to the rise and fall of stocks.

“These assets do not have risks that are difficult to estimate and they are not, for the most part, exposed to broader economic risks,” said Joshua Coval, a professor of finance at the Harvard Business School. “By pooling and tranching, you are not amplifying systemic risks in the underlying assets.”

Um, yes you are. If investors have a vested interested in people dying, don't be surprised that people end up dying.

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Falls in the same category as casinos, but not as well regulated.

a racket spawned from a racket.

1. I pay a small amount out of each paycheck so that in the event I die my wife and kid won't have to worry about money for quite some time.
2. I do nothing and hope that nothing happens to me, because if it does my wife and kid will be screwed.

In my opinion, option 2 is much more akin to the reckless gambling one sees at a casino than option 1.

The ones in which the judge refused to allow foreclosure because the paperwork was so screwed up the banks could not prove who actually owned the mortgage?

I'm thinking that after the life insurance policy is traded around a few times, the companies will all be able to deny that they still own the policy and therefore cannot pay on the policy.

Life insurance is scam.

It's meant to pay for final expenses and to take care of the family when a breadwinner dies.

they are betting that people will sell their policies.

Now they are betting that people will die in a timely manner.

...when no one is looking.

A massive, criminal enterprise.

We all know how life insurance works. Yeah, it's a gamble with the insurance company. It also has a purpose for the person who buys it. To provide for your family in the event of your death. Wall Street had no business doing third party gambling on people's homes but they did and it wrecked the economy. Now they want to gamble on your death.

If the kids are the beneficiaries, they may want to help out, instead of selling the policies..

I guess as the economy continues to tank...

There would be a special place there for these motherfuckers. :mad:

:shrug:

Would it be so bad to say if they all disappeared right now, I wouldn't care AT ALL?

The world would be MUCH better off?

:grr:

http://en.wikipedia.org/wiki/Viatical

People with HIV would sell their life insurance to get some cash to live out the end of their days with, and some investor in Bumfuck, Indiana would cash in when they died.

Then more effective treatment regimens happened and you wound up with a lot of people in Bumfuck pissed off that some poor shlub with HIV was living longer than they were supposed to.

So, I'm guessing that the concept here is that in desperate economic times, particularly when a lot of retired folks' portfolio has been hammered in the market, old people with little or no income will be desperate to cash in their life insurance (selling out their families) to have some money for now. If they pick people who are old enough to do this, everybody wins!

that insurance companies may have to raise rates. I would think that if that became necessary and insurance companies began to lose business and profits due to these securities they could end this by simply inserting a clause in all new policies making them non transferable to third parties.....

Make the benificiary the deceased estate.

When you "transfer" the policy the estate is named the beneficary.
Then the investment company gives the cash ($400K) in return for a no interest senior bond against the estate which matures upon death for ($1 mil).

The person dies.
The estate gets $1 mil
The senior bond is highest ranking debt and is paid first in probate.
The estate pays $1 mil

We have absolutely no regulation package on deck to take care of these obscene bloodsuckers in the financial sector. I guess that the Democrats can't be bothered to bite the hand that feeds them.

Reagan, Clinton and Bush tore down the regulatory protection in this country, it's past time for that protection to be rebuilt. Sadly though, I doubt that will happen. After all, the financial sector made certain to buy off both Congress and the White House.

Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout. But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

The insurance companies admit they structure the product (via escalating rates) so that someone pays into the plan for "nearly" a lifetime. Say someone who gets $1 million in term life from age 20 to age 60 and has paid into it hundreds of thousands of dollars. The value (via investing) of those premiums is well in excess of the payout. Win-win for insurance company however the premiums escalate and the insured can't afford it any more.

They cancel and insurance company laughs all the way to the bank.

Instead here banks will offer the insured say $400K cash* on $1 mil policy and collect when they die. The insured get a way out of their policy. $400K v $0K. Which would you pick if you couldn't afford the premiums anymore?

(* Of course $400K is just an example the exact amount will be based on life expectancy kinda the reverse of insurance premiums; more for men, smokers, older people).

Now there is no reason the insurance companies couldn't simply buy people out of their own policies. Why don't they? Why buy someone out when they will simply be unable to afford the premiums and they will cancel the policy for free.

Despite the <boo hoo> from insurance companies I think they will simply adapt and offer a variety of new products to make it unattractive for people to sell out to banks.

I'm just speechless at the nerve of these ghouls.

In some states, any term insurance policy either comes standard or has a rider which enables the insured ( or policy owner ) to draw funds against the policy benefit in the event of a fatal diagnosis. In most cases, the limit allowed on this advance is $1mm or a certain percentage of the policy benefit.

Why do people want this? Because it allows them to settle some or all of their affairs while they are alive and saves stress on their loved ones.

:puke:

:scared:

I think we need to tax the shit out of them when they go to corporations.

except for the obvious loopholes that will be added, so corporatist wall street gamblers can "opt out" of the taxation part:grr:

to be sucked dry.

Someone is trying to completely destroy the middle class in this country.

it up and get nothing instead of taking a percentage payout and selling it because the insurance companies have lapses calculated into the price? What a piece of shit.