Sunday, September 6, 2009
Credit Suisse, Goldman Want to Buy Life Insurance from Sick and Old for Cash, Package as Bonds to Trade
Credit Rating agency DBRS is reviewing nine proposals for life-insurance securitizations including from Credit Suisse. Goldman Sachs has developed a trading index of life settlements, so traders/investors can bet whether people will live longer than expected or die sooner than planned. The index is similar to stock indices that allow investors to bet on the direction of the market without buying individual stocks. Moody's has been approached about securitizing life settlements, but has yet to see a portfolio that meets its standards.
Andrew Terrell thinks securitized life policies have big potential, explaining that investors want to spread their risks and constantly looking for new investments that do not move in tandem with their other investments. Terrell was co-head of Bear Stearns's longevity and mortality desk - which traded unrated portfolios of life settlements - and later worked at Goldman on a trading platform for life settlements. "It's an interesting asset class because it's less correlated to the rest of the market than other asset classes".
Not quite a done deal: The insurance industry is girding for a fight: Just as all mortgage providers were tarred by subprime mortgages, so too is the concern for life insurance companies that they would be tarred with the brush of subprime life insurance settlements. Both Standard & Poor’s and Moody’s, which gave out many triple-A ratings for securitized subprime mortgages and later were burned, are approaching life settlements with greater caution.
“The securitization of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards,” said Senator Herb Kohl, who is chairman of the Special Committee on Aging. More from NYT.
Posted by Stuart Rosenthal