Pandemics Expected to Boost "Life Settlements"-Based Securities Market

September 12, 2009 (LPAC) — Commenting on the latest New York Times article on the great interest shown by Crédit Suisse and Goldman Sachs to create new financial products based on life settlements, the French website Marianne2 sardonically denounces this horror show.

The faster the life insurance holder dies, the less the buyers have to pay and the higher their profits. Older and sick people are therefore the best targets. If, as in the sub-prime crisis, the risk was the danger of insolvency of those American households having bought real estate, the risks of these sub-primes of death, is that those holding the insurance contract will live too long! Mathematicians and agencies specializing in risk evaluation suggest the necessity of spreading the risk of the investment: some cases of leukemia, some heart disease, a couple of Alzheimer cases and a cancer patient. Those diseases presenting the biggest gain are the incurable ones. But one never knows, maybe a cure will be found and then you lose your gains!

Marianne2 then notes that already in 2000, the French insurance group Macif started selling securities based on car insurance, buying them over from drivers and packaging them as securities to speculate on car accidents! Perhaps driven by a guilty conscience, a journalist who specialized in retirement insurance, confessed that certain employees leaked the whole affair to the press, but never stopped other mutual insurance funds from doing the same.

Another shocker of the article is the fact that the French insurance giant Axa, during a seminar on financial innovation, which took place in May 2007, identified the huge potential of securitization of insurance risks. Axa's experts outlined the juicy profits from securities based on life settlements in the framework of a global pandemic, whose death toll was estimated as high as that of the 1918 Spanish flu.(!) Ironically, concludes Marianne2, among those keenly interested in such new securities were the pension funds.