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AIG's Death Bond Play

Posted by: Matthew Goldstein on April 07

It would be ironic if the mega government bailout of American International Group (AIG)results in the once-mighty life insurer becoming one of the first major financial firms to sell “death bonds” to the public.

Early this year and with little publicity, AIG completed the largest securitization of life settlements to date—well over $2 billion. The deal, which AIG handled internally, was a securitization of a substantial portion of the insurer’s giant life settlements portfolio. Last year, AIG valued its life settlements portfolio, which is composed of the death benefits on 4,000 unwanted life insurance policies, at $2.58 billion.

The securitization was done, in part, to reduce some of AIG’s ongoing borrowing from the Federal Reserve by $1.2 billion. A portion of AIG’s life settlements portfolio was being financed with a credit line from AIG Financial Products—the discredited entity that sold insurance-like protection on tens of billions in ailing mortgage-backed securities.

The death bonds, which were privately rated by AMBest, are being held by AIG’s commercial insurance group. In a written reponse to questions from BusinessWeek, AIG says the “securitization notes are an attractive asset class (for AIG) because their performance is not correlated to credit or real estate markets and the notes pay an attractive coupon.” AIG wouldn’t disclose details on the rating by AMBest, nor the yield on the bonds.

But the firm left the door open to the possibilty it might look to sell some of the notes down the road. “We do anticipate that at some point in the future, interest in these notes will develop due to their high rating,” says AIG.

It that happens, one of the legacy assets to emerge from the financial crisis could be AIG-backed death bonds.

Reader Comments

Evan Cole

April 8, 2009 10:19 AM

Another example of a financial firm not explaining their process or being transparent. Explaining the AMBest rating and the yield on these bonds are not company secrets. Where is the full disclosure and who is this "AIG" person making these statements?


April 9, 2009 12:29 AM

it is good

Fast Steven

April 9, 2009 11:38 AM

What is the difference? It was completely internal and does not even qualify as issuance. A company internally created securities and kept them on the books. Whoopdee do! Happens all the time! Who cares? If they are offered to investors is when you should give a rat's butt.

john morgan

April 11, 2009 02:55 PM

Check out 5 N Plus (VNP-TSX) a new Cdn. company in solar energy. It is going great guns.



April 26, 2009 10:16 AM

I really hope death bonds are the bubble we are all looking for to replace the housing bubble that replaced the stock bubble. We really need to get something moving here. I have already taken out hundreds of policies on my grandparents and their co inhabitants at the nursing home. Alzheimer's patients sign over power of attorney faster than a coke addict makes 2 girls 1 cup videos for a fix. Who wants to start Deathmae or Deadmac, we could be securitizing these things in no time?


May 3, 2009 11:24 AM

This was done all internally, and the Govt. basically played a role in it. It is about time that these assets should have a rating and be securitized. Billions of policies in the market and no one has been able to rate a structure that is backed by these assets. There's something wrong here. We have put together a structure backed by these assets, and we have a wrap from an insurance co. guaranteeing payment, but no rating, What is wrong with this picture. We are getting it done though.


June 10, 2009 03:10 PM

What are you people talking about, not harming anybody. Before the meltdown of their other financial schemes...bundled real-estate bonds, they were placing these Death Bonds on the market. What they do, is encourage poor uneducated people, and everyday middle Americans to sign their life insurance policies over to them, while they give you pennies on the dollar. When you die, the face amount goes to AIG, while your family gets nothing. Screwing the people again is what it cost. So, the family of 5 who looses their father due to an accident, is now dependent on the tax payers for income... Thanks AIG, helping the American dream come true...for your CEO!


June 12, 2009 04:26 PM

Sivad is obviously not a deep thinker.

These policies would have lapsed otherwise.

The elderly are not ignorant. And those in the nursing home could not qualify probably.

However, it does give them money to continue their care at a higher level while living.

The elderly have needs of quality care and cash flow while alive. The investor/purchaser has a need for non-correlated returns which equal roughly 8-12%

Remember the buyer has to continue to pay the premiums.

Why wouldn't an elderly person monetize their biggest asset...their insurability.

That's like telling them even tho they are not able or willing to go to their vacation home they should keep it and have a lower quality of life so the kids can enjoy it.

Don't let the headlines inflame you. be your own guru and learn about it.

These are a winfall for the elderly and a solid investment return of 8-12% for the investor. Both have needs and both benefit.

Thank you for your interest. This blog is no longer active.



BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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