Insurance Probe Defies Death
New York Attorney General Eliot Spitzer isn't finished with the insurance industry. Now, he's going after one of its more tawdry businesses -- life settlements.
Insurance broker National Financial Partners disclosed late Wednesday that it recently received a subpoena from Spitzer's office seeking "information regarding life-settlement transactions.'' The life-settlement business is a fast-growing corner of the insurance market in which hedge funds and other investors buy and sell unused life insurance contracts taken out by wealthy individuals and by corporations on top executives. In this somewhat morbid area of the financial world, speculators buy up these insurance policies in the hope that the insured will die before the pricey premiums eat up too much of the final payout.
Insurance broker National Financial Partners disclosed late Wednesday that it recently received a subpoena from Spitzer's office seeking "information regarding life-settlement transactions.'' The life-settlement business is a fast-growing corner of the insurance market in which hedge funds and other investors buy and sell unused life insurance contracts taken out by wealthy individuals and by corporations on top executives. In this somewhat morbid area of the financial world, speculators buy up these insurance policies in the hope that the insured will die before the pricey premiums eat up too much of the final payout.
The life-settlements business is a close cousin to the much-maligned viaticals industry, which specializes in buying life insurance policies from the terminally ill at discounted prices. That practice got a bad name in the 1990s, when a number of firms engaged in unscrupulous tactics and were accused of taking unfair advantage of the infirm.
To distinguish themselves from the viaticals crowd, life-settlement buyers mainly target rich people who are over 65 years old with insurance policies that carry high premiums. Buyers pay an upfront lump sum for these potentially lucrative policies, which the insured might otherwise have allowed to lapse or have sold back to the insurance company for a modest sum.
In 2004, TheStreet.com reported that American International Group (AIG:NYSE), Merrill Lynch (MER:NYSE) and Dallas-based HBK were some of the big investors in the then $4 billion-a-year life settlements business.
National Financial disclosed few details about the subpoena, which it received in March, in its 2005 annual report. The company said its dealings in the life-settlement business accounted for between 6% to 8% of its $891 million in revenue in 2005.
To distinguish themselves from the viaticals crowd, life-settlement buyers mainly target rich people who are over 65 years old with insurance policies that carry high premiums. Buyers pay an upfront lump sum for these potentially lucrative policies, which the insured might otherwise have allowed to lapse or have sold back to the insurance company for a modest sum.
In 2004, TheStreet.com reported that American International Group (AIG:NYSE), Merrill Lynch (MER:NYSE) and Dallas-based HBK were some of the big investors in the then $4 billion-a-year life settlements business.
National Financial disclosed few details about the subpoena, which it received in March, in its 2005 annual report. The company said its dealings in the life-settlement business accounted for between 6% to 8% of its $891 million in revenue in 2005.