By MarketWatch
SAN FRANCISCO (MarketWatch) - Wall Street is developing a product that packages life-insurance policies into investable bonds, and the plan already is generating controversy, according to a media report Sunday.
Investment banks expect to buy life insurance policies that ill and elderly people sell for cash, then package hundreds or thousands of them into bonds. Institutional and other buyers would be the primary buyers of these bonds, receiving a payout when people with the insurance die, the New York Times reported in its online edition.
With $26 trillion of life insurance policies in force in the U.S., the market for these "life settlements" bonds could be immense, the Times said.
Investment banks stand to profit from the creation, sale and trading of the bonds.
Wall Street has been searching for a product to replace the once-lucrative mortgage business, and life settlements policies are being seen as the answer, the Times said.
The article cited industry predictions that the market for the bonds could reach $500 billion. It noted that Credit Suisse Group /quotes/comstock/13*!cs/quotes/nls/cs (CS 51.97, +0.67, +1.31%) , for example, bought a firm that originates life settlements and has dedicated efforts to structuring deals and selling the bonds.
In addition, Goldman Sachs Group Inc. /quotes/comstock/13*!gs/quotes/nls/gs (GS 169.64, +2.42, +1.45%) has developed a tradable index of life settlements, allowing investors to bet on whether people will live longer than expected or die sooner than planned, the Times said, adding that spokesmen for Credit Suisse and Goldman Sachs declined to comment.
http://www.marketwatch.com/story/life-settlements-could-be-wall-streets-next-act-2009-09-06
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