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27 April 2011

AIG Bets on Shortened Life Spans

AIG was rescued by the federal government and the Federal Reserve Bank in the bailout binge early in the Great Socialist Recession with $182.5 billion of taxpayer money.  It faces a very uncertain time in its very broad insurance business due to many factors.  Among these are:
  • It is still struggling to pay the government back.
  • The never-ending recession is still reducing its income.
  • Insured property values are depressed and no one knows when they might improve.
  • ObamaCare may or may not remain as written.
  • Many of the most important provisions of ObamaCare are regulations and rules to be written by about 140 agencies and panels.
  • Will the fewer and larger health insurance companies that will likely result with ObamaCare have as much need for re-insurance from AIG as the smaller, more balkanized insurance companies of today do?
  • The present administration is solidly anti-business and constantly advocating increased business taxes and regulations.
  • If ObamaCare becomes fully activated, how fast will medical care become degraded and how much will the lives of the primary insurance holders be shortened?
There does appear to be one business on which AIG will likely be able to make a profit.  It has a growing business in buying older people's life insurance policies.  The business is called life settlements.  If an older person wants the value of his paid-in life insurance, he can sell it to AIG and AIG will continue to make his insurance payments with AIG as the new beneficiary.  If the older person dies while the life insurance policy is in effect, AIG gets a big payout.  AIG wins on this if it can discount the paid-in amount in buying the insurance contract or figure out who is likely to die earlier than the insurance company that initially sold them the policy thought they were going to die.  This means they can look at whether someone has come to suffer a disease that is likely to shorten their lives.

The life settlement business becomes easier if ObamaCare is put into effect.  If ObamaCare works as advertised, some poor people would receive better medical care, while most middle class and wealthier people will find doctor's and hospitals with aging equipment, reduced innovations, less time for them, and a near-slave mentality brought on by being increasingly underpaid and increasing bossed around by thuggish government bureaucrats.  The middle class and the wealthier hold most life insurance policy value and their lives are clearly going to be shortened relative to the reasonable expectation when they bought their life insurance policies.  Worsening medical care under ObamaCare will help AIG to make a profit on its developing life settlement business.  Ironically, this will help AIG pay back the taxpayers who rescued it.

In 2006, the future death benefits of its life settlements business were $3.7 billion with 1,799 contracts.  In 2010, this business had grown to $17.7 billion in future death benefits and 5,673 contracts.  Just as AIG has bundled mortgages to make mortgage bonds, AIG would like to do the same with these life settlement contracts.  Unfortunately, in March, Standard & Poor's refused to put a risk evaluation on such bonds, stating the difficulty of estimating the life expectancies of insured individuals.  Wow!  Life insurance companies have been doing this quite well for decades, but now we suddenly find that this can no longer be done?  What is up?  The answer is that the uncertainty is caused by ObamaCare.  Most of the people want it changed so some changes may be made, it has been ruled both unconstitutional and constitutional, the changes of the health care system are radical, most medical experts understand that it will reduce the quality of medical care with rationing and underpayments of doctors and hospitals, the bureaucracy rules are not written yet, the state programs are not set up, and the rate of life expectancy deterioration is not yet known.

But, despite all this uncertainty, AIG can safely buy up insurance policies issued before ObamaCare was passed against the will of the people and make a profit on those policies.  They are only betting that those people will not live as long as was expected before ObamaCare came along to shorten our lives.  Any half rational adult should be able to see that.  Meanwhile, pity the life insurance companies will have to pay out benefits due to deaths that will occur earlier than expected due to ObamaCare.  This will surely reduce their profits and cause many such life insurance companies to go belly-up.  That in turn will leave many life insurance holders with insurance policies unable to pay out their death benefits.  ObamaCare and so many other Obama policies are proving to be most disruptive by virtue of creating debilitating business uncertainties.


Amanda Lacasse said...

I find it interesting that you are annoyed not by the fact that AIG is active in the ethically dicey Life Settlements market, but about the effects of conservative-dubbed "Obamacare". While I agree that what we wound up with is not enough (I was rooting for universal health care), at least Obama tried to make some positive changes. Meanwhile there are many things wrong with the Life Settlements "industry": 1. Many seniors are being victimized via these transactions since they have taken a big hit since the 2008 meltdown; 2. Many don't understand the tax implications of these sales; 3. AIG and other investors get a tax-free payout, when on any other investment they would be paying capital gains and 4. Betting money that someone other than yourself dies quickly so that you can make a profit is NOT NICE. Especially since we the people now own a majority interest in this company, thus making us all complicit.

Charles R. Anderson, Ph.D. said...

ObamaCare cannot be called affordable or respectful of patient rights, but as a form of a lie. Therefore, I do not call it by the socialist's name for it, but simply associate it with the head usurper of unconstitutional powers.

1. Seniors savings are being devastated by the government manipulated devaluing of the dollar and by their loss of jobs and income in the markets caused mostly by the government interfering with the private sector. If they are desperate for relief, some will find it in selling their life insurance to AIG. AIG may profit, but they may also have rescued some people in the process. Whether selling one's life insurance makes sense or not, is a judgment the individual has the right to make.

2. This may be true. They should study up on the tax implications. This can be difficult, thanks to an insane mess of tax rules by the government, which the government does not understand itself, as judged by its own inconsistency of rulings and the inability of IRS agents to be consistent.

3. This means that their income is not subject to double taxation. Good for them.

4. It may be very nice if an older person wants AIG money more than he wants his life insurance. If you want to consider what is nice, think about how evil it is for the government to ration health care and make all voters and taxpayers complicit in that. I do not want a hand in deciding when the plug should be pulled on your grandmother or mother. I do not think if right for you to have a hand on when my mother will die.

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