Strategic Review
Impairments of $309 million on the death-benefit bets last year were about 7.4 percent of the assets at the end of 2012. That compares with impairments on bonds available for sale of $723 million, or about 0.3 percent of the $270 billion portfolio.
The insurer’s life-settlement impairments climbed from $74 million in 2010. Income on the life-settlement contracts was $253 million in 2012 and $320 million a year earlier.
AIG “completed a very deep strategic review of what we’re doing here,” Benmosche said on an Aug. 5, 2011, conference call with analysts. “We’re studying this as an asset class, and we don’t think it’s something we’re going to be growing.” Benmosche became the insurer’s CEO in August 2009.
The secondary market for U.S. life policies emerged in the 1980s when the AIDS epidemic led some patients to sell their insurance policies to pay for treatment.
The assets appeal to investors because returns aren’t tied to fluctuations in stocks or bonds, said Bill Taylor, who oversaw life-settlement bets at AIG until last year, when he left to lead Miravast LLC, which is raising capital to invest in the contracts. Taylor, who spoke by phone, declined to discuss AIG’s portfolio.
Institutional Capital
The market for the contracts may expand as people sell their policies to raise money for health care as they grow older, Alan Buerger, CEO of Coventry, said yesterday at the conference.
“There’s more institutional capital interested in investing in this asset, this non-correlated asset, than ever before,” said Buerger, whose company helped create the secondary market for life insurance.
The face value of life-settlement policies industrywide climbed to $35 billion at the end of 2011 from $4.2 billion in 2003, according to Conning & Co., a Hartford, Connecticut-based research firm. AIG’s policies had a face value of $17.7 billion at the end of 2012, compared with $18.1 billion a year earlier.