AIG - Creative Till the End

From the WSJ:

American International Group Inc. in recent weeks has sought to rally support among investors and credit-ratings firms for a controversial deal: the sale of securities backed by insurance policies on the lives of older people.There have been few offerings of these types of securities, which critics have called "death bonds," "blood pools" and "collateralized death obligations" because they pay off when the insured dies. And AIG's effort so far isn't panning out. Standard & Poor's recently declined to provide a rating, an essential step in selling such securities to most investors.AIG's push highlights the giant insurer's outsize role as an investor in the market, known as life settlements—a role that has largely gone unnoticed.The giant insurer's life-settlements portfolio totals about $18 billion in anticipated death benefits, according to the company's financial filings—or well over a third of the estimated $45 billion that has changed hands since the market revved up about a decade ago.
Under AIG's recent proposal to sell securities based on part of its portfolio, a subsidiary of its Chartis property-casualty unit would collateralize notes worth $900 million with 1,157 policies acquired since 2001. AIG would sell $250 million to outside investors, according to its marketing materials.

Chartis also has been involved with life settlements in another way. It has sold "lender protection" insurance to a finance firm that lends to people to help them pay premiums on multimillion-dollar life policies, according to a prospectus for a stock offering by Imperial Holdings Inc. earlier this year.Chartis sold the "lender protection" coverage to Imperial from 2008 through 2010. It came in handy for Imperial, because borrowers, who typically take out two-year loans, have defaulted on 490 of 513 loans covered by the insurance and so far maturing, according to another Imperial filing. If borrowers cannot sell their policies profitably in the secondary market, Imperial can turn to AIG.As of Dec. 31, AIG had made good on 479 claims, paying more than $177.8 million and getting the policies in exchange, the filing shows. Imperial declined to comment.

Yes, this is the same AIG that took the other side of just about every derivative conceivable and blew up in the process.  Some firms never learn - even when owned by the US government.  I have reviewed these investments historically - even a synthetic one based on demographics and samples - and the investment is unwieldy.  Lets not forget about the actuarial assumptions used when underwriting the policy, how many investors can replicate that on a pool of policies.  Once again, we will enter the pool characteristics and sample data investment approach - seeing how well it worked out with past investments.  


Go figure.