[영어] Wall Street Pursues Profit in Bundles of Life Insurance

2009년 9월 5일자 Jenny Anderson이 쓴 기사이다. 마이클 샌델의 <돈으로 살 수 없는 것들>을 읽다가 참고문헌으로 이 기사가 있길래 흥미로워 보여서 읽어보기로 했다.

 

원문 : www.nytimes.com/2009/09/06/business/06insurance.html

Wall Street Pursues Profit in Bundles of Life Insurance

 

모르는 단어나 표현에는 밑줄과 굵은 글씨, 단체나 기업 같은 모르는 주제는 기울임으로 표시했다.

 

기사의 주제

# Life settlement : the sale of an existing insurance policy to a third party for a one-time cash payment.

출처 : www.investopedia.com/terms/l/life_settlement.asp

 

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Wall Street Pursues Profit in Bundles of Life Insurance

 

After the mortgage business imploded last year, Wall Street investment banks began searching for another big idea to make money. They think they may have found one.

The bankers plan to buy “life settlements,” life insurance policies that ill and elderly people sell for cash — $400,000 for a $1 million policy, say, depending on the life expectancy of the insured person. Then they plan to “securitize” these policies, in Wall Street jargon, by packaging hundreds or thousands together into bonds. They will then resell those bonds to investors, like big pension funds, who will receive the payouts when people with the insurance die.

The earlier the policyholder dies, the bigger the return — though if people live longer than expected, investors could get poor returns or even lose money.

 

작년(2008년)에 모기지(주택담보대출) 시장이 붕괴된 이후로 월스트리트의 투자 은행은 돈을 벌기 위해 새로운 아이디어를 찾았다. 은행가는 병들고 늙은 사람들에게 life insurance policy 생명 보험 증권을 구매해서 수백 개, 수천 개를 채권으로 묶어 증권화할 것이다. 그리고 이것을 연금 기금과 같은 투자자에게 파는데, 보험을 가진 사람들이 죽어야 돈을 받을 수 있기 때문에 그들이 얼마나 오래 사느냐에 따라 수익률이 달라진다.

implode : 붕괴되다
life insurance policy : 생명 보험 증권
securitize : (은행이) 금융을 증권화함으로써 자금을 조달하다

 

Either way, Wall Street would profit by pocketing sizable fees for creating the bonds, reselling them and subsequently trading them. But some who have studied life settlements warn that insurers might have to raise premiums in the short term if they end up having to pay out more death claims than they had anticipated.

The idea is still in the planning stages. But already “our phones have been ringing off the hook with inquiries,” says Kathleen Tillwitz, a senior vice president at DBRS, which gives risk ratings to investments and is reviewing nine proposals for life-insurance securitizations from private investors and financial firms, including Credit Suisse.

“We’re hoping to get a herd stampeding after the first offering,” said one investment banker not authorized to speak to the news media.

 

보험을 판 사람이 예상보다 이르게, 혹은 늦게 사망하더라도 월스트리트는 채권을 만들고 파는 대가로 상당한 돈을 받게 된다. 그래서 생명 보험과 관련해 연구한 사람들은 보험회사가 단기간에 대해 요금을 올려야할 것이라고 경고한다. 왜냐하면 보험회사는 그들이 예상했던 것보다 더 많은 죽음에 보상해야할 수 있기 때문이다. 아직 아이디어는 계획 중이지만 DBRS(global credit ratings business)의 수석부사장(상무)는 생명 보험 증권에 대한 검토 요청이 많이 들어오고 있다고 말한다.

insurer : 보험업자(회사)
pay out more death claims : 더 많은 죽음에 대해 돈을 지불한다는 의미
ring off the hook with inquiries : 문의전화로 쉴 새 없이 (전화기가) 울린다는 의미
hope to get a herd stampeding : stampede는 우르르 몰리다, 라는 뜻이므로 사람들이 우르르 오기를 원한다는 뜻이다.

 

In the aftermath of the financial meltdown, exotic investments dreamed up by Wall Street got much of the blame. It was not just subprime mortgage securities but an array of products — credit-default swaps, structured investment vehicles, collateralized debt obligations — that proved far riskier than anticipated.

The debacle gave financial wizardry a bad name generally, but not on Wall Street. Even as Washington debates increased financial regulation, bankers are scurrying to concoct new products.

In addition to securitizing life settlements, for example, some banks are repackaging their money-losing securities into higher-rated ones, called re-remics (re-securitization of real estate mortgage investment conduits). Morgan Stanley says at least $30 billion in residential re-remics have been done this year.

 

financial meltdown(2008년 금융위기를 지칭하는 용어로 보임) 이후에 외국 투자기업은 월스트리트 덕분에 꿈에 부풀었고 많은 비난을 받았다. 서브프라임 모기지 증권(MBS : Mortgage Backed Securities) 뿐만이 아니라 신용디폴트스왑(CDS : Credit Default Swap),  구조화투자회사(SIV : Structured Investment Vehicle), 부채담보부증권(CDO : Collateralized debt obligation)으로 인해 수많은 위험을 가졌었다. 이 큰 실패는 금융 상품에게 오명을 주었지만 월스트리트는 비난받지 않았다. 워싱턴이 금융규제 증가에 대해 논쟁할 때, 은행가들은 새로운 상품을 만들기 위해 바삐 돌아다닌다. 생명 보험을 증권화하는 것 뿐만 아니라 몇몇 은행들은 적자를 내는 증권을 높이 평가된 것으로 둔갑시켰다. 이것을 re-remics라고 하고, 모건스탠리는 적어도 300억 달러의 residential re-remics이 올해 거래되었다고 말한다.

aftermath : (전쟁, 사고 등의) 여파, 후유증
debacle : 큰 실패
wizardry : 신기, 묘기
scurry : 종종걸음을 치다, 허둥지둥 가다
conduit : (정보나 물자의) 전달자(기관/국가)

 

Financial innovation can be good, of course, by lowering the cost of borrowing for everyone, giving consumers more investment choices and, more broadly, by helping the economy to grow. And the proponents of securitizing life settlements say it would benefit people who want to cash out their policies while they are alive.

But some are dismayed by Wall Street’s quick return to its old ways, chasing profits with complicated new products.

“It’s bittersweet,” said James D. Cox, a professor of corporate and securities law at Duke University. “The sweet part is there are investors interested in exotic products created by underwriters who make large fees and rating agencies who then get paid to confer ratings. The bitter part is it’s a return to the good old days.”

 

금융 개혁은 모두에게 대출 비용을 절감하고, 소비자에게 많은 투자 선택을 주고 경제가 성공하도록 돕기에 좋을 수 있다. 그래서 생명 보험 증권화에 찬성하는 사람들은 보험을 현금화하고 싶어하는 사람들에게 이익을 준다고 말한다. 하지만 몇몇 사람들은 월스트리트가 다시 옛날처럼 복잡한 상품을 만들어서 이익을 쫓는 것에 실망한다.

dismay : 크게 실망시키다
bittersweet : 씁쓸하면서도 달콤한 = 괴로우면서도 즐거운
underwriter : 보험업자
confer : 상의하다, 부여하다

 

Indeed, what is good for Wall Street could be bad for the insurance industry, and perhaps for customers, too. That is because policyholders often let their life insurance lapse before they die, for a variety of reasons — their children grow up and no longer need the financial protection, or the premiums become too expensive. When that happens, the insurer does not have to make a payout.

But if a policy is purchased and packaged into a security, investors will keep paying the premiums that might have been abandoned; as a result, more policies will stay in force, ensuring more payouts over time and less money for the insurance companies.

“When they set their premiums they were basing them on assumptions that were wrong,” said Neil A. Doherty, a professor at Wharton who has studied life settlements.

Indeed, Mr. Doherty says that in reaction to widespread securitization, insurers most likely would have to raise the premiums on new life policies.

Critics of life settlements believe “this defeats the idea of what life insurance is supposed to be,” said Steven Weisbart, senior vice president and chief economist for the Insurance Information Institute, a trade group. “It’s not an investment product, a gambling product.”

 

실제로 월스트리트에게 좋은 것은 보험 산업과 소비자에게 악영향을 줄 수 있다. 보험가입자들은 종종 그들이 죽기 전에 생명 보험이 소멸되도록 한다. 이럴 경우, 보험회사는 생명보험금을 지급하지 않아도 된다. 하지만 증권이 거래되고 증권으로 묶일 경우, 투자자들은 버려질 수도 있었던 보험 요금을 지불한다. 그 결과 많은 증권들이 효력을 갖고, 시간에 지남에 따라 더 많은 지불 금액이 되어 보험 회사들은 돈을 적게 번다.
생명 보험 거래에 비판자는 이 거래가 생명 보험의 의도한 바에 대한 생각을 좌절시킨다고 말한다.

lapse : 소멸되다
base A on B : A를 B에 근거(기반)을 두다

 

After Mortgages

Undeterred, Wall Street is racing ahead for a simple reason: With $26 trillion of life insurance policies in force in the United States, the market could be huge.

Not all policyholders would be interested in selling their policies, of course. And investors are not interested in healthy people’s policies because they would have to pay those premiums for too long, reducing profits on the investment.

Image

 

But even if a small fraction of policy holders do sell them, some in the industry predict the market could reach 500 billion. That would help Wall Street offset the loss of revenue from the collapse of the United States residential mortgage securities market, to 169 billion so far this year from a peak of 941 billion in 2005, according to Dealogic, a firm that tracks financial data.

Some financial firms are moving to outpace their rivals. Credit Suisse, for example, is in effect building a financial assembly line to buy large numbers of life insurance policies, package and resell them — just as Wall Street firms did with subprime securities.

The bank bought a company that originates life settlements, and it has set up a group dedicated to structuring deals and one to sell the products.

Goldman Sachs has developed a tradable index of life settlements, enabling investors to bet on whether people will live longer than expected or die sooner than planned. The index is similar to tradable stock market indices that allow investors to bet on the overall direction of the market without buying stocks.

 

좌절하지 않는 월스트리트는 미국의 생명 보험 시장이 26조에 달하기 때문에 뛰어들려고 한다. 모든 보험 가입자들이 그들의 보험 증권을 팔려고 하지 않으며, 투자자들은 건강한 가입자의 보험 증권을 원하지 않는다. 그렇다해도 증권을 가지고 있는 사람들이 일부만 그것을 팔아도 그 산업은 5000억 달러의 규모로 추정된다. 따라서 월스트리트가 주택 담보 대출 증권 시장의 붕괴로 인해 잃은 손실을 상쇄할 것이라 기대하는 것이다. 몇몇 금융 기업은 경쟁자들을 제치기 위해 이미 움직이고 있다. Credit Suisse는 사실상 수많은 생명보험 증권을 거래하기 위한 금융 통로를 만들고 있다. 과거에 월스트리트 기업들이 서브프라임 증권들을 가지고 했던 것처럼 말이다. 이 은행은 life settlement를 만든 기업을 인수하고 거래를 구조화하기 위한 그룹을 수립하고 있다. 골드만 삭스는 life settlement 거래에 사용될 index를 개발하고 있는데, 이 지수는 투자자들이 사람들이 예상보다 더 빨리 사망할지 나중에 사망할지에 돈을 걸 때 사용될 수 있다.

in force : 대거, 시행 중인
undeterred : (방해 등에도) 단념(좌절)하지 않는
outpace : outstrip 앞지르다
in effect : 사실상, 실제로는
originate : 비롯되다, 유래하다, 발명하다

 

Spokesmen for Credit Suisse and Goldman Sachs declined to comment.

If Wall Street succeeds in securitizing life insurance policies, it would take a controversial business — the buying and selling of policies — that has been around on a smaller scale for a couple of decades and potentially increase it drastically.

Defenders of life settlements argue that creating a market to allow the ill or elderly to sell their policies for cash is a public service. Insurance companies, they note, offer only a “cash surrender value,” typically at a small fraction of the death benefit, when a policyholder wants to cash out, even after paying large premiums for many years.

Enter life settlement companies. Depending on various factors, they will pay 20 to 200 percent more than the surrender value an insurer would pay.

But the industry has been plagued by fraud complaints. State insurance regulators, hamstrung by a patchwork of laws and regulations, have criticized life settlement brokers for coercing the ill and elderly to take out policies with the sole purpose of selling them back to the brokers, called “stranger-owned life insurance.”

In 2006, while he was New York attorney general, Eliot Spitzer sued Coventry, one of the largest life settlement companies, accusing it of engaging in bid-rigging with rivals to keep down prices offered to people who wanted to sell their policies. The case is continuing.

“Predators in the life settlement market have the motive, means and, if left unchecked by legislators and regulators and by their own community, the opportunity to take advantage of seniors,” Stephan Leimberg, co-author of a book on life settlements, testified at a Senate Special Committee on Aging last April.

 

만약 월스트리트가 생명 보험을 금융상품으로 만드는 데 성공한다면  보험 증권을 사고 파는 논쟁적인 사업이 발생할 것이며, 이것은 몇년 동안은 작은 규모지만 미래에는 급격히 증가할 것이다. life settlement를 지지하는 사람은 노인들에게 보험사가 지급하는 cash surrender value보다 더 많이 지급하므로 그들에게 도움을 주는 공공 서비스라고 말한다. 하지만 산업은 사기 문제로 괴로워하고 있다. 주 보험 입안자는 life settlement 브로커가 병들고 늙은 이들에게 보험 증권을 가져가기 위해 강요하고 있다고 비판했다. Eliot Spitzer는 그가 뉴욕법무장관일 때 가장 큰 life settlement회사 중 하나인 Coventry가 보험 증권을 팔고자 하는 사람들에게 주는 돈을 낮추기 위해 경쟁사와 답함을 했다는 이유로 기소했다.
 
spokeman : 대변인
plague : 괴롭히다
hamstring : 방해하다
patchwork : 여러 조각들로 이뤄진 것
coerce : (협박하여) 강압하다(강제하다)
attorney general : 법무장관
bid-rigging with rivals : 경쟁사와 담합 입찰

 

Tricky Predictions

In addition to fraud, there is another potential risk for investors: that some people could live far longer than expected.

It is not just a hypothetical risk. That is what happened in the 1980s, when new treatments prolonged the life of AIDS patients. Investors who bought their policies on the expectation that the most victims would die within two years ended up losing money.

It happened again last fall when companies that calculate life expectancy determined that people were living longer.

The challenge for Wall Street is to make securitized life insurance policies more predictable — and, ideally, safer — investments. And for any securitized bond to interest big investors, a seal of approval is needed from a credit rating agency that measures the level of risk.

In many ways, banks are seeking to replicate the model of subprime mortgage securities, which became popular after ratings agencies bestowed on them the comfort of a top-tier, triple-A rating. An individual mortgage to a home buyer with poor credit might have been considered risky, because of the possibility of default; but packaging lots of mortgages together limited risk, the theory went, because it was unlikely many would default at the same time.

While that idea was, in retrospect, badly flawed, Wall Street is convinced that it can solve the risk riddle with securitized life settlement policies.

That is why bankers from Credit Suisse and Goldman Sachs have been visiting DBRS, a little known rating agency in lower Manhattan.

In early 2008, the firm published criteria for ways to securitize a life settlements portfolio so that the risks were minimized.

Interest poured in. Hedge funds that have acquired life settlements, for example, are keen to buy and sell policies more easily, so they can cash out both on investments that are losing money and on ones that are profitable. Wall Street banks, beaten down by the financial crisis, are looking to get their securitization machines humming again.

Ms. Tillwitz, an executive overseeing the project for DBRS, said the firm spent nine months getting comfortable with the myriad risks associated with rating a pool of life settlements.

 

Could a way be found to protect against possible fraud by agents buying insurance policies and reselling them — to avoid problems like those in the subprime mortgage market, where some brokers made fraudulent loans that ended up in packages of securities sold to investors? How could investors be assured that the policies were legitimately acquired, so that the payouts would not be disputed when the original policyholder died?

And how could they make sure that policies being bought were legally sellable, given that some states prohibit the sale of policies until they have been in force two to five years?

 

사기의 문제 뿐만 아니라 금융 상품에 대한 위험을 파악해야 한다. 과거에 AIDS에 걸린 사람들에게 투자했다가 새로운 치료법 덕분에 사람들의 수명이 연장되면서 손해를 본 사례가 있기 때문이다. 이 리스크를 측정하기 위해 신용 등급 평가 회사 DBRS에 찾아갔다.
하지만 정말로 생명 보험 증권을 사고 팔기 위해 사기를 치는 것에서 우리가 부호할 방법이 있을까? 투자자들이 보험 가입자가 사망했을 때 문제없이 보험금을 합법적으로 수령할 수 있을까? 그리고 증권이 법적으로 거래가 될 수 있는지 확신할 수 있을까?

bestow : 수여(부여)하다
in retrospect : 돌이켜 생각해 보면
Interest poured in : 관심이 쏟아졌다
get their securitization machines humming again : 예전 서브프라임 모기지 때처럼 그들의 증권화 기계가 기분좋게 작동할 것 = 생명 보험 증권을 금융 상품으로 팔아서 많은 이익을 얻을 것이라는 은유적 표현
fraudulent : 사기를 치는

 

Spreading the Risk

To help understand how to manage these risks, Ms. Tillwitz and her colleague Jan Buckler — a mathematics whiz with a Ph.D. in nuclear engineering — traveled the world visiting firms that handle life settlements. “We do not want to rate a deal that blows up,” Ms. Tillwitz said.

The solution? A bond made up of life settlements would ideally have policies from people with a range of diseases — leukemia, lung cancer, heart disease, breast cancer, diabetes, Alzheimer’s. That is because if too many people with leukemia are in the securitization portfolio, and a cure is developed, the value of the bond would plummet.

As an added precaution, DBRS would run background checks on all issuers. Also, a range of quality of life insurers would have to be included.

To test how different mixes of policies would perform, Mr. Buckler has run computer simulations to show what would happen to returns if people lived significantly longer than expected.

But even with a math whiz calculating every possibility, some risks may not be apparent until after the fact. How can a computer accurately predict what would happen if health reform passed, for example, and better care for a large number of Americans meant that people generally started living longer? Or if a magic-bullet cure for all types of cancer was developed?

If the computer models were wrong, investors could lose a lot of money.

As unlikely as those assumptions may seem, that is effectively what happened with many securitized subprime loans that were given triple-A ratings.

Investment banks that sold these securities sought to lower the risks by, among other things, packaging mortgages from different regions and with differing credit levels of the borrowers. They thought that if house prices dropped in one region — say Florida, causing widespread defaults in that part of the portfolio — it was highly unlikely that they would fall at the same time in, say, California.

Indeed, economists noted that historically, housing prices had fallen regionally but never nationwide. When they did fall nationwide, investors lost hundreds of billions of dollars.

Both Standard & Poor’s and Moody’s, which gave out many triple-A ratings and were burned by that experience, are approaching life settlements with greater caution.

Standard & Poor’s, which rated a similar deal called Dignity Partners in the 1990s, declined to comment on its plans. Moody’s said it has been approached by financial firms interested in securitizing life settlements, but has not yet seen a portfolio of policies that meets its standards.

 

DBRS 회사의 Ms.Tilwitz와 그녀의 동료는 컴퓨터 시뮬레이션을 통해 위험을 측정한다해도 그것이 현실을 반영할지는 알 수 없다. 과거에 S&P와 Moody's는 많은 증권에 트리플A등급을 주었고 잘못되었다는 것을 알기 때문에 life settlements에 큰 우려를 가지고 있다.

whiz : 전문가, 명인
leukemia : 백혈병 

 

Investor Appetite

Despite the mortgage debacle, investors like Andrew Terrell are intrigued.

Mr. Terrell was the co-head of Bear Stearns’s longevity and mortality desk — which traded unrated portfolios of life settlements — and later worked at Goldman Sachs’s Institutional Life Companies, a venture that was introducing a trading platform for life settlements. He thinks securitized life policies have big potential, explaining that investors who want to spread their risks are constantly looking for new investments that do not move in tandem with their other investments.

“It’s an interesting asset class because it’s less correlated to the rest of the market than other asset classes,” Mr. Terrell said.t

Some academics who have studied life settlement securitization agree it is a good idea. One difference, they concur, is that death is not correlated to the rise and fall of stocks.

“These assets do not have risks that are difficult to estimate and they are not, for the most part, exposed to broader economic risks,” said Joshua Coval, a professor of finance at the Harvard Business School. “By pooling and tranching, you are not amplifying systemic risks in the underlying assets.”

The insurance industry is girding for a fight. “Just as all mortgage providers have been tarred by subprime mortgages, so too is the concern that all life insurance companies would be tarred with the brush of subprime life insurance settlements,” said Michael Lovendusky, vice president and associate general counsel of the American Council of Life Insurers, a trade group that represents life insurance companies.

And the industry may find allies in government. Among those expressing concern about life settlements at the Senate committee hearing in April were insurance regulators from Florida and Illinois, who argued that regulation was inadequate.

“The securitization of life settlements adds another element of possible risk to an industry that is already in need of enhanced regulations, more transparency and consumer safeguards,” said Senator Herb Kohl, the Democrat from Wisconsin who is chairman of the Special Committee on Aging.

DBRS agrees on the need to be careful. “We want this market to flourish in a safe way,” Ms. Tillwitz said.

 

주택담보대출의 큰 실패에도 불구하고 투자자들은 관심을 갖고 있다. 사람의 죽음은 주식의 등락과 관계가 없기 때문에 시스템적인 위험을 줄일 수 있다고 판단하기 때문이다. 산업은 정부와 동맹을 맺고 싶어하지만 여전히 생명 보험을 증권화하는 것에 대한 우려가 있다.

Bear Stearns 글로벌 투자 은행
pool : 공동 계산으로 하다, 공동 출자하다
tranche : (기업 자금, 주식의) 분할 발행(차입)
girding for a fight : 전투 준비를 하다 (gird : 각오를 단단히 하다)
be tarred : 꼬드겨지다, 꾀이다
in need of : -을 필요로 하고

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한창 Great Recession일 때 나온 내용이라 비판적 어조가 강하다. 현재 생명 보험 증권을 금융상품으로 만드는 것에 대해서 들어본 적이 없는데, 지금은 어떻게 진행되고 있는지 알아보면 좋을 것 같다.