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Wow. Who would have thought there was a market too ghoulish for Goldman Sachs? The bank announced that it is pulling out of the life settlement (nice euphemism) business and shutting down Longmore Capital, the life settlement arm of the bank.

For those who don't know, life settlements (or viaticals, as they used to be known) purchase the life insurance policies of terminally ill people at a discount to provide the cash to the person before he or she dies. Then the viatical holder gets paid off 100% from the insurance company when the insured finally checks out. The sooner the person dies, the better the ROI on the investment.

These got really popular about 15 years ago (when you could still count on AIDS to kill somebody), and the business was rife with abuse. It was fairly common knowledge back then that certain life insurers did little or no underwriting on low-face value policies ($50,000 - $100,000, typically). When someone was diagnosed with AIDS and needed money for meds, certain viatical companies would have these people apply for low-face value insurance, get approved, and then buy the policy from them betting on an early departure.

Karma being what it is, AIDS treatment took a giant leap forward and drove many viatical vultures out of business. The market was dormant for several years until Goldman Sachs began betting against life in 2006. They even went so far as to create a couple of mortality indexes, so regular investors could take the over/under on some poor bastard with kidney failure. The market obviously found these indexes distasteful, because very few trades were ever recorded and they were shut down last month.

In an interesting side note, the word viatical is Latin for, "food for the journey". I was always amazed at the marketing efforts that went into these things, and how the companies (not GS - they weren't a part of it in the early days) went out of their way to frame this as a compassionate investment. While I grant there is a grain of truth to that (people get to enjoy the money with their families before they die, seek experimental treatment that might be successful, etc...) the bottom line is that you're betting on a guy to die -- and the sooner the better.

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Comments (7)

  • TheBuySideGirl's picture

    I hear they're focusing on the post-death business now. Whatever that is.
    I just hate the word death and anything related.

  • UncleKevin's picture

    Are they exiting for PR reasons or they don't like the bizz anymore?

  • Edmundo Braverman's picture

    Definitely not an issue of PR. I just don't think the business took off like they thought it would. Back in 2006 it looked like just about anything would work; that's probably why they gave this a shot.

    Advances in medicine make viaticals a really iffy proposition anyway. How pissed would you be if you paid a guy $400,000 cash on a $500,000 policy and he used the money on an experimental treatment that cured him? Happens more often than you might think.

  • Toblerone's picture

    Very interesting read - thanks Edmundo!

  • mxc's picture

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