SEC Finally Takes Look at Insurance Derivatives

I have been clamoring for an investigation into derivatives trading on Wall Street, especially in the trade of bundled insurance policies. The Security and Exchange Commission started an investigation this January into the secondary market for life insurance policies held by strangers instead of the persons insured.

My February 14 column (Artfull Codger, 2/14/11) discussed the bundles of these policies and how they were transferred, like stocks between investors, by companies who profited from fees they made on the transactions. Investors could only make a profit if their insured died soon after the investor took over the "bundle" or they would find themselves paying the premiums for as long as the insured lived. This obviously diminished the anticipated return to the investor.

One of these companies, Life Partners, has been officially notified that the SEC is giving them a chance to explain themselves or civil charges may be filed. The SEC wants to know how "Life Partners" sets a value on their product. Some articles have been critical of the advertising and methods used to determine how long an insured is really going to live.

My original article last year was in protest for what could be a motive for murder. That is a situation where someone would profit from an insured dying sooner, rather than later, for optimum return on investment. I am thrilled that this shady aspect of the derivatives market is under scrutiny and hopefully will be shut down.

Finally the Obama oversight is pecking away at the problem on Wall Street!

Seniors Rock!