Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• LIFE ASSURANCE [INSURANCE] BONDS
  
  Bonds backed by life insurance policies. The idea is that life insurance companies are good at underwriting insurance risks, collecting premiums, and servicing the policies, but needn’t tie up their money for the duration. Examples: USAA, Swiss Winterthur, Swiss Re, and Tokio Marine & Fire have issued such bonds. CSFB, Goldman Sachs, Lehman Brothers, and Merrill Lynch have brought the issues to investors. Good news: This is a logical next step in disintermediation. The cash flows are relatively predictable, in contrast to cash flows on "catastrophe bonds" (q.v.). Bad news: Investors will be dealing against experts in adverse selection (q.v.) and moral hazard (q.v.). Source: "An earthquake in insurance," The Economist, 2/28/98.
  
  Back