AIG Life Co. is still rolling out deals that capture the arbitrage between life insurance and annuities. And these deals reportedly come with an interesting twist: The cash is destined for charities.
Sources said a third deal in the Patron's Legacy series is likely to hit the market before the end of the year and a fourth is expected in January. Both will be private placements via UBS.
The size should be similar to previous deals - between $100 million and $250 million.
With these arbitrage deals, the insurer generally securitizes a handful of large life insurance policies, ranging from $5 million to $50 million. The proceeds from the bond market are used to pay for annuities - which, for the Patron's Legacy deals, are being provided by Berkshire Hathaway. Then the cash flow from the annuities is used to pay the insurance premiums, plus interest to the noteholders, with the issuer capturing the excess.
But, believe it or not, charities will benefit in the end, sources said. These deals, apparently, allow high net worth individuals to contribute to their favorite charities without cutting into their own fortunes.
"That's why they take out such big policies: because they want to leave a few million dollars to their charity and this is a way to do it without doing anything out of pocket," a source said.
It was unclear whether the philanthropists benefit from some tax incentives as well. Sources on the structuring end were not reachable as of press time.
However, designated charities will get the 5% to 10% residual, the source added.
Other companies are said to be working on similar deals, but none appear to be imminent. "It's too early to tell where they'll go," one source said of the potential issuers.
UBS handled the two previous private placements for AIG Life. The $232 million Patron's Legacy 2003-1 came to market in late July, reportedly with a triple-A rating. The second deal hit in October.
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