Back to the Future 2 is real
February 27, 2015 7:56 AM   Subscribe

Imagine you could invest in the stock market last week, with perfect knowledge of how it will move this week. 25 year old Frenchman Max-Hervé George does not need a Delorean, he is the beneficiary of a very unusual 8000 euro life insurance policy that lets him do just that. He could be a billionaire by the end of this decade and, by the end of the next, his contract would be worth more than the insurance company which stands behind it, Aviva France.
posted by Another Fine Product From The Nonsense Factory (91 comments total) 36 users marked this as a favorite
 
Damn, I knew I picked the wrong parents.
posted by OverlappingElvis at 8:03 AM on February 27, 2015 [6 favorites]


OMG
posted by Cool Papa Bell at 8:04 AM on February 27, 2015


Wow. What's astonishing is that the deal didn't get abused earlier or by more people.

Realistically, you can't squeeze blood from a stone, so presumably Max-Hervé will settle before the value of the contract exceeds Aviva France's ability to pay out.

I wonder who (if anyone) reinsures Aviva France?
posted by jedicus at 8:06 AM on February 27, 2015 [2 favorites]


Well, it seems like someone made a very, very bad decision, and someone made a very, very good decision.
posted by spikeleemajortomdickandharryconnickjrmints at 8:06 AM on February 27, 2015 [11 favorites]


C'est incroyable!
posted by Halloween Jack at 8:08 AM on February 27, 2015 [4 favorites]


Wow. That's a better loophole than the pudding cups!
posted by Monochrome at 8:10 AM on February 27, 2015 [9 favorites]


I am also reminded a little bit of the Texaco v. Pennzoil litigation, which resulted in an absolutely stupendous award of ~$10.5 billion in 1985 ($22.7 billion in 2014 dollars). That was a tortious interference case, but it ultimately depended upon the validity of a contract.

The case bankrupted Texaco and was ultimately settled for $3 billion. It made the lead attorney on the case, Joe Jamail, who was working on contingency (!), a very rich man.
posted by jedicus at 8:12 AM on February 27, 2015 [9 favorites]


It could not tear up thousands of contracts, so it tried a more subtle tactic: policy holders were sent new papers, with the offer of 100 francs for the trouble (about £10). It is a measure of the bureaucrat’s art that almost all did sign, but the Georges declined.

Always read the contract. Always.
posted by anastasiav at 8:13 AM on February 27, 2015 [17 favorites]


I didn't quite understand the thing about the large amounts of paper. Is the family just sending one letter per week? How is that Boeing size?
posted by Cool Papa Bell at 8:17 AM on February 27, 2015


Maybe I don't understand how this really works, but if it's a life insurance policy he can't withdraw from it until he dies, right? Am I missing something?
posted by backseatpilot at 8:18 AM on February 27, 2015 [1 favorite]


He may be rich but why is he trying to bully an iPhone?
posted by biffa at 8:19 AM on February 27, 2015 [1 favorite]


Good on this guy...but..please tell me that the French government or someone has the backs of all the people who will lose their insurance (and investments?) if Aviva goes under? Is there government backed insurance if your insurance fails?
posted by If only I had a penguin... at 8:19 AM on February 27, 2015 [1 favorite]


Backseatpilot: You're thinking of term life insurance. This is something more like whole life insurance. Like Freedom55 you see advertised so much.
posted by If only I had a penguin... at 8:20 AM on February 27, 2015 [2 favorites]


“After everything I just want to go for the maximum of justice. I don’t want money, I just want my contract.”

Yeah uh huh, sure.
posted by Nea Imagista at 8:27 AM on February 27, 2015 [8 favorites]


Even if it did only payout on death it would be pretty easy to borrow against the amount.
posted by Mitheral at 8:27 AM on February 27, 2015 [6 favorites]


My lawyer sister who works in the insurance industry is absolutely delighted by this story, thanks for posting.

God I would love to sit in on the contracts litigation for that. It 's making my heart pound with excitement.

I find insurance contracts stimulating in a way that, I don't know, other people feel about sports.

posted by Drinky Die at 8:32 AM on February 27, 2015 [24 favorites]


Wow. Presumably they'll offer him some ungodly settlement if he'll let them out, cuz otherwise he'll wind up with a life insurance policy worth more than the total value of the planet.
posted by sotonohito at 8:33 AM on February 27, 2015


If this were the US, there's no way this would hold up in court. What would be their out? A generously interpreted escape clause or a veiled threat to drag out litigation until forced to settle for peanuts?
posted by dr_dank at 8:34 AM on February 27, 2015 [1 favorite]


Mitheral, he did borrow against it along with the genius idea of then reinvesting it back into the policy - "Mr George has also started to add fresh capital to the account governed by the contract, €19.9m last year, helped by a loan from the Swiss arm of a French Bank."
posted by JoJoPotato at 8:34 AM on February 27, 2015 [2 favorites]


This is the sort of thing that makes me very, very palpably excited. Insurance contracts! Billions of dollars! Thoughtless drafting! Nitpicking! It has everything I like. Also, no clear moral victor!
posted by Drinky Die at 8:38 AM on February 27, 2015 [25 favorites]


Reminds me of this thread from years ago.
posted by srboisvert at 8:39 AM on February 27, 2015 [1 favorite]


Sister Drinky sounds like my kind of gal!
posted by dr_dank at 8:40 AM on February 27, 2015 [3 favorites]


This is the sort of thing that makes me very, very palpably excited. Insurance contracts! Billions of dollars! Thoughtless drafting! Nitpicking! It has everything I like. Also, no clear moral victor!

This is best if you read it in the voice of Stefon.
posted by spikeleemajortomdickandharryconnickjrmints at 8:41 AM on February 27, 2015 [13 favorites]


Get her a MeFi account!
posted by Monochrome at 8:41 AM on February 27, 2015 [3 favorites]


If it were the US, and the contract really were ironclad under US law, they'd settle quietly and quickly under the table and it would never make the news.
posted by miyabo at 8:44 AM on February 27, 2015 [2 favorites]


Sister Drinky sounds like my kind of gal!

Get her a MeFi account!

She had one in the past, if she comes back Sister Drinky might be a good username. :P
posted by Drinky Die at 8:47 AM on February 27, 2015 [2 favorites]


If it were really ironclad, why would the counterparty to the insurer bother settling?
posted by indubitable at 8:48 AM on February 27, 2015 [1 favorite]


This is how I like to imagine European financial and legal institutions to work. The kind of stuff that lets immortals and time travelers collect hundreds of years worth of interest or have letters kept to be opened hundreds of years later on a specific day because we keep our contracts, sir!
posted by charred husk at 8:48 AM on February 27, 2015 [16 favorites]


Sister Drinky suggests this link on the topic of reinsurance.
posted by Drinky Die at 8:54 AM on February 27, 2015 [2 favorites]


how have we gotten this far into the thread without anyone quoting the Ferengi Rules of Acquisition?
posted by indubitable at 8:54 AM on February 27, 2015 [10 favorites]


Wow. Just. Wow.
posted by PMdixon at 8:55 AM on February 27, 2015


If it were really ironclad, why would the counterparty to the insurer bother settling?

Because no amount of ironclad contract language will get you a full payout when the debt you're owed exceeds the value of the company that owes it, or indeed the country that company is based in. At some future time they'll reach the point where the company offers all it can afford to pay, and continued litigation would just be spending money to squeeze the stone that much harder in hopes of blood coming out.
posted by Holy Zarquon's Singing Fish at 8:59 AM on February 27, 2015 [4 favorites]


Imagine if you had both one of these contracts and the lifetime AAirpass with a companion pass. If I had a time-traveling Delorean that's what I'd go back in time and buy!
posted by XMLicious at 9:00 AM on February 27, 2015 [5 favorites]


If this was the US I'm pretty sure they could just spin off a company with a few token assets and the policy and then let it sink. Works for coal pensions.
posted by PMdixon at 9:02 AM on February 27, 2015 [12 favorites]


If it were really ironclad, why would the counterparty to the insurer bother settling?

It's a life insurance policy, so presumably the insurer is offering some money now, rather than later.
posted by notyou at 9:04 AM on February 27, 2015


Private citizens enter into contracts that are this stupidly stacked against them for various desperate reasons, but you'll never see them get the chance to settle for a reasonable sum or fight it in court. For that reason I have zero empathy for corporations that find themselves in this position.
posted by Mr.Encyclopedia at 9:04 AM on February 27, 2015 [20 favorites]


how have we gotten this far into the thread without anyone quoting the Ferengi Rules of Acquisition?

Several do or I suspect do apply:

1
Once you have their money, you never give it back.


Don't settle when you have them by the balls.

3
Never spend more for an acquisition than you have to.


Don't offer unnecessarily generous terms.

10
Greed is eternal.

16
A deal is a deal.

17
A contract is a contract is a contract... but only between Ferengi.

Sometimes it's best to say, "Screw this stupid contract!"

23
Nothing is more important than your health... except for your money.


Who cares if all this profit ultimately depends on your death? You can sell your desiccated remains for another windfall anyway when you pull off something like this.

74
Knowledge equals profit.


Pretty easy to profit with market hindsight.

111
Treat people in your debt like family... exploit them.


No mercy for people you have at an advantage.

203
New customers are like razor-toothed gree-worms. They can be succulent, but sometimes they bite back.


Yeah.

214
Never begin a business negotiation on an empty stomach.


SOMETHING has to explain these contracts.
posted by Drinky Die at 9:06 AM on February 27, 2015 [7 favorites]


This is amazing, thanks for posting it. Everything I delight in.
posted by corb at 9:08 AM on February 27, 2015


> Regulators do not let insurers unilaterally change their terms.

IANAL, but this seems to be the key here to why this could only happen in France. In the US the insurance company would simply change the contract.
posted by Poldo at 9:09 AM on February 27, 2015 [3 favorites]


Because no amount of ironclad contract language will get you a full payout when the debt you're owed exceeds the value of the company that owes it, or indeed the country that company is based in

Very true. Though even the amount he could potentially obtain in a practically possible settlement is obscene. Aviva is...big.
posted by Hoopo at 9:23 AM on February 27, 2015


It's less Back to the Future and more like Primer.

Jeez guys, put down the baguette and use VisiCalc next time.
posted by RobotVoodooPower at 9:25 AM on February 27, 2015 [3 favorites]


Yet another story where I like absolutely no one in it. The best I can hope for is for the principals to get together for a negotiation, and a seriously sized comet lands on them all.
posted by benito.strauss at 9:36 AM on February 27, 2015 [10 favorites]


If I were this dude I'd just calmly say "Okay, $5bn, here's my account number, and we can tear up the contract."

Their own fault, really.
posted by feckless fecal fear mongering at 9:43 AM on February 27, 2015 [2 favorites]


Also, not quite the same, but a 90-year-old woman in France took out a reverse mortgage on her apartment (the bank pays you a monthly stipend until you die, and then they get ownership of the property).

Then she had the gall to live another 32 years.
posted by miyabo at 9:51 AM on February 27, 2015 [9 favorites]


Then she had the gall gaul to live another 32 years.
posted by paper chromatographologist at 10:00 AM on February 27, 2015 [23 favorites]


If the contract specifies that he can change his investments any time before the next results are published, couldn't the insurer just start publishing results on the hour (or in real time) in order to minimize their exposure to this?
posted by whir at 10:02 AM on February 27, 2015 [1 favorite]


90-year-old woman in France took out a reverse mortgage on her apartment

Rent the DVD now:My Old Lady
posted by achrise at 10:06 AM on February 27, 2015


The contract specifies that prices are published on Fridays.
posted by Holy Zarquon's Singing Fish at 10:07 AM on February 27, 2015


Can't wait to discuss this with my father in law, who had a long career as a senior reinsurance actuary before he retired a few years ago. I think he will be both amused and appalled, probably in equal measures.
posted by mosk at 10:09 AM on February 27, 2015 [1 favorite]


68 court battles... It sounds like they've already been trying to act on every weasel way to (mis)interpretate the wording that they can think of.
posted by anonymisc at 10:10 AM on February 27, 2015


The universe punishes stupidity. The punishment is not 'fair' or 'proportionate', it is harsh and without bound.
posted by Hatashran at 10:10 AM on February 27, 2015 [2 favorites]


I'm sorry, but what you meant to say is that Primer is real.
posted by fungible at 10:11 AM on February 27, 2015 [1 favorite]


I didn't quite understand the thing about the large amounts of paper. Is the family just sending one letter per week? How is that Boeing size? I can answer that just based on my experience of France with no knowledge of this actual case. Everything "official" in france comes with paperwork, in triplicate. The French make the Vogons look like amateurs who would sell their grandmothers to the Ravenous Bugblatter Beast of Traal just because they had orders signed in triplicate, sent in, sent back, queried, lost, found, subjected to public inquiry, lost again, and finally buried in soft peat and recycled as firelighters and not checking for a moment whether they got the required stamp from central office.

When my parents bought a house in France, it came with a totally 3ft high (I wish this was an exaggeration... I'm the person in the family who went to law school and supposedly speaks french so I got first pretending to read through) stack of boxed papers detailing every dispute with the neighbours and every tax issue for the last 20 years. The french love paperwork, their trick is that 99% of the time they just ignore it and do blatantly illegal stuff, which if it is disputed they then contest and generate even more paperwork.
posted by Another Fine Product From The Nonsense Factory at 10:18 AM on February 27, 2015 [14 favorites]


“After everything I just want to go for the maximum of justice. I don’t want money, I just want my contract.”

Yeah uh huh, sure.
I dunno, if I had an insurance company in my thrall, and was able to extract unlimited wealth from a bunch of bloodless old white guys and their ever-dwindling pool of shareholders, simply because they made a spectacularly bad mistake twenty years previously while trying to woo my insanely wealthy dad, I might just do it and throw every cent of profit into the charity of my choice.

Of course, I'd also be a billionaire, and I imagine I would be the type of billionaire who quickly becomes a cackler who rides a Sumatran ivory tiger around to public engagements, so maybe the joyride would be short-lived.
posted by Mayor West at 10:21 AM on February 27, 2015 [14 favorites]


Opulence and foresight: I has it.
posted by Monochrome at 10:26 AM on February 27, 2015


Is it also in the contract that they have to offer more than one fund? If he can't switch there's no arb, is there?
posted by PMdixon at 10:36 AM on February 27, 2015


Is it also in the contract that they have to offer more than one fund? If he can't switch there's no arb, is there?
I'm wondering if these contracts were written to allow general investing in a given exchange/market, so pick any fund you like that's listed on Euronext, etc.
posted by strange chain at 11:28 AM on February 27, 2015


The value of the contract is really interesting. Anyone holding one of these contracts might see compounding dollar signs and infinite returns, but the actual potential value is limited by the company's ability to pay, and the amount of other contracts like this that are outstanding.
So the upper limit is something like the (future) value of the issuing company divided by the amount of these contracts.

This seems like a recipe for terrible settlement talks. Then disaster.
posted by benbenson at 11:47 AM on February 27, 2015 [1 favorite]


It seems to me the insurance company could just eliminate his investment options. Neck him down to one possible investment.
posted by srt19170 at 12:34 PM on February 27, 2015


I imagine I would be the type of billionaire who quickly becomes a cackler who rides a Sumatran ivory tiger around to public engagements

I should probably clarify -- the diamond horse I’ve been telling you about? It's not a sculpture, or anything. It's a living horse that actually happens to be made of - actually, I'll just go get her. Butt Stallion! Say hello. (A horse whinnies.) Butt Stallion says hello.
posted by Blue Meanie at 12:54 PM on February 27, 2015 [6 favorites]


Hooray! I hate insurance companies!

Boo! I hate people who value their own welfare regardless of the cost to society at large!

The problem is that parties in disputes like this aren't swallowed by the earth or hit by comets frequently enough.
posted by Fezboy! at 12:55 PM on February 27, 2015 [1 favorite]


Anyone holding one of these contracts might see compounding dollar signs and infinite returns, but the actual potential value is limited by the company's ability to pay, and the amount of other contracts like this that are outstanding.

Aviva has a market cap in the region of $25bn. The more interesting question is what happens when Solvency II (the long argued-over EU insurance capital regulation legislation) comes into force (currently pushed back to 2016). This requires insurers to maintain levels of capital that can cover their expected liabilities (at specified probabilities) for the next year. This presumably means that, the eventual legitimacy of the contract doesn't matter as much as the probability that the contract may be found to be legitimate, and, the probability of paying out and the amounts involved should be factored into Solvency II capital requirements. (The key question here is: how much would Aviva have to pay someone to take these liabilities off their hands?) As the level of capital the company holds falls below these requirements, increasingly severe regulatory interventions should take place, with the last resort being instigation of insolvency procedures and eveentual winding up of the company.

Insurers often reinsure their liabilities via other insurers or specialist reinsurers. The same provisions apply, so if any of these polciies are covered by reinsurance deals, the reinsurer may also find itself with high capital requirements under Solvency II. Reinsurers also engage in reinsurance (it's been known for reinsurance chains to turn out to be circular, with the original insurer being unaware that it's the eventual reinsurer of some portion of its own risks). So the impact isn't necessarily limited to the original insurer. I don't know Solvency II in enough detail to say for sure, but presumably the risk of a reinsurer not being able to cover its liabilities must also be factored into capital requirements. Which would increase the required capital. Which would increase the risk of reinsurers being unable to cover their liabilities. Which would increase the required capital...

So it's potentially not just Aviva who are screwed. Picture the entire European insurance industry lined up in a huge messy circle of dominoes just waiting for the first to topple before collapsing in a shocked and disoriented heap. Possibly banks and other financial services companies (pension funds, for example) get drawn in by parallel regulation around capital requirements that kicks in when their shareholdings in these companies are suddenly worthless. All because of legislation designed to promote prudent financial practices in companies whose product is the mitigation of risk.

Still, I'm sure that insurapocalypse will never happen - the finance industry would never allow the world economy to crash because of their own poor decision making.
posted by xchmp at 2:51 PM on February 27, 2015 [17 favorites]


It seems to me the insurance company could just eliminate his investment options.

I love that people are attempting to find their own loopholes in this contract on the assumption that they understand it better than George and Aviva do, while never having set eyes on it.
posted by ryanrs at 2:52 PM on February 27, 2015 [12 favorites]


What I don't understand is how someone ever thought it a good idea to offer this deal in the first place. There is no limit to the downside, in theory, and what's the upside?

Also, why people who bought into the contract (presumably because they spotted the opportunity) would then sign it away for the price of a decent - but not serious - vin rouge.

Many mysteries. I'm clearly not French enough.

Boh.
posted by Devonian at 2:53 PM on February 27, 2015 [1 favorite]


Doesn't anyone here feel sympathy for the poor insurance company?
posted by Nelson at 3:26 PM on February 27, 2015


@Mr.Encyclopedia For that reason I have zero empathy for corporations that find themselves in this position.

@Nelson Doesn't anyone here feel sympathy for the poor insurance company?

I don't really get the schadenfreude here. A very rich person that was born into wealth is extracting money hand over fist because people at a company (that doesn't exist any more) nearly 30 years ago made a poor decision. The people who made that decision are long since retired. The people that will get hurt by this are the pensioners and the 99%ers with insurance policies with them. Insurance companies may not be beloved, but they serve a very needed function.
posted by Candleman at 4:57 PM on February 27, 2015


The people that will get hurt by this are the pensioners and the 99%ers with insurance policies with them. Insurance companies may not be beloved, but they serve a very needed function.

Or possibly the people that will get hurt by this are the people at the insurance company who spend all of their waking hours seeking to extract a little more money from their customers. Don't kid yourself that insurance companies exist because a bunch of rich people got together and said "How can we make things better for pensioners and the middle class?"
posted by Etrigan at 5:08 PM on February 27, 2015 [3 favorites]


"There is no limit to the downside, in theory, and what's the upside?"

Well, that's true for shorting. The risks of being long and being short seem extremely asymmetric. But, in the real world the way things actually work out, not as much.

Aside from the assumptions originally made about a) the customers not actually knowing how pricing has changed before the publish date; and b) they wouldn't go to the trouble; there's also assumptions made about volatility and the opportunities for arbitrage, as well as the size of the initial investment. You can put all those assumptions together in 1987 in a way that means that the anticipated associated fees and whatnot of this offering far exceeded the anticipated losses. And they probably thought they had this hedged. They probably cleared most of the resulting trades internally.
posted by Ivan Fyodorovich at 5:15 PM on February 27, 2015 [1 favorite]


Candleman: "A very rich person that was born into wealth"

I don't see in the article where it says the family is rich, and they paid 8000 Euro for the policies (which Google tells me is about US$9000, so not necessarily something that only the 1% could afford). Are you getting that from another source?

Here's an article from 2012: The French Time Bomb in Aviva
posted by Lexica at 5:20 PM on February 27, 2015 [1 favorite]


@Etrigan Or possibly the people that will get hurt by this are the people at the insurance company who spend all of their waking hours seeking to extract a little more money from their customers.

How, exactly, do you propose that this will happen? Maybe the company collapses and they'll have to get a job at a different company. The company is being legally compelled to give away large sums of money in a way that could ultimately become untenable. It's not the big dogs that get ruined by those collapses, it's a few rank and file workers, tax payers, and policy holders that always end getting the worst of it.

@Lexica - The article specified that only a set of wealthy policyholders were offered these contracts, I was basing my assumption on that.
posted by Candleman at 5:29 PM on February 27, 2015


I have a pension with Aviva UK and would prefer that they not go under.

I'm finding surprisingly little information on this out there. Here's a similar article from Bloomberg View: Arbitrage Discovered.
posted by triggerfinger at 5:37 PM on February 27, 2015


I find this utterly fascinating. A huge company will potentially be obliterated when this life insurance policy is triggered. It makes you think that a good way to get rich might be to trick an innumerate middle manager at a large corporation into signing any kind of contract with you gives you an exponential payout.

And it raises questions: Could the manager at the local Bank of America branch create a contract that bankrupts BoA in fifty years? What's to stop them from doing so?
posted by qxntpqbbbqxl at 8:00 PM on February 27, 2015 [1 favorite]


Could the branch manager at the local Bank of America create a contract that bankrupts BoA in fifty years?

Presumably, France's contract laws are similar to the United States where a contract can be voided if it could be proved that it was executed illegally, or by someone without standing to execute it, or just written in bad faith.
posted by Cool Papa Bell at 8:58 PM on February 27, 2015 [1 favorite]


I saw this earlier today and it is INCREDIBLE - the guy basically has a contract to print free money for life! I recommend reading the Matt Levine article triggerfinger linked, he talks about another pretty crazy insurance case (where the guy was taking out variable annuities on AIDS patients).

Where it gets really interesting is how Aviva should value this product on their books - and how anyone ever valued this type of product in the first place. Assuming they will honor the contract and George has a normal life expectancy and always makes the rational decision, then Aviva should be bankrupt now. Reading through the comments on the FT article, it appears they're basically not valuing the contract at all, but could be on the hook in the future if they are ever forced to pay out or account for it in their books.

What I'm not familiar with is how life insurance premiums work. Are they allowed to change the premiums? Because if they value this anything close to "fair" value (if there even is one) then his monthly premiums should be so gigantic as to make it prohibitively expensive. They basically massively mispriced this thing from the onset. Essentially he has something like a string of weekly best-of basket call options for his entire life. Except he's allowed to reinvest the winnings each week, so it's like...forward starting calls on forward starting calls on forward starting calls. Aren't the French supposed to be good at pricing derivatives?

The other fascinating thing is that a bank was willing to give him a loan against this contract. Now in the grand scheme of things, 19 million Euros is a fairly piddling amount for a big lender, but it still represents some faith by a bank as to the contract's value and ability to be upheld in court.

Now if George acted like a person in finance textbooks, since he has a machine for making infinite money risk-free, he should go to every bank, borrow as much money as he possibly can at any rate, and dump it into this strategy. And if the banks believe his contract will be upheld, they should be willing to lend as much money as he wants, because in a week he could own all of Aviva, sell all of the company's liquid assets, and pay back the interest. Of course, then Aviva would be in trouble way more quickly, and you would have a battle of lawyers between the banks and Aviva.

I am by no means knowledgeable on securities law, but generally, since the financial crisis, the courts have ruled in favor of "the little guy" when they end up on the losing side of deals with financial institutions - they can always claim they were misled or didn't fully understand the deals. Here, it isn't so clear who the "little guy" is - is it George, or is it the Aviva policy holders and everyone who stands to lose from Aviva going bankrupt? Obviously it would be in the public interest for the court to force Aviva to settle with George, but I don't know if French judges can just do things based on common sense or if they have to do full rules lawyering and bankrupt an entire company because of one dude.

My *guess* is it will never come to that and George will settle with Aviva for a big chunk of money. If George's contract only pays out when he dies (which would appear to be the case since even he doesn't know how much it is worth and Aviva appears to be acting as if it is void), then he has to borrow money against it in order to enjoy its value while he's alive. That would require the lending bank to have some faith it will, indeed, get its money back when he dies based on a contract that may not be enforceable.

So Aviva just needs to pay him more in cash than he can get banks to lend him. The fact that he has no idea what his contract is worth suggests even that bit of Excel book-keeping is too much work for him (and he should know EXACTLY what it is worth if he has all the documentation about which investments he retroactively chose each week).
posted by pravit at 9:36 PM on February 27, 2015 [3 favorites]


Aviva has a market cap in the region of $25bn

Aviva (Canada) was a client I worked with about a decade ago; is that number global or French-only? Because if the former, it seems really low, based on my interactions with our contact there.
posted by feckless fecal fear mongering at 10:24 PM on February 27, 2015


If you're reading this, my French friend:

I'll give you $100K now, and let you keep half the earnings, if you let me leave the rest in there.
posted by obiwanwasabi at 12:15 AM on February 28, 2015 [1 favorite]


The company is being legally compelled to give away large sums of money in a way that could ultimately become untenable.

Aviva France is the result of a merger among several companies, one of which bought the company that originally issued this policy. That means that twice, a bunch of people who are highly trained in due diligence and financial and actuarial matters looked at this policy and said, "Sure, that's a good risk." The company is not being "compelled" to do shit that it didn't volunteer to do.
posted by Etrigan at 5:09 AM on February 28, 2015 [5 favorites]


> If George's contract only pays out when he dies (which would appear to be the case since even he doesn't know how much it is worth and Aviva appears to be acting as if it is void), then he has to borrow money against it in order to enjoy its value while he's alive.

Is that how the rich think? Couldn't he just live a wonderfully indulgent life on the money his parents are giving him, and let this payoff be part of what he passes on to his heirs?
posted by benito.strauss at 8:58 AM on February 28, 2015


He could borrow money against it indefinitely, if the growth rates are to be believed. Providing the planet is not hit by a large meteor, he will always outpace interest rates.
posted by Cool Papa Bell at 10:14 AM on February 28, 2015


Is that how the rich think? Couldn't he just live a wonderfully indulgent life on the money his parents are giving him, and let this payoff be part of what he passes on to his heirs?

Well that's the thing. I don't have a good grasp for how rich his family is in actual liquid assets.

Let's say he is not a wealthy man. If he wants to enjoy the money now, potential lenders would either have to take massive duration and legal risk and give him a loan repaid on death, or he would have to take a job and spend all of his salary on servicing interest rate payments... which defeats the point of being massively rich, and would severely limit the size of the loan he could take out. In this case he should settle.

On the other hand, if he's rich now - in actual, liquid assets - then this could all just be a funny game to him where he has a tiny chance of becoming the richest man in France (maybe the world) and if not, no biggie. In this case he may as well keep sending letters into the void with the weekly trades.

But from reading the French article (through Google translate) it seems like Aviva hasn't even offered to settle. And so reams of paper with retroactive trades continue to accumulate and both sides (or at least one side, and not very accurately apparently) count their imaginary P&L...
posted by pravit at 12:07 PM on February 28, 2015 [1 favorite]


I believe his father settled with them on a separate contract. I'm on my phone now so can't check but I seem to remember one of the articles saying something to that effect. Which means that his family is probably fairly wealthy if they weren't already, because his father, of all people, would have known full well what he was giving up with a settlement.

This whole thing is tickling a part of my memory about credit default swaps, which were such a huge part of what crashed the global economy. I read a lot at the time about the intricacies of how they were structured and Bear Stearns/Lehman's/AIG's role in all of it but I can't remember the finer details. xchmp was talking about reinsurance upthread and it made me wonder how Aviva's reinsurance works. I was googling it last night and stumbled across something talking about how very recently they broke some new ground when their pension arm was involved in "longevity swaps" with three counterparties (SwissRe and I can't remember who else). The intermediary to the transaction? Aviva Life. I haven't had a chance to dig further and I'm limited by my own limited knowledge of the insurance industry but I'm really interested in knowing what the implications might be if this guy won't settle, effectively bankrupting aviva. Will it have a knock on effect on the other insurers and could this cause the credit markets to seize up again? I don't think it's likely but I'm trying to reconnect the dots in my head again on how a potential aviva bankruptcy would play out in the credit default swap markets and the economy as a whole.
posted by triggerfinger at 12:44 PM on February 28, 2015 [2 favorites]


"I haven't had a chance to dig further and I'm limited by my own limited knowledge of the insurance industry but I'm really interested in knowing what the implications might be if this guy won't settle, effectively bankrupting aviva. Will it have a knock on effect on the other insurers and could this cause the credit markets to seize up again?"

This line of reasoning causes me trouble because I find it highly implausible, but I don't really have a clue about the French context for this. If this were an American firm, I can think of a number of different ways this would be resolved, eventually, before any such dire consequences. In the states, it would be sterilized long before there were systemic effects one way or another by the authorities. (This didn't happen in 2008 with Lehman and doesn't generally happen when the risk is obfuscated and many parties have vested interested in keeping it obfuscated, but that's very much not the case here.) But I can't see if even reaching that point in the states.
posted by Ivan Fyodorovich at 3:33 PM on February 28, 2015 [1 favorite]


The original French article gives more details. Reducing the catalogue of available funds seems to be the first thing the insurer tried – before offering the policyholders a way out.

Aviva are apparently the only insurer who still have active contracts of this kind. The Challenges article attributes that to Aviva's heavy-handed handling of the situation compared to other insurers with similar products, who reportedly offered ‘generous’ indemnifications.
  1. first Aviva gradually reduced the list of funds available, getting rid of the more volatile stocks funds
  2. then they tried to get everyone to sign avenants that modify the terms of the contract
  3. finally in 1999 they ‘stopped all arbitrage in these contracts’, but (the article says) never offered to indemnify the policyholders [I misread: ‘or not with acceptable terms’]
That also explains the mountains of paperwork. The contract allows policyholders to trade as many times as they want, not just once a week. And when Aviva not only stopped accepting trade orders over the phone and fax, but tried to ignore them completely, some policyholders had their orders delivered by legal officers (huissiers) who also made sure that they were executed and produced a written report each time.

Aviva allege, among other things, that they were in the right in changing the terms unilaterally because the policyholders ‘denatured’ the contract by acting like ‘speculators, arbitragistes, almost like stock market professionals’ rather than savers. They seem to have been in denial about the validity of the remaining contracts ever since, despite court rulings piling up against them. They say they have provisioned enough money, but apparently their annual report shows this to be only about €20M.

When these contracts were invented, prices for the investment vehicles in question (Sicavs) were quoted weekly. It still must have seemed a good deal, since reportedly, a fair number of managers in the original insurance company bought these policies for themselves as soon as they were announced, and are now safely retired.
posted by ormon nekas at 9:34 AM on March 1, 2015 [5 favorites]


(Presumably the managers in question somehow no longer own these contracts, though, since an Aviva spokesperson is quoted as saying there are less than a dozen holdouts left)
posted by ormon nekas at 9:36 AM on March 1, 2015 [1 favorite]


the policyholders ‘denatured’ the contract

Is this actually a concept in French law or just BS?
posted by PMdixon at 10:37 AM on March 1, 2015


‘Denaturation’ is in fact a French legal concept, but it doesn't apply here, as it refers to a judge erroneously interpreting a contractual clause that was not actually ambiguous. Ie, a higher court may rule that a contract was denatured by a lower court. (Not a lawyer, but I found a relevant legal dictionary entry (fr).)
posted by ormon nekas at 1:51 PM on March 1, 2015


My insurance experience is in the US, not France, but I saw some comments that needed a response.

In the US the insurance company would simply change the contract.
Nope. Your life insurance company cannot unilaterally change the terms of your contract. If the contract is endangering the health of the company and can effect the other policy holders, the regulatory agency will come in and probably ask you to settle. But the insurance company can't force you to do anything.

I also see alot of insurance company hate. And I get that, I really do! But life insurance is the least evil. There's no denying converage like with health insurance, or trying to get you to take the least amount like with your auto. If you die (after the contestibility period, which is usually 2 years but varies by jurisdiction), you get paid, no matter the cause of death. No ifs ands or buts. And the courts have established that any vagueness in a contract is the fault of the insurer and usually side with the insured. Sadly, many insurance companies today sell both life and health so while I might not hate on a life insurance company, the health part sullies the reputation for me.

Bad players in life insurance aren't bad because they tried to screw policyholders, its because they are doing something shady with their books.
posted by LizBoBiz at 8:09 AM on March 2, 2015 [2 favorites]


If this were an American firm, I can think of a number of different ways this would be resolved, eventually, before any such dire consequences. In the states, it would be sterilized long before there were systemic effects one way or another by the authorities. (This didn't happen in 2008 with Lehman and doesn't generally happen when the risk is obfuscated and many parties have vested interested in keeping it obfuscated, but that's very much not the case here.)

I agree it's unlikely, mainly because AIG was selling CDS on mortgage CDOs and the wave of defaults throughout the system was both highly likely (given the laxity of loan requirements) and self-perpetuating. But I think you might have more faith in the system than I do. The credit default swap is huge, opaque and so interconnected that a small number of credit events could have a domino effect on other players in the market. Again, I don't think this is likely with this case (and I definitely know next to nothing about how the insurance and reinsurance industries hedge their risk), but I don't have a lot of faith that something potentially big would be fully sterilized before it hit the general economy.

Here's a recent court transcript from the French Supreme Court on the case. I ran it through Google translate here and it's a little garbled, but it looks like his siblings might also have insurance contracts.

Whereas, according to the judgment (Paris, April 9, 2013), on 24 February 1997, Hervé X ... and his wife, Isabelle Y ... (Mr. and Mrs. X ...) have subscribed to the company Bee life, the rights which comes Aviva Life (the insurer) four-linked insurance contracts life entitled "International Selection", one on behalf of Ms. Isabelle and X ... the other three on behalf of each of their minor children, Julian, Claire and Max-Hervé, the terms of which allow the subscriber to arbitrate known price amounts invested in various financial supports speculative, of the net asset value being that the last week before the stock exchange; that the contracts contained a clause to differ from arbitration claims up to six months in case of request for arbitration upper 5% of the considered medium; that from 1 January 1998, the insurer has gradually narrowed the list of eligible supports these contracts by removing media composed of equities, to replace them with bonds or money market instruments...

posted by triggerfinger at 2:03 PM on March 2, 2015


An update.
posted by triggerfinger at 1:56 PM on March 10, 2015


Is there a version of the update available that doesn't require registration to read it?
posted by Lexica at 2:21 PM on March 10, 2015 [3 favorites]


Sorry, I forgot registration's required. From BugMeNot (tried on my browser and it worked):

email: NotMouse@mailinator.com
password: bugmenot123

I was also able to access the link via Google news.
posted by triggerfinger at 4:10 PM on March 10, 2015


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