Charlie Bucket spent his last, precious penny on chocolate to find his Willy Wonka golden ticket. Max-Hervé George got his through a more conventional route: his wealthy father.
In 1997, M. George Sr bought an insurance policy that, from the insurance company’s view, was one of the most stupid contracts ever written. In fact, he bought one for each member of his family.
Only available to richer clients, the Fixed Price Arbitrage Life Insurance Contract allowed customers to invest in a range of funds. Every Friday, their prices would be published.
So far, so conventional.
However, customers were allowed to buy and sell their stakes in the funds at the previous Friday’s price right up until the next week’s were published. So, if the market moved over the following days, customers could phone their broker and trade at the old price, guaranteeing rich profits. The insurer was like a bookie accepting bets on today’s Grand National for a week after the race, at this morning’s odds.
In an era of “flash trading” where bankers will pay millions of pounds to have their computers closer to trading exchanges in order to shave thousandths of a second off market-information data, it seems unbelievable.
But in 1990s France, there were no real-time prices for funds on the internet. The public relied on phoning or faxing brokers. The trade itself could take a few days to process. So L’Abeille Vie – now owned by Aviva – and Axa and others who offered similar policies, failed to see the risks they were piling up.
They only wised up when they realised the internet was making financial data easier to find. L’Abeille Vie stopped selling them and tried to persuade existing customers to switch out, offering 100 francs compensation.
M. George Sr was too canny to accept. Like Charlie Bucket, he may have been the last in the country to find a golden ticket.Reuse content