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AIDS advances rattle viatical market

They've been reviled as ghoulish dealers in death and praised as the financial saviors of people with AIDS.

Now, viatical brokers, which pay patients money in exchange for their life insurance policies, face a severe profit crunch if new AIDS drugs can keep people alive longer.

The companies may have to be more choosy about whose policies they buy, favoring sicker people likely to die sooner. They may also have to pay less for all policies. Such moves are aimed at sustaining the healthy 15 percent annual returns viaticals now offer investors.

"The medical and scientific breakthroughs have complicated the issue in many cases where it just becomes a lot more difficult . . . to assess the life expectancy of a person," said Kenneth Klein, president of National Capital Benefits Corp. in New York, a leading viatical broker.

Since the new drugs, called protease inhibitors, were introduced this winter, stock in National Capital's parent company has dropped 50 percent.

Shares of another company, Dignity Partners Inc. in San Francisco, have lost 77 percent. On Tuesday, Dignity announced it was suspending purchases of new policies of AIDS patients.

AIDS activists are worried, saying viatical settlements are still important because the long-term benefits of the drugs are unproven, the therapy costs $15,000 or more a year, and the side effects are severe.

Ironically, if patients can't sell their policies because of a mistaken impression that AIDS has been cured, they will get sicker.

"Allowing people to have the financial resources they need to meet all their obligations _ their rent, or their food, or their medicine _ and keeping their dignity is an extremely important thing that, I think, affects the long-term outlook for the person," said A. Cornelius Baker, acting executive director of the National Association of People With AIDS in Washington.

Viatical companies get their name from the Latin word "viaticum," which in the Catholic faith is the sacrament of communion given to the dying. In ancient times, viaticum meant provisions given to those making a long journey.

Since the industry's start in the late 1980s, it has grown rapidly to at least 50 companies that bought roughly $400-million in policies last year.

Viaticals collect money from investors _ including big banks and financial houses _ and use it to pay terminally ill people a percentage of the value of their life insurance policies.

Typically, a patient with six months to live or less gets 80 percent to 90 percent. Those with a year get about 70 to 80 percent and those with two years get 60 percent to 70 percent.

Investors pay the premiums until the person dies, then collect on the whole policy.

Early on, disreputable viaticals took advantage of desperate patients, paying them less than 40 percent and sometimes forcing them to pick up a year's worth of premiums. Some disappeared without paying a dime.

As patients got smarter and competition grew, customers now often seek bids from three or more viaticals and take the best offer.

"We've tried to distinguish the good companies from the bad and provide our clients the best information we have to assist them in making their financial decisions," said Michael Isbell, associate executive director of Gay Men's Health Crisis in New York.

The risk for the investors comes when a patient takes longer to die than expected. Then the policy can become a money loser.

Nonetheless, Brian Pardo, chairman of one of the biggest viaticals, Life Partners Inc. in Waco, Texas, predicts the industry will survive.

"I'm predicting a little softening in the market," Pardo said, meaning smaller paybacks to patients. "Obviously investors are more concerned now."

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