This document provides information about life settlements from The Architect of Life Settlements. It defines a life settlement as the purchase of an existing life insurance policy at a discount. It then outlines the history and legal basis of life settlements. Finally, it discusses why one might invest in life settlements, highlighting the inherent asset value, generation of true alpha, and risk amelioration they provide.
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Life insurance is used for many different purposes. During this webinar, we will discuss how Corporate America is currently using life insurance, such as Non-Qualified plans, keyman protection, and buy sell funding. As well as what to look for when purchasing life insurance, as not all products are created equally. We will provide life insurance education on Term, Whole Life, Universal Life, No Lapse Guarantee, Indexed Universal Life, and Variable Universal Life.
Investment Strategy in an Era of High Market VolatilityLloydBaron
Investment strategy for consistent high returns and low risk. Ideal for financial markets that have high volatility and no definite trend. In operation since October 2010, yielding a consistent return of +/-2% per month.
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Life insurance can be used to accomplish many important planning objectives. However, if improperly managed, policy proceeds may be inadvertently subject to estate, gift, or income tax. An understanding of life insurance products and tax laws, as well as planning mistakes to avoid, will help to maximize the value of the life insurance asset.
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Our Autumn Newsletter gives an overview of choices ant retirment and SIPPs. We look at investing in Solar Power and ask Who will look after you in old age?
Tips on Investing for additional income from every sector of your Self Managed Superannuation Fund portfolio. We cover cash, high interest accounts, term deposits, Bonds and Hybrids, Direct Shares, Equity for Income Funds, ETFs both High Yield and Bonds, Commercial Property and International shares. Showing you how to make the most of your SMSF while managing the risk. This is part one of a 2 part series with the second part “Investing for Growth” to follow. Check out our blog at Http://smsfcoach.wordpress.com or follow us on twitter at @SMSFCoach and @NextGenWealth
Life insurance is used for many different purposes. During this webinar, we will discuss how Corporate America is currently using life insurance, such as Non-Qualified plans, keyman protection, and buy sell funding. As well as what to look for when purchasing life insurance, as not all products are created equally. We will provide life insurance education on Term, Whole Life, Universal Life, No Lapse Guarantee, Indexed Universal Life, and Variable Universal Life.
Investment Strategy in an Era of High Market VolatilityLloydBaron
Investment strategy for consistent high returns and low risk. Ideal for financial markets that have high volatility and no definite trend. In operation since October 2010, yielding a consistent return of +/-2% per month.
Advanced Markets Insight: Common Life Insurance MistakesM Financial Group
Life insurance can be used to accomplish many important planning objectives. However, if improperly managed, policy proceeds may be inadvertently subject to estate, gift, or income tax. An understanding of life insurance products and tax laws, as well as planning mistakes to avoid, will help to maximize the value of the life insurance asset.
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1. a NASDAQ Global Market company
The Architect of Life Settlements SM
2. What Are Life Settlements?
• A Life Settlement is the purchase of an existing life
insurance policy at a discount to its face amount.
• Policyholders are financially sophisticated
individuals or trusts who purchased policies for
estate planning or other financial purposes and no
longer need the coverage.
3. History and Legal Basis
• Life Settlements were recognized as a legal
transaction by the U.S. Supreme Court in 1911.
• Life Settlements were developed in order to
meet the needs of individuals who have life
insurance they no longer want or need.
4. Why Invest in Life Settlements?
Inherent Asset Value of Life Settlements
Even during the Great Depression, life insurance companies still paid
their policy obligations.
Generation of True Alpha
Life Settlements are immune from fluctuations in the stock and bond
market, interest rates and business cycles.
Risk Amelioration
Because the key factors affecting yield are initial discount and time,
rather than economic conditions, exceptional returns can be realized
with low risk to investment capital.
6. STEP ONE
Seller
1. $1,000,000 policy is presented to LPI, either from the owner of the policy or
by a representative of the owner (called a broker) for consideration of an
offer.
2. The insured is purported to have a life expectancy of 5-7 years.
7. STEP TWO
Life Partners, Inc.
LPI analyzes the policy to ensure:
1. Policy is fully transferable, past contestability period and there are no
foreseeable impediments to future payout; and
2. LPI’s independent medical consultant gives opinion that life expectancy
of insured is 5-7 years.
3. LPI offers to purchase policy on behalf of its clients based on market
demand and economic analysis of policy.
8. STEP THREE
Purchaser
1. Must be an accredited investor.
2. Minimum investment amount is $50,000.
3. Investor may purchase a fractional portion or the entire policy.
4. Qualified or non-qualified funds are acceptable.
5. Investor signs Agency Agreement.
6. Investor signs a Policy Funding Agreement (PFA) for each purchase.
7. Funds are sent to independent escrow agent, NOT to LPI.
9. STEP FOUR
Independent Escrow Agent
1. Holds original policy, PFA, and funds for the acquisition.
2. Holds investment funds and policy documents and verifies transfer with
insurance company
3. Disburses and distributes funds at closing as follows:
a. Full payment to insured
b. Policy premiums are escrowed for life expectancy of insured
c. Escrow Agent’s service fees
d. Fees payable to LPI
10. STEP FIVE
Independent Escrow Agent and Purchaser
1. When policy matures, Escrow Agent pays to investor his pro rata share of
all proceeds paid out by insurance company under the policy.
2. ROI varies with each purchase depending on cost basis, holding period,
return of unused premiums or additions to premium escrow needed to
maintain policy and amount paid out under policy.
3. Purchaser has opportunity to have Escrow Agent hold all or a portion of
payout for reinvestment or receive entire payout as Purchaser may direct.
11. WHAT KIND OF RETURNS
ARE POSSIBLE WITH
LIFE SETTLEMENTS?
12. Potential Yield Curves
240%
225%
210%
195%
180%
165%
150%
3 year LE
135%
ROI
5 year LE
120%
7 year LE
105%
90%
75%
60%
45%
30%
15%
0%
0 2 4 6 8 10 12 14
Holding Period in Years
Yields not adjusted for return of premium escrow or additional escrow requirements
13. Yield Curves Excluding Extraordinary Performance
15%
14%
13%
12%
11%
10%
9%
3 year LE
8%
I
RO
5 year LE
7%
7 year LE
6%
5%
4%
3%
2%
1%
0%
3 5 7 9 11 13 15
Holding Period in Years
Yields not adjusted for return of premium escrow or additional escrow requirements
14. The Buzz About Life Settlements
The New York Times:
“Last year, for instance, insurance companies reduced their financial exposure by $1.1
trillion when 19.8 million policyholders stopped paying premiums, according to the
Insurance Information Institute. In comparison, the industry paid death benefits on only
2.2 million policies.”
- Charles Duhigg, “Late in Life, Finding a Bonanza in Life Insurance”
December 17, 2006
The Wall Street Journal:
“A life insurance policy is the property of the insuree, and he or she can sell it to
somebody else.”
- Holman W. Jenkins, Jr, “Life Insurers Face the Future, Grudgingly”
August 9, 2006
15. 2007 Conning Life Settlement Research Report
For over 50 years, Conning Research & Consulting, Inc. has been a source of
independent research company which provides insurance industry analysis to
insurers and industry stakeholders. As a result of its wealth of experience and
intimate knowledge of the insurance industry, Conning is widely recognized for its in-
depth insights and analyses on a wide range of industry products and issues. Conning
is headquartered in Hartford, CT.
Conning recently issued a report entitled Life Settlement Market: Increasing Capital
and Investor Demand 2007. This report frequently references Life Partners and
provides a wealth of information and independent analysis on the current and future
of the life settlement industry.
16. Conning Research: Noncorrelated Diversification
“Life settlements provide noncorrelated diversification because insurance
policies are independent of the factors contributing to economic downturns such
as interest rate fluctuations and increasing fuel costs. For investors who have a
large portion of their assets in equity or debt, adding life settlements as an
alternative investment is one way to reduce a portfolio’s exposure to sudden
downturns in the stock or bond markets.
Noncorrelation should not be understood as being risk-free. There is investment
risk associated with life settlements. However, this growing desire for
noncorrelated assets among investors, especially when equity and debt markets
are volatile, points to a continued flow of capital seeking life settlements.” -
17. Conning Research: LPI’s Direct Purchase Services
“Some life settlement investors pursue an active strategy in life settlements. They
identify, evaluate, and purchase individual policies. They purchase these policies from
either from an individual owner or from a life settlement provider.
This approach provides the investor with the highest level of control because they
conduct the evaluation and choose which policies to purchase. It also lowers their
investment costs because they do not pay management fees to a portfolio manager.
Because of the lower fees, and potentially lower transaction costs, active investors may
realize a higher return on their investment than passive investors.
However, this approach also carries with it a high risk if the investor is unable to
purchase a diverse portfolio of policies.” - page 56-57
18. Conning Research: The Economics of Life Settlements
“It is important to realize that the life settlement marketplace is built on a
structural inefficiency in the current life insurance industry. Insurers are unable
to reprice policies once issued. Life insurers, even if made aware of the new
information, are unable to adjust their surrender value; in essence, they are
locked into the status of always being the lowest market price.” - page 37
19. Conning Research: The Future LS Market
“According to the CDC, at least 80% of older Americans have at least one
chronic condition and 50% have two. Aging Baby Boomers are already
experiencing chronic health conditions. Those above the age of 75 find that 53%
have high blood pressure, 37% have heart diseases and 15% are diabetic.
The possibility exists that Boomers may face an even steeper decline in health
than their parents. If that proves to be the case, then the potential market for life
settlements may increase to an even larger number.” - page 31
20. Conning Projected Gross Market Size by Face Value
$150
$145
$140
Billions $135
$130
$125
$120
Source: Conning Research & Consulting, Inc.- 2007
2007 2010 2013 2016
23. Who DOESN’T Like Life Settlements?
Insurance Companies
Why?
• Lapsed Policies= HUGE PROFITS
• Most Policies Lapse By Year 10
• Policies are priced to market and lapse factor, not to mortality
of insured
• According to the American Council of Life Insurers,
approximately 8.5% or $1.4 Trillion in coverage is voluntarily
terminated EVERY YEAR!
24. The Life Partners Edge
• Key Employee Retention – 12 year average
• Substantial Intellectual Capital
• Oldest company in industry – well established broker
relationships with an excellent business reputation
• Extensive investment in developing proprietary software and
processes for high volume of transactions
• Only publicly traded company operating exclusively in the
life settlement industry
25. Life Partners History
• Life Partners, Inc. founded in Waco, Texas in 1991 by Brian Pardo
• Developed business and legal processes to transact high volume of
life settlements
• Went public in 2000 via reverse merger in order to demonstrate
financial transparency and foster public confidence
• LPI became wholly owned subsidiary of Life Partners Holdings,
Inc. – began trading on OTC market
26. Life Partners History
• Originated concept of life settlements for high net worth
seniors in 1997
• Qualified for NASDAQ Small Cap in 2003 and NASDAQ
Global Market in 2007
• Market Capitalization exceeds $100 million in 2007
• Consistent history of quarterly dividend payments since 2002
27. LIFE PARTNERS HOLDINGS, INC.
(NASDAQ GM: LPHI)
LPHI Officers (front row L to R)
R. Scott Peden
Secretary/General Counsel
President, Life Partners, Inc.
Brian D. Pardo
Chief Executive Officer
Nina Piper
Chief Financial Officer
LPI Officers (back row L to R)
Deborah Carr
Vice‐President, Administration
Vice‐
Mark Embry
Chief Operating Officer
Kurt Carr
Vice‐President, Policy Analysis
Vice‐