History and Experience

Our business began in 2002 with the formation of our provider company that now is a licensed life/viatical settlement provider in 22 states within the United States. Our business model initially consisted of structuring securitizations of life settlements that were offered to institutional and other accredited investors through private offerings. From 2003 until 2006, we sponsored 15 of these securitizations, raising some $102 million and acquiring 131 policies with an aggregate face amount of approximately $218 million.

In late 2005, we became associated with Life Settlement Funds, Ltd., an Australian public company that acts as the fund manager for the Life Settlement Wholesale Fund (“LSWF”), an Australian public fund registered with the Australian Securities and Investment Commission (“ASIC”). LSWF used life settlements as its underlying asset and as we became more familiar with LSWF we recognized the investor benefits offered by the LSWF structure as opposed to our prior securitization structure. For example, as a publicly registered open-ended fund, LSWF offered investors liquidity through the option of redemption of units at a publicly available net asset value or NAV. Owning units that offer liquidity and whose value changes over time also allows investors to monitor the market value of their investment as well as to realize their investment through sale or redemption rather than having to wait until a policy matures.

Because of these various advantages to investors, in 2007 we arranged for and proposed a sale of all policies in our prior securitizations to LSWF in exchange for units in LSWF. Investors approved the sale in ten of the securitizations; investors in five single policy securitizations chose not to participate in the exchanges on the advice of their U.K. investment advisor. For those securitizations whose investors approved the exchange, the LSWF units became the sole asset of each securitization, which allows the respective investors to request redemption using their pro-rata share of the unit NAV at any time. To date, over 80% of the original investors in our securitizations have elected to have their interests redeemed through LSWF.

From 2007 through early 2009, our principals assisted LSWF in raising approximately $1.1 billion from (non-U.S.) investors. LSWF also engaged us to create life settlement pricing and valuation models and to source life settlements in the U.S. We then acted as LSWF’s exclusive sourcing agent for policies, sourcing over 500 policies (including those exchanged from our prior securitizations), ultimately representing over $2.3 billion in aggregate face amounts.

The life settlement business was substantially affected between 2008 and 2010 by the confluence of two significant but unrelated events – the extension of the life expectancy (“LE”) tables by the Society of Actuaries in 2008 and the global financial crisis. Prior to 2008, the life settlement industry generally used the 2001 VBT (Valuation Basic Tables) to project LEs. These tables are the underlying basis for the LEs provided in the life settlement purchase process. The major providers of LEs use the VBTs as a basis for their proprietary LE tables designed for the viatical/life settlement industry. The 2008 changes, which were announced with little advance notice to the industry, reflected generally improved mortality (i.e., longer lives) of the U.S. population; in some cases as much as 29%, but on average about 19% over the LEs that previously had been based on the 2001 VBTs.

In theory, the longer life expectancies caused policies that had been purchased prior to the 2008 revisions to have a lower value and resulted in a write-down of the value of policies that had been acquired. LSWF, for example, wrote down the value of its fund by approximately 18%. Although we believed at the time (and continue to believe) that the LE extensions were not entirely accurate, these industry-wide write-downs nevertheless caused many participants in the life settlement industry to dramatically decrease the purchase of policies in the months following the LE extensions; LSWF has not acquired any policies since July 2009.

At approximately the same time that LE providers implemented LE extensions, global financial markets essentially collapsed. Although life settlements as an asset class are essentially non-correlated to the U.S. and other global financial markets, they were not immune to the degree of global economic distress experienced over the past few years. The economic turmoil essentially froze institutional investor capital in many asset classes, which resulted in low volume and limited liquidity. Additionally, many institutional investors that previously had been active in the life settlement space were directed to “get liquid” or they saw their premium financing for existing policy portfolios discontinued or non-renewed (called for repayment). In some cases, high quality portfolios consisting of pools of aged policies became available at “distressed asset” pricing resulting in opportunities to purchase policies, individually or in bulk, at greater discounts than previously available. The combination of all these factors created an oversupply of portfolios of previously acquired policies. This oversupply has allowed new investors entering the life settlement space the opportunity to purchase policies below what we would consider market pricing norms, thus enhancing the potential return available on polices acquired during these time periods. This dynamic is still evident today. The lack of fresh capital in the life settlement market had a chilling effect on the generation of newly originated life settlements. This also created strong buying opportunities for those with ready capital available for policy acquisition.

Following LSWF’s cessation of policy purchases in early 2009, we took the time of uncertainty and relative inactivity in the life settlement market to refine our business model. For example, we increased efficiency by determining that we would focus our policy acquisition efforts principally on tertiary market purchases of previously viaticated polices rather than secondary market purchases of policies from the original owner. After being retained by a foreign institutional client in mid-2010 we began to acquire policies for that company that ultimately reached over $3.7 billion in face amount of life settlements.

Along with LSWF, we have worked to develop what we believe to be a unique fund structure registered in Ireland known as the Global Insurance Settlements Fund PLC (the “GIS Fund”). We own approximately 38% of LIS Management Limited, an Irish company that acts as the fund manager (“GIS Manager”) and one of our executives is a member of the board of directors of the GIS Fund. Life Settlements Wholesale Fund Ltd, the fund manager for LSWF, is the Investment Manager of the GIS Fund.

The GIS Fund is an investment company with variable capital and limited liability which is authorized by the Central Bank of Ireland under Part XIII of the Companies Act 1990. It was incorporated in Ireland as a public limited company in September 2010. Securities issued by the GIS Fund are listed on the Ireland Stock Exchange and are publicly tradable. This is what we consider the unique nature of the GIS Fund – we are unaware of this level of public liquidity ever having been achieved for a fund devoted entirely to life settlements. Although publicly registered, LSWF is not listed on an exchange. Effective February 9, 2012, LSWF became a sub-fund of the GIS Fund by transferring LSWF’s policies to the GIS Fund in exchange for shares. The GIS Fund is now seeking additional capital to expand the size of that portfolio and take advantage of the buying opportunities for life settlements in today’s market.