RELIABLY HIGHER WINNING BIDS
BY DESIGN AND NOT REPLICABLE
UNIQUELY ABLE TO FIND THE MARKET CLEARING VALUE
We are the first means for policy sellers (sellers' advisors) to access a universe of institutional buyers of in-force life insurance that capitalizes on market inefficiency and unique pricing models of buyers to deliver higher proceeds to sellers, not higher commissions for ourselves.
Brokers employ a badly flawed "common value" auction which rarely identifies the policy's true maximum value, but creates the perception of complexity to justify their otherwise indefensible commissions. They cite multi-round bidding as evidence of their work and winning bids that are higher than "opening" bids as evidence of "increased value" that they create, rather than acknowledge that the early rounds are simply an ante and that while all the losing bidders reach their max value, the winning bid is not likely the true private, max value of that bidder.
They actually reward bargain hunting, resulting in winning bidders only bidding their max value by coincidence that the second highest bidder reached their max bid in the same round.
Our approach, on the other hand, is responsive to how institutional capital actually values life insurance policies - based on our experience as buyers for seven years before we started this business in 2016. We recognize and take advantage of the fact that each bidder's "private value" for the policy is different and independent of others' valuations (small differences in any assumption in the underlying valuation model can have dramatic changes in purchase price) and that each bidder would prefer to bid to their true value than risk not getting the asset by bidding below that value, if someone might have a private value above that “bargain” bid.
Real Families, Real Results
Case Studies
$267,000 higher bid
$3,150,000 GUL | Winning Bid: $770,000
Broker Bid: $503,000 | Multiple: 1.53x
$245 billion RIA
Our client, the advisor (CFP) with a $245 billion AUM RIA, was referred to us by one of our life insurance partners. He approached us about a $3.15M policy owned by his client, a 75 year-old practicing physician (the owner and insured), who was going through a divorce that required a split of all of the marital assets. They had taken the policy to market with a life settlement broker just a few months earlier, but he and his client were not happy with the results of that process, which would have yielded $337,000, after the broker commission of about $170,000, so they declined to accept the high bid of $503,000.
We assessed that the policy was likely worth significantly more than $503,000, and, with our lower fee, we were confident that we could deliver significantly better results. As the market had already seen the case and reviewed the medical records, we moved immediately to our three-day auction and received multiple bids, including a winning bid of $770,000, which, after our 7.5% fee, yielded the seller $712,500, 2.1x the broker net of $337,000, after their 33% commission on the $503,000 winning bid.
$650,000 higher bid
$2,000,000 term | Winning Bid: $700,000
Second Highest Bid: $50,000 | Multiple: 14x
$10 billion RIA
The advisor reached out to us when the policy was still a term policy to see if a recent health diagnosis of his 61 year-old client would create value in the policy that, because of that diagnosis, the wife did not want to maintain (her emotional reaction was that she was waiting for a bad outcome for her beloved husband). We reviewed the conversion options and informed him that it was possible that the policy would have significant value in the market, but it would be difficult to quantify, because the diagnosis was complex with wildly varying perspectives as to impact on his LE, so, individual values of the policy - the private value - varied wildly, too.
In the open, "common value" broker auction, the winning bidder in our auction would have opened with a much lower bid (essentially, the ante) and seen only one other bidder, also bidding a very low bid (ante). The second round, with incrementally higher bids, would have revealed that the second-highest bidder had already hit their max of $50,000 and therefore our high bidder would have had no reason to bid to $700,000, their true “private value."
$750,000 higher bid
$5,000,000 term | Winning Bid: $900,000
Second Highest Bid: $150,000 | Multiple: 6x
$30 billion RIA
The 51 year-old female insured’s complex medical diagnosis resulted in different perspectives as to her life expectancy - while one buyer assessed a shorter LE, others assessed that she likely had a standard LE. If we had presented an LE report to the market, the single bidder, with deep actuarial expertise and well-regarded medical knowledge, would have known that others might be looking at an LE that was longer than the view it had, and would not likely have bid as aggressively as it did in our approach. Further, in the open bidding model, it would have opened with a lower bid and, seeing no other bids, would have had no reason to increase, as they would have recognized that there was no market demand.
The other existing bid was an initial indication from a direct buyer that advertises on TV to the policy seller before her advisor engaged us; that buyer declined to bid in the auction (for obvious reasons - it knew it would be explicitly exposed as having low-balled her).
$350,000 higher bid
$1,500,000 term | Winning Bid: $475,000
Second Highest Bid: $125,000 | Multiple: 3.8x
Life Insurance Agent (GA)
After the sale of the 67 year-old insured’s business, the policy was no longer necessary (it was part of a Buy/Sell agreement), but a recent diagnosis of a rare skin cancer potentially created value in the otherwise illiquid term policy. The policy was convertible at his initial underwriting health – super preferred – and we recommended to the advisor a UL policy that would likely have the greatest appeal in the market and assisted in reviewing the conversion options.
Upon conversion of the policy, we engaged the Providers in a two-week review of his policy and medical records and then conducted a one-week, blind, best-and-final auction, at the end of which there was a clear winner - bids ranged from $25,000 to $475,000, with a second highest bid of $125,000 - but seven providers that assessed his cancer as not having a significant (or measurable) impact on his life expectancy (he is a very physically active man), so declined to bid at all. In the broker approach of "negotiating" (open bidding), the winning bidder who valued it at $475,000 would only have been compelled to bid a bit more than $125,000 of the next highest bidder.
$870,000 higher bid
$5,300,000 GUL | Winning Bid: $2,948,000
Second Highest Bid: $2,078,00 | Multiple: 1.4x
$10 billon RIA
This case provides a unique opportunity to see the results of our auction and those of both a broker and a Provider-direct bid. The owning LLC, which was not a client of our client firm, had engaged a broker to sell the policy. The managing member of the LLC, the daughter of the 87 year old healthy female insured, received the results of the auction, which included the broker fee, confusingly described, but uncomfortably high, given the gross amounts, and called off the broker process.
She independently reached out to a single provider to see if they might be interested and then happened to mention the experience to her advisor, who is at an RIA with which we have an enterprise relationship and have helped advisors several times.
We can only guess what happened in the broker auction, but, as it went to a single Provider that claims to represent the universe of capital that our universe of competing Providers reaches, the Provider did not conduct a competitive auction OR it took a Provider fee of as much as $870,000 (or some combination of less effective and much higher undisclosed Provider fee).
$167,000 higher bid
$754,000 UL | Winning Bid: $437,400
Broker Bid: $270,000 | Multiple: 1.6x (2.25x net)
Large national wirehouse
After being informed of the wirehouse/IBD firm's approved life settlement broker taking a $90,000 commission on a winning bid of $270,000, the advisor canceled the engagement and reached out to us, on the recommendation of the asset management subsidiary of a large life insurance carrier.
The previous auction was not just unacceptably expensive, it was also badly flawed, as the the winning bidder in the broker auction actually INCREASED its bid from $270,000 in the process that they had won to $375,000 in ours; the second highest bid - behind a winning bid of $437,400 (net of $404,595 after our fee, 2.25x the broker net of $180,000).
That bidder was aware that our auction included a bidder that was not engaged in the first (that bidder, a major institutional buyer, informed us that they had not seen the policy) and that there was a risk that that new bidder would bid higher than the second highest in the first auction that they had to beat to win the auction. So, it increased its bid to its true private value of $375,000, $105,000 higher than its winning bid in the first auction.
