1908 Advisors | Higher Winning Bids

Reliably Higher Bids

Brokers employ a badly flawed "common value" auction which rarely identifies the policy's true maximum value. 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.

Our auction, on the other hand, is designed around how institutional capital actually values life insurance policies. We recognize and take advantage of the fact that each bidder's "private value" for the policy is different and independent of others' valuations 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.

״There are no secrets to success. It is the result of preparation, hard work, and learning from failure.״

~ Colin Powell

Negotiations

There are no elements on which to negotiate the value of a life insurance policy. The buyer is either compelled to pay their max value or not.

Proper Narrative

Buyers do not care what story anyone weaves about a policy. It is a purely financial & risk calculation.

3rd Party LEs

Institutional buyers do not use 3rd party LEs, instead using their own actuarial, medical, and bio-statistical staffs.

Access to Unique Capital

There is no 'unique' capital. The universe of institutional buyers is finite and the universe of Providers is well known.

Brokers' descriptions of what they do to drive the price in a life settlement are utterly fanciful and all part of an effort to create the perception of complexity and of having created value where it wouldn't have been discovered without their engagement.

None of them is true.

The multi-round, open "negotiations" not only unnecessarily prolong the process, often to ludicrous lengths, but they place no cost on bargain hunting. In fact, quite the opposite; they incent bargain hunting, virtually ensuring that the winning bidder will not have revealed their true maximum value in their bid, unless the second highest bidder coincidentally arrived at their maximum value and dropped out in the same round.

The Myth

None of them is true.

The Myth

Negotiations

There are no elements on which to negotiate the value of a life insurance policy. The buyer is either compelled to pay their max value or not.

Compelling Narrative

Buyers do not care what story anyone weaves about a policy. It is a purely financial & risk calculation, no more, no less.

Open, Multi Round Bidding

Open, multi round bidding not only wastes time, it incents and rewards bargain hunting and only reveals the max value by coincidence.

Access to Unique Capital

There is no 'unique' capital. The universe of institutional buyers is finite and the universe of Providers is well known.

While the analysis underlying the value of an in-force life insurance policy is complex and requires extensive domain expertise, the final calculation of the value is a simple DCF. Various risks are priced into an otherwise relatively simple IRR calculation, applying a discount rate to a projected stream of cash flows (premiums, death benefit) over a mortality curve. Some or all of these (possibly others) criteria are priced into an imputed face value/premium stream/discount rate calculation.

Different buyers often ascribe different values to each of these variables, which can result in wildly variable valuations of a given policy and the only way to compel buyers to bid as aggressively as their unique, "private value" dictates is our blind, best-and-final approach.

The Truth

Unlevered Target IRR

Each buyer has a fund-level target IRR, but it may vary for an individual policy, depending on other factors (e.g., risk, duration, carrier).

Proprietary View of LE

Each buyer establishes, through analysis by its own or contracted actuarial, bio-statistical, and medical staff, a proprietary view of LE.

Risks to Return

Buyers price risks uniquely (affecting purchase IRR); concentration (insured and carrier), risk/cost of extension, of COI increase, etc.

Other Binary Criteria

Policy size (too large, too small), duration appetite (or aversion), desire for (or lack thereof) policy type, carrier, impairment type, etc.

Case Studies

$2,000,000 term | 61 yo impaired health male | $7B RIA

$650,000 higher bid

In this case, the 61 year-old insured had a medical diagnosis 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 bidding, multi-round approach employed by brokers, there is no way to identify those outlier values.

In an open, "common value" broker auction, the winning bidder in our auction (B8) would have opened with a much lower bid (essentially, the ante) and seen only one other bidder (B7), also bidding a very low bid (ante). The second round, with incrementally higher bids, would have revealed that B7 had already hit their max and therefore would have had no reason to bid to $700,000, their true “private value”.

$5,000,000 term | 51 yo impaired health female | $14B RIA

$750,000 higher bid

The 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 (B8), 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.

$754,000 UL | 91 yo healthy female | Wirehouse

$167,400 higher bid

The previous auction with the firm’s “approved” broker was badly flawed, likely beyond the open auction process, as the bids in our process were universally higher than the winning winning bidder (B7 at $270,000 - which would have netted her only $180,000 vs. our net proceeds of $405,595) of the first auction.

B7 was aware that our auction also included a bidder, B8, 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, B7 increased its bid to its true private value, which was $105,000 higher than its winning bid in the first auction…and still lost the auction to B8, which had not been engaged in the broker's auction.

$5,300,000 GUL | 85 yo impaired health female | $7B RIA

$900,000 higher bid

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 three policies, totaling $5.3MM in death benefits. The managing member of the LLC, the daughter of the 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 whole experience to her wealth advisor, who is at a large 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 (as described here), 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).

While the analysis underlying the value of an in-force life insurance policy is complex and requires extensive domain expertise, the final calculation of the value is a simple DCF. Various risks are priced into an otherwise relatively simple IRR calculation, applying a discount rate to a projected stream of cash flows (premiums, death benefit) over a mortality curve. Some or all of the following (possibly others) criteria are priced into an imputed face value/premium stream/discount rate calculation.

Different buyers often ascribe different values to each of these variables, which can result in wildly variable valuation of a given policy and the only way to compel buyers to bid as aggressively as their unique, "private value" dictates is our blind, best-and-final approach.