Investment in Life Settlements

6 Months Ended

Jun. 30, 2011

Investment in Life Settlements

13. Investment in Life Settlements

During the third quarter of 2010, the Company formed Tiger Capital LLC (“Tiger”) with a subsidiary of ACAC for the purposes of acquiring certain life settlement contracts. A life settlement contract is a contract between the policy owner of a life insurance policy and a third-party investor who obtains the ownership and beneficiary rights of the underlying life insurance policy. Tiger also acquired premium finance loans made in connection with the borrower’s purchase of a life insurance policy that are secured by the policy. The premium finance loans are in default and Tiger is in the process of acquiring the underlying policies through the borrower’s agreement to surrender the policy in satisfaction of the loan or foreclosure. The Company and ACAC each have a fifty percent ownership interest in Tiger. Upon formation, the Company and ACAC each contributed approximately $6,000 to purchase a portfolio of life insurance policies and premium finance loans with a follow on contribution each of approximately $5,000 during the fourth quarter of 2010. Additionally, during the six months ended June 30, 2011 each party contributed approximately $12,500 to Tiger.  A third party serves as the administrator of the life settlement contract portfolio, for which it receives an annual fee.  Under the terms of the agreement, the third party administrator is eligible to receive a percentage of profits after certain time and performance thresholds have been met.  

 During the second quarter of 2011, the Company formed AMT Capital Holdings, LLC (“AMTCH”) with a subsidiary of ACAC for the purposes of acquiring additional life settlement contracts. The Company and ACAC each have a fifty percent ownership interest in AMTCH.

The Company provides for certain actuarial and finance functions related to Tiger and AMTCH.  Additionally, in conjunction with the Company’s 21.25% ownership percentage of ACAC, the Company ultimately receives 60.6% of the profits and losses of Tiger and AMTCH.  As such, in accordance with ASC 810-10, Consolidation, the Company has been deemed the primary beneficiary and, therefore, consolidates both entities.

 During the three and six months months ended June 30, 2011, Tiger and AMTCH acquired certain life insurance policies for approximately $12,663 and $23,643, respectively.  The Company accounts for investments in life settlements in accordance with ASC 325-30, Investments in Insurance Contracts, which states that an investor shall elect to account for its investments in life settlement contracts by using either the investment method or the fair value method.  The election is made on an instrument-by-instrument basis and is irrevocable.  The Company has elected to account for these policies using the fair value method.  The Company determines fair value on a discounted cash flow basis of anticipated death benefits, incorporating current life expectancy assumptions, premium payments, the credit exposure to the insurance company that issued the life settlement contracts and the rate of return that a buyer would require on the contracts as no comparable market pricing is available.  The Company recorded other income for the three and six months ended June 30, 2011 of approximately $22,638 and $41,524, respectively, related to the life insurance policies.  The Company’s investments in life settlements and cash value loans were approximately $116,028 as of June 30, 2011 and are included in Prepaid expenses and other assets on the Consolidated Balance Sheet.

 In addition to the 194 policies disclosed in the table below, the Company owns 82 premium finance loans, which are secured by life insurance policies and are carried at a value of $7,317. The face value amount of the related 194 life insurance policies and 82 premium finance loans is approximately $1,275,933 and $467,200, respectively. If policyholders default on these loans, the Company will become the beneficiary on the underlying life insurance policy, at which point the Company has the option to make premium payments on the policies or allow the policies to lapse. If the policyholders do not default on the loans, the Company will be repaid the amount of the premium finance loans.

 The following table describes the Company’s investment in life settlements as of June 30, 2011:

(Amounts in thousands, except Life Settlement Contracts)  Remaining life expectancy as of June 30, 2011	Number of Life Settlement Contracts		Fair Value		Face Value
0-1		—	$	—	$	—
1-2		—		—		—
2-3		—		—		—
3-4		1		6,355		10,000
4-5		3		8,848		20,000
Thereafter		190		93,507		1,245,933
Total		194	$	108,710	$	1,275,933

Premiums to be paid for each of the five succeeding fiscal years to keep the life insurance policies in force as of June 30, 2011, are as follows:

(Amounts in thousands)	Premiums Due on Life Settlement Contracts		Premiums Due on Premium Finance  Loans		Total
2011	$	17,322	$	2,706	$	20,028
2012		20,907		4,149		25,056
2013		22,647		4,311		26,958
2014		23,534		4,680		28,214
2015		24,949		5,030		29,979
Thereafter		497,466		170,114		667,580
Total	$	606,825	$	190,990	$	797,815