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.
Unique perspective, significantly better, more effective price discovery.
We have taken a unique - and uniquely effective - approach to price discovery in this market, based on our experience as buyers, our prior capital markets experience and a resulting understanding of how institutional buyers view and price risk, not only in life settlements, but in other markets.
Importantly, we also believe that not only is there an elegance to simplicity, that reflects a comprehensive understanding of the real levers of value, but also enhanced transparency, efficiency, and expediency.
Do brokers not use the same approach because they are trapped by their need to convince sellers that their egregious commissions are defensible because what they purport to do is so complex and time consuming or do they just not have as sophisticated a view as we have?
We do not know which, but neither answer reflects well on their intentions or sophistication, and your clients pay a steep price. Literally.
The myth
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.
They Negotiate
There are no elements on which to negotiate a policy's value. The buyer is either compelled to pay their private max value or not.
Compelling Narrative
Buyers do not care what story anyone tells . It is purely a financial & risk calculation, no more, no less, and no story changes it.
They Increase Value
Open, multi round bidding not only wastes time, it incents and rewards bargain hunting and only reveals the max value by coincidence.
Unique Capital
There is no 'unique' capital in the market The universe of institutional buyers is finite and the universe of Providers is well known.
CASE STUDIES
$650,000 higher bid
$2,000,000 term | 61 yo impaired health male | $9B RIA
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 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 and therefore our high bidder would have had no reason to bid to $700,000, their true “private value."
$700,000
Winning Bid
$50,000
Second Highest
2
Bidders
14x
Multiple of what broker would have gotten
$750,000 higher bid
$5,000,000 term | 51 yo impaired health female | $25B RIA
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, 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).
$900,000
Winning Bid
$150,000
Second Highest
1
Bidders
6x
Multiple of what broker would have gotten
$350,000 higher bid
$1,500,000 term | 67 yo impaired health male | Insurance advisor
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, 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.
$475,000
Winning Bid
$125,000
Second Highest
3
Bidders
3.8x
Multiple of what broker would have gotten
$870,000 higher bid
$5,300,000 GUL | 85 yo healthy female | $9B 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 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, 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).
$2,948,000
Winning Bid
$2,078,000
Second Highest
3
Bidders
1.42x
Multiple of what broker got
$167,400 higher bid
$754,000 UL | 91 yo healthy female | Large national wirehouse
After learning of the wirehouse/IBD firm's approved life settlement broker informed the advisor of the $90,000 commission on a winning bid of $270,000 (he was intending to purchase an LTC policy for his widow client), he canceled the engagement and engaged us, on the recommendation of the asset management subsidiary of a large life insurance carrier.
The previous auction with the firm’s “approved” broker was not unacceptably expensive, it was also badly flawed, likely beyond the open auction process, as the bids in our process were universally higher than the winning winning bid of the first auction (and this winning bidder actually INCREASED their bid from $270,000 in the process that they had won to $375,000).
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, that bidder 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 the ultimate winner, which had not been engaged in the broker's auction.
$434,400
Winning Bid
$375,000
Second Highest
8
Bidders
1.61x
Multiple of what broker got
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 (or contracted) actuarial, bio-statistical, and medical staff, a proprietary view view of LE .
Price of Risks
Each buyer assesses and prices risks differently; concentration (insured and carrier), risk/cost of extension, of COI increase, etc.
Other Criteria
Policy size (too large, too small, too much on a single life), duration appetite, desire (or aversion to) for policy type, carrier, impairment, etc.