Profile: Imperial Holdings Inc (IFT)
14 Mar 2014
Imperial Holdings, Inc. (Imperial) is a specialty finance company with a focus on providing premium financing for individual life insurance policies issued by insurance companies and purchasing structured settlements backed by annuities issued by insurance companies or their affiliates. In the Company's premium finance business it earns revenue from interest charged on loans, loan origination fees and agency fees from referring agents. In its structured settlement business, it purchases structured settlements at a discounted rate and sells such assets to, or finances such assets with, third parties. In October 2013, the Company announced that it has sold its Structured Settlements business operations. In October 2013, Majestic Opco LLC acquired Imperial Holdings Inc.
Premium Finance Business
A premium finance transaction is a transaction, in which a life insurance policyholder obtains a loan, through an irrevocable life insurance trust established by the insured, to pay insurance premiums for a fixed period of time, allowing a policyholder to maintain coverage under the policy without having to make premium payments during the term of the loan. It makes loans to borrowers in nine states with the insureds residing in any of the 50 states. Its premium finance loan is two years in duration and is collateralized by the underlying life insurance policy. It generates revenue from its premium finance business in the form of agency fees from referring agents, interest income and origination fees. During the year ended December 31, 2010, 87.6% of the Company’s revenue was generated from its premium finance segment. It generates revenue from its premium finance business in the form of agency fees from the referring insurance agent, interest income and origination fees
For each premium finance loan, Imperial Life and Annuity Services, LLC (Imperial Life and Annuity), a licensed insurance agency and the Company's wholly owned subsidiary, receives an agency fee from the referring insurance agent. Imperial Life and Annuity typically charges and receives agency fees from the referring agent within approximately 46 days of its funding the loan. During 2010, agency fees as a percentage of the principal balance of the loans originated was 48.8%. During2010, 15.1% of its revenue from premium finance segment was from agency fees.
The Company receives interest income, which accrues over the life of the loan and is due upon the date of maturity or upon repayment of the loan. The interest rates are floating rates, which are calculated at the one-month London interbank offered rate (LIBOR) rate plus an applicable margin. In addition, its premium finance loans have a floor interest rate. For loans with floating rates, each month the interest rate is recalculated to equal one-month LIBOR plus the applicable margin, and then, if necessary, adjusted so as to remain at or above the stated floor rate and at or below the capped rate of 16% per annum. During 2010, the weighted average per annum interest rate for premium finance loans outstanding was 11.4%. During 2010, 27.2% of its revenue from its premium finance segment was from interest income. It charges a loan origination fee on each premium finance loan it funds. The origination fee accrues over the term of the loan and is due upon the date of maturity or upon repayment of the loan. During 2010, origination fees as a percentage of the principal balance of the loans originated during such periods was 41.5%. During 2010, the per annum origination fee as a percentage of the principal balance of the loans originated was 22.7%. During2010, 29.6% of its revenue from its premium finance segment was from origination fees.
The Company is repaid principal, as well as its origination fees and interest income in three ways: the borrower or family member of the insured repays the loan upon maturity; the insured passes away prior to the loan maturity and the death benefit is used to repay the loan, with the remainder being paid to the borrower for the benefit of its beneficiaries; and upon default, it enters into an agreement with the borrower and the life insurance policy beneficiaries whereby they relinquish ownership of the life insurance policy and all interests therein to it in exchange for a release of the obligation to pay amounts due. Following relinquishment, if the loan is insured pursuant to lender protection insurance, then, subject to terms and conditions of the lender protection insurance policy, its lender protection insurer has the right to direct control or take beneficial ownership of the life insurance policy and it paid a claim equal to the insured value of the life insurance policy serving as collateral underlying the loan. Its servicing department administers all premium payments, loan satisfaction and policy relinquishment processes. They maintain contact with insureds, trustees and referring agents or brokers to obtain information on policy status. Its servicing department also updates the medical histories of insureds.
With respect to the administration of the policy relinquishment processes, the Company’s servicing department sends notices approximately 60 and 30 days prior to the loan maturity date alerting the borrower that the loan is maturing. In the event of a default, its servicing department sends an agreement to the borrower and its beneficiaries requesting, which they agree to relinquish ownership of the policy and all interests therein to it in exchange for a release of the obligation to pay amounts due. If the loan goes into default, it asks the borrower to liquidate the policy. To assist a borrower with its liquidation of a policy, it introduces the borrower to potential buyers, as well as to life settlement brokers. It receives no commission or fee for these introductions or any sale of the policy by the borrower. The liquidation proceeds are used to pay off its loan, including accrued interest and origination fees, and the balance is retained by the borrower.
The Company competes with CMS, Inc., Insurative Premium Finance Ltd., Madison One, Coventry First LLC, Life Partners Holdings, Inc. and ViaSource Funding Group, LLC.
Structured Settlements Business
Structured settlements refer to a contract between a plaintiff and defendant whereby the plaintiff agrees to settle a lawsuit in exchange for periodic payments over time. A defendant’s payment obligation with respect to a structured settlement is assumed by a casualty insurance company. This payment obligation is then satisfied by the casualty insurer through the purchase of an annuity from a insurance company, which provides a stream of payments to the plaintiff. Recipients of structured settlements are permitted to sell their deferred payment streams to a structured settlement purchaser pursuant to state statutes, which requires certain disclosures, notice to the obligors and state court approval. Through such sales, it purchases a range of fixed, scheduled future settlement payments on a discounted basis in exchange for a single lump sum payment, thereby serving the liquidity needs of structured settlement holders. Its underwriting group is responsible for reviewing all proposed purchases and performing an analysis of the associated documentation. It has also developed a nationwide network of law firms to represent it in the required court approval process for structured settlements.
During the year ended December 31, 2010, 12.4% of the Company’s revenue was generated from its structured settlement segment. Its revenue from structured settlements is earned from the sale of structured settlements, which it originates. When it sells assets, the revenue consists of the difference between the sale proceeds and its purchase price. During 2010, 95.2% of its revenue from its structured settlement segment was generated from the sale of structured settlements and mark-to-market adjustments and 3.5% was generated from interest income.
The Company competes with J.G. Wentworth & Company, Inc., Peachtree Settlement Funding, Encore Financial Services, Settlement Capital and Stone Street Capital.
Imperial Holdings Inc
Suite 301, 701 Park of Commerce
BOCA RATON FL 33487