• Filing Date: 2018-05-10
  • Form Type: 10-Q
  • Description: Quarterly report
v3.8.0.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Assets and Liabilities Measured at Fair Value on Recurring Basis
The balances of the Company’s assets measured at fair value on a recurring basis as of March 31, 2018, are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Assets:
 
 
 
 
 
 
 
Investment in life settlements
$

 
$

 
$
567,628

 
$
567,628

 
$

 
$

 
$
567,628

 
$
567,628


The balances of the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2018 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Liabilities:
 
 
 
 
 
 
 
White Eagle Revolving Credit Facility
$

 
$

 
$
347,860

 
$
347,860

 
$

 
$

 
$
347,860

 
$
347,860


The balances of the Company’s assets measured at fair value on a recurring basis as of December 31, 2017, are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
Assets:
 
 
 
 
 
 
 
Investment in life settlements
$

 
$

 
$
567,492

 
$
567,492

 
$

 
$

 
$
567,492

 
$
567,492


The balances of the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2017, are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total Fair
Value
Liabilities:
 
 
 
 
 
 
 
White Eagle Revolving Credit Facility
$

 
$

 
$
329,240

 
$
329,240

 
$

 
$

 
$
329,240

 
$
329,240

Quantitative Information about Level 3 Fair Value Measurements
($ in thousands)
Quantitative Information about Level 3 Fair Value Measurements
 
 
Fair Value
at 3/31/18
 
Aggregate
death benefit
at 3/31/18
 
Valuation Technique
 
Unobservable Input 
 
Range
(Weighted Average)
Non-premium financed
$
100,678

 
$
301,963

 
Discounted cash flow
 
Discount rate
 
14.50%
-
17.50%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(5.2 years)
Premium financed
$
466,950

 
$
2,550,840

 
Discounted cash flow
 
Discount rate
 
15.50%
-
21.00%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.5 years)
Total Life settlements
$
567,628

 
$
2,852,803

 
Discounted cash flow
 
Discount rate
 
15.99%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.1 years)
White Eagle Revolving Credit Facility
$
347,860

 
$
2,840,803

 
Discounted cash flow
 
Discount rate
 
18.91%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.1 years)
Changes in Estimated Fair Value, If All of Insured Lives in Company's Life Settlement Portfolio Live Six Months Shorter or Longer Than Life Expectancies Provided by Third Parties
If all of the insured lives in the Company’s life settlement portfolio lived six months shorter or longer than the life expectancies provided by these third parties, the change in estimated fair value would be as follows (dollars in thousands):

Life Expectancy Months Adjustment
Value
 
Change in Value
+6
$
477,884

 
$
(89,744
)
-
$
567,628

 
$

-6
$
662,728

 
$
95,100

Life Insurance Issuer Concentrations
The following table provides information about the life insurance issuer concentrations that exceed 10% of total death benefit and 10% of total fair value of the Company’s life settlements as of March 31, 2018:
Carrier
Percentage of
Total
Fair Value
 
Percentage of
Total Death
Benefit
 
Moody's
Rating
 
S&P
Rating
Transamerica Life Insurance Company
18.3
%
 
21.0
%
 
A1
 
AA-
Lincoln National Life Insurance Company
22.5
%
 
19.6
%
 
A1
 
AA-
Changes in Fair Value for All Liabilities Using Material Level of Unobservable (Level 3) Inputs
The following table provides a roll-forward in the changes in fair value for the three months ended March 31, 2018, for the White Eagle Revolving Credit Facility for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):
White Eagle Revolving Credit Facility:
 
Balance, January 1, 2018
$
329,240

Draws under the White Eagle Revolving Credit Facility
22,772

Payments on White Eagle Revolving Credit Facility
(1,763
)
Unrealized change in fair value
(2,389
)
Transfers into level 3

Transfer out of level 3

Balance, March 31, 2018
$
347,860

Changes in fair value included in earnings for period relating to liabilities held at March 31, 2018
$
(2,389
)

The following table provides a roll-forward in the changes in fair value for the three months ended March 31, 2017, for the White Eagle Revolving Credit Facility for which the Company determines fair value using a material level of unobservable (Level 3) inputs (in thousands):
White Eagle Revolving Credit Facility:
 
Balance, January 1, 2017
257,085

Draws under the White Eagle Revolving Credit Facility
21,284

Payments on White Eagle Revolving Credit Facility

Unrealized change in fair value
11,831

Transfers into level 3

Transfer out of level 3

Balance, March 31, 2017
$
290,200

Changes in fair value included in earnings for the period relating to liabilities at March 31, 2017
$
11,831

Changes in Fair Value for All Assets Using Material Level of Unobservable (Level 3) Inputs
The following table provides a roll-forward in the changes in fair value for the three months ended March 31, 2017, for all assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs, which consists solely of life settlements (in thousands):
Life Settlements:
 
Balance, January 1, 2017
498,400

Purchase of policies

Change in fair value
25,540

Matured/sold policies
(37,850
)
Premiums paid
20,582

Transfers into level 3

Transfers out of level 3

Balance, March 31, 2017
$
506,672

Changes in fair value included in earnings for the period relating to assets held at March 31, 2017
$
9,152

The following table provides a roll-forward in the changes in fair value for the three months ended March 31, 2018, for all life settlement assets for which the Company determines fair value using a material level of unobservable (Level 3) inputs, which consists solely of life settlements (in thousands):
Life Settlements:
 
Balance, January 1, 2018
$
567,492

Purchase of policies

Change in fair value
5,444

Matured/lapsed/sold policies
(27,700
)
Premiums paid
22,392

Transfers into level 3

Transfer out of level 3

Balance, March 31, 2018
$
567,628

Changes in fair value included in earnings for the period relating to assets held at March 31, 2018
$
(11,829
)
Market Approach Valuation Technique  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Market Interest Rate Sensitivity Analysis
If the weighted average discount rate was increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in estimated fair value would be as follows (dollars in thousands):

Weighted Average Rate Calculated Based on
 
 
 
 
 
Death Benefit
Rate Adjustment
 
Value
 
Change in Value
15.49%
-0.50%

 
$
581,598

 
$
13,970

15.99%

 
$
567,628

 
$

16.49%
+0.50%

 
$
554,229

 
$
(13,399
)
Market Approach Valuation Technique | Revolving Credit Facility  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Changes in Estimated Fair Value, If All of Insured Lives in Company's Life Settlement Portfolio Live Six Months Shorter or Longer Than Life Expectancies Provided by Third Parties
If all of the insured lives in the life settlement portfolio pledged under the White Eagle Revolving Credit Facility live six months shorter or longer than the life expectancies used to calculate the estimated fair value of the White Eagle Revolving Credit Facility debt, the change in estimated fair value would be as follows (dollars in thousands):
Life Expectancy Months Adjustment
Fair Value of White Eagle
Revolving Credit
Facility
 
Change in Value
+6
$
301,627

 
$
(46,233
)
 
$
347,860

 
$

-6
$
396,207

 
$
48,347

Market Interest Rate Sensitivity Analysis
If the weighted average discount rate were increased or decreased by 1/2 of 1% and the other assumptions used to estimate fair value remained the same, the change in estimated fair value of the White Eagle Revolving Credit Facility as of March 31, 2018 would be as follows (dollars in thousands):
Discount Rate
Rate Adjustment
 
Fair Value of White Eagle
Revolving Credit
Facility
 
Change in Value
18.41%
-0.50
 %
 
$
355,206

 
$
7,346

18.91%

 
$
347,860

 
$

19.41%
+0.50
 %
 
$
340,775

 
$
(7,085
)