• Filing Date: 2018-08-20
  • Form Type: 10-Q
  • Description: Quarterly report
v3.10.0.1
Fair Value Measurements (Tables)
6 Months Ended
Jun. 30, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Schedule of 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 June 30, 2018, are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Assets:
 
 
 
 
 
 
 
Investment in life settlements
$

 
$

 
$
569,373

 
$
569,373

 
$

 
$

 
$
569,373

 
$
569,373


The balances of the Company’s liabilities measured at fair value on a recurring basis as of June 30, 2018 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Fair Value
Liabilities:
 
 
 
 
 
 
 
White Eagle Revolving Credit Facility
$

 
$

 
$
353,387

 
$
353,387

 
$

 
$

 
$
353,387

 
$
353,387


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

Schedule of Quantitative Information about Level 3 Fair Value Measurements
The Company categorizes its investment in life settlement portfolio in two classes, non-premium financed and premium financed. In considering the categories, historically, it has generally believed that market participants would require a lower risk premium for policies that were non-premium financed, while a higher risk premium would be required for policies that were premium financed; the Company believes that this risk premium has been declining.
($ in thousands)
Quantitative Information about Level 3 Fair Value Measurements
 
 
Fair Value
at 6/30/18
 
Aggregate
death benefit
at 6/30/18
 
Valuation Technique
 
Unobservable Input 
 
Range
(Weighted Average)
Non-premium financed
$
99,349

 
$
299,719

 
Discounted cash flow
 
Discount rate
 
11.50%
-
17.50%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(5.2 years)
Premium financed
$
470,024

 
$
2,527,144

 
Discounted cash flow
 
Discount rate
 
15.50%
-
21.50%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.3 years)
Total Life settlements
$
569,373

 
$
2,826,863

 
Discounted cash flow
 
Discount rate
 
15.93%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.0 years)
White Eagle Revolving Credit Facility
$
353,387

 
$
2,814,863

 
Discounted cash flow
 
Discount rate
 
19.07%
 
 
 
 
 
 
 
Life expectancy evaluation
 
(8.0 years)
Schedule of 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
$
479,154

 
$
(90,219
)
-
$
569,373

 
$

-6
$
665,721

 
$
96,348

Schedule of 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 June 30, 2018:
Carrier
Percentage of
Total
Fair Value
 
Percentage of
Total Death
Benefit
 
Moody's
Rating
 
S&P
Rating
Transamerica Life Insurance Company
18.5
%
 
21.1
%
 
A1
 
AA-
Lincoln National Life Insurance Company
23.4
%
 
19.8
%
 
A1
 
AA-
Schedule of 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 six months ended June 30, 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
43,399

Payments on White Eagle Revolving Credit Facility
(5,656
)
Unrealized change in fair value
10,046

Transfers into level 3

Transfer out of level 3

Balance, June 30, 2017
$
304,874

Changes in fair value included in earnings for the period relating to liabilities at June 30, 2017
$
10,046

The following table provides a roll-forward in the changes in fair value for the six months ended June 30, 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
46,067

Payments on White Eagle Revolving Credit Facility
(19,543
)
Unrealized change in fair value
(2,377
)
Transfers into level 3

Transfer out of level 3

Balance, June 30, 2018
$
353,387

Changes in fair value included in earnings for period relating to liabilities held at June 30, 2018
$
(2,377
)

Schedule of 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 six months ended June 30, 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
28,922

Matured/sold policies
(43,073
)
Premiums paid
42,033

Transfers into level 3

Transfers out of level 3

Balance, June 30, 2017
$
526,282

Changes in fair value included in earnings for the period relating to assets held at June 30, 2017
$
9,730

The following table provides a roll-forward in the changes in fair value for the six months ended June 30, 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
10,920

Matured/lapsed/sold policies
(53,935
)
Premiums paid
44,896

Transfers into level 3

Transfer out of level 3

Balance, June 30, 2018
$
569,373

Changes in fair value included in earnings for the period relating to assets held at June 30, 2018
$
(20,728
)



Market Approach Valuation Technique  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Schedule of 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
15.43%
-0.50%

 
$
583,330

 
$
13,957

15.93%

 
$
569,373

 
$

16.43%
+0.50%

 
$
555,990

 
$
(13,383
)
Market Approach Valuation Technique | Revolving Credit Facility  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Schedule of 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
$
304,605

 
$
(48,782
)
 
$
353,387

 
$

-6
$
401,459

 
$
48,072

Schedule of 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 June 30, 2018 would be as follows (dollars in thousands):
Discount Rate
Rate Adjustment
 
Fair Value of White Eagle
Revolving Credit
Facility
 
Change in Value
18.57%
-0.50
 %
 
$
360,651

 
$
7,264

19.07%

 
$
353,387

 
$

19.57%
+0.50
 %
 
$
346,375

 
$
(7,012
)