HE IFE Ettlements Eport: Sample

THE LIFE SETTLEMENTS REPORT
NEWS, INFORMATION, & ANALYSIS OF THE SECONDARY MARKET FOR LIFE INSURANCE
http://lifesettlements.dealflow.com
lifesettlements.dealflow.com
Volume V, No. 7
FORTRESS MAY SNAG TWO

MORE DISTRESSED PORTFOLIOS
IN THIS ISSUE
TOP STORIES
Fortress may snag two more distressed portfolios.
New Yorks term conversion opinion
creates stability for the industry.
Interest rates may have doomed the
AIG securitization ..........................2
New Stream may be forced to re-run
its auction.......................................3
NEWS IN BRIEF
by Donna Horowitz
Fortress Investment Group shocked
the life settlement market when it snatched
the $6.2 billion KBC Financial Products
portfolio out from under Apollo Global
Management last October for just more
than $330 million, making what is considered the single biggest purchase of a
distressed portfolio so far.
Now, it looks as if the New York-based
global investment manager with $44.6 billion in assets under management could snag
the $1.36 billion HM Ruby Fund portfolio
and the $500 million SageCrest portfolio.
Fortress, which is said to be flush with
$700 million in cash that it raised in November, is under a deadline to spend the money
and thus has put out the word that its looking for more life settlement portfolios, a
person with knowledge of the matter said.
Fortress has a ton of money. They
may be forced to return it to investors, a
person who asked not to be named said. I
The Life Settlements Report tracks proposals to regulate life settlements through
state legislatures across the country ... 10
LIFE SETTLEMENTS
VS. HEDGE FUNDS
120
110
AAP Life
Settlement Index
100
CSFB Tremont
Investable Index
90
80
70
think its [the deadline to spend the money]

coming up pretty quickly. I know a lot of
people are trying to show them portfolios.
But another person close to the situation disagreed.
The company is absolutely under no
pressure to rapidly deploy investment
capital and is always a disciplined, opportunistic investor, the person said.
Gordon Runt, a spokesman for Fortress, and Doug Cardoni, managing director at the firm, declined to comment.
Even if the HM Ruby portfolio ends up
with Fortress, it wouldnt be put in the existing Fortress life settlement fund due to
potential conflicts of interest, a person said.
As of Dec. 31, the firm had invested $230
million in capital in its life settlements fund,
according to a filing with the Securities and
Exchange Commission. The firm also has
life settlement investments in other funds.
Market players say purchases of
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A study found life settlement funds outperform other investments; FSA fined
N&P $2.3M over its Keydata advice; a
Delaware court will address the insurable-interest issue; Life Partners is facing new class action lawsuits; a Massachusetts committee took no action
on a bill; a judge recused himself from
the Life Partners case; the EEA Fund is
available in South Africa; Vespera and
Eagil got Florida provider licenses; Vida
Capital and Silver Point joined ILMA;
the SEC suspended trading of MaxLife;
13 candidates are vying for the LISA
board; Aspinwall is heading an index
committee; and hirings & firings ......... 4
LEGISLATIVE UPDATE
April 21, 2011
Through February 2011

M A M J J A S O N D J F
2010
2011
Source: AA-Partners; Indexes at 100 in December 2006.
Continued on page 13
NEW YORK TERM CONVERSION

OPINION CREATES STABILITY
by Daniel C. Smith
An opinion by New York insurance regulators directing John Hancock to convert an $11 million term policy to permanent coverage will
likely set a precedent for other states and could impact a California lawsuit
against the life insurance company.
I think its probably the [markets] most significant regulatory opinion,
said Nat Shapo, an attorney with Katten Muchin Rosenman in Chicago
who represented the policyholder in the case. Shapo grouped the decision
with First Penn v. Evans in 2009 and Kramer v. Lockwood Pension Services
last year as the three leading indicators of the strength of the market.
It certainly tilts the table toward the life settlement industry, said
Nick Williams, a New York-based insurance attorney with the law firm of
Clifford Chance. Put together with the Kramer case and other favorable
Continued on page 11
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LSR
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Editor & Publisher Brett Goetschius

Managing Editor
Adam Steinhauer
Assistant
Managing Editor
Meghan Leerskov
Senior Editors
Donna Horowitz
Dan Lonkevich
Associate Editors
Maria Brosnan Liebel

Bill Meagher
Kirk ONeil
Joshua Sisco
Contributing
Editors
Teri Buhl
Reg Crowder
Daniel C. Smith
The Standard & Poors securitization of the American International

Group life settlements portfolio that
fell apart at the end of last month may
have encountered difficulties a few
weeks before over investor unhappiness with the 6.5% interest rate on
the offering, a source familiar with the
transaction said.
Market players previously told The
Life Settlements Report that the deal to
securitize the AIG pool with $4.5 billion in death benefits fell through at the
last minute because the rating agencys
president, Deven Sharma, did not want
to be associated with the asset class.
But a prominent market player
heard from four investors, three of
them sizeable, that the thing was on its
last legs because the interest rate was
too low for the risk even before S&P
backed out of the deal.
The investors believed the interest
rate should have been more like 8% to
10%, the market player said.
Trouble was afoot for a few weeks
[prior to the pullout by S&P. Barclays
Capital] started sending signals they
would delay. They couldnt find subscribers, the person said.
The Limestone Securitization offered
by Chartis, the property and casualty
arm of AIG, was seeking investors for
$250 million in asset-backed senior
notes. The pool contained 1,157 policies on 929 insureds.
Chartis expected to get an S&P
rating of A- on $750 million of senior
notes in one tranche and a BBB- rating
on $150 million in junior notes on the
second tranche, according to Barclays
March presentation of the deal obtained
by The Life Settlements Report.
Brandon Ashcraft, a spokesman
for Barclays in New York, declined to
comment.
A person close to the deal disagreed
that investors were dissatisfied with the

6.5% interest rate on the notes and that
the deal was going nowhere because
of that.
The person said there were strong
indications of interest and a sense of
confidence that the deal would have
priced at or near the 6.5% level.
The deal was proceeding as originally envisioned, the person said. The
deal was to be announced and priced
the last week of March.
A previous AIG securitization on a
portfolio with $8.4 billion in death benefits, known as Fieldstone Securitization
I, offered interest rates of 8.5% on junior
notes and 5.85% on senior notes, according to a filing with the Securities and Exchange Commission by National Union
Fire Insurance Co. of Pittsburgh, which
bought the notes from AIU Holdings, as
the property and casualty affiliate of AIG
was previously called.
The AIG unit acquired junior and
senior notes of $235,000 and $1.56 million, respectively, on Jan. 30, 2009, the
filing said. A.M. Best gave the top two
ratings of the National Association of Insurance Commissioners (NAIC) Securities
Valuation Office: SVO1 went to the senior
notes and SVO2 to the junior notes.
In what it described as a self-rated
transaction, National Union Fire on
Feb. 12, 2010, also acquired junior and
senior notes of $210,000 and $474,000,
respectively, from Fieldstone Securitization II. The interest rates were 11%
and 7.75%, respectively, according to
an SEC filing.
Meanwhile, a copy of the Chartis Limestone Securitization packet by
Barclays shed new details on the failed
transaction and Chartis itself.
In addition to senior notes yielding
a 6.5% interest rate, the junior notes
would have yielded 10.4% in interest,
the report said.
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Production Editor Gary Newman

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& Events
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AIG SECURITIZATION FAILING

BEFORE S&P PULLED PLUG?
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April 21, 2011

LSR
News
The portfolio offered diversified

exposure by insurance company, age,
medical diagnosis and net death exposure of the underlying insured, the
document said. It included pie charts
breaking out percentage of exposure in
each category.
In addition to offering structural
enhancements to protect against legal
risks such as insurable interest, AIG
also would have advanced the death
benefit to the issuer if it wasnt received
from the carrier within 180 days of notification of death of the insured.
The presentation document said
Chartis is one of the largest, long-term
investors in the market with more than
nine years of continuous experience. In
that time, it had accumulated more than
$18 billion in death benefits through
December.
Since it began buying policies in

October 2001, Chartiss risk finance
group had acquired about 6,600 policies on about 5,400 insureds.
The document further said that the
risk finance group has about 33 fulltime professionals working on life settlements, including senior managers,
life actuaries, systems and information
management employees, pricing underwriters, medical underwriters, accountants and legal professionals.
Of this total, the unit has 15 medical
underwriters who analyze each policy
purchase. In addition, the risk finance
group obtains a life expectancy estimate from a third-party underwriter.
The group has had a relationship
with provider Coventry First since
2001, the sole originator and servicer of
its policies, the presentation said. If the
securitization had gone through, Coventry would have acted as the servicer
and backup collateral manager.
Of a total of 6,600 policies on 5,400
insureds Chartis had obtained, there
have been maturities on 698 policies involving 621 lives. Chartis has collected
$1 billion in death benefits.
Of the $18.4 billion in net benefits
acquired, Chartis only has faced disputes on 22 policies involving 16 lives
and $129 million in net death benefits,
the document said. Of the 22 disputes,
12 remain unresolved. None of the
disputed policies were included in
the Limestone portfolio, the document
said.
Chartis has had an actual-toexpected accuracy ratio for its policies
of 80.6% for men and 91.6% for women,
according to the presentation. DH
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NEW STREAM MAY BE FORCED

TO RE-RUN AUCTION
by Teri Buhl
Bankrupt New Stream Capital

could be forced to place its life settlements portfolio up for auction for a
second time.
The Ridgefield, Conn.-based firm
is battling with some of its investors,
in U.S. Bankruptcy Court in Wilmington, Del., over how its assets should be
disposed.
Investors objecting to New Streams
pre-packaged Chapter 11 filing now
have support from a court-appointed
committee of unsecured creditors. It
told the court earlier this month that
a competitive auction for the portfolio
should take place before the court approves a sale that New Stream had previously agreed to with MIO Partners,
the investment arm of consulting firm
McKinsey & Co. In July, New Stream
agreed to sell the assets to MIO, an investor in the fund, for $127.5 million
and secured bridge financing from MIO

to cover the premiums until the sale
was approved.
The unsecured creditors committee questioned if New Stream had
breached its fiduciary duties to all creditors by only allowing an eight-day auction before agreeing to the sale to MIO.
Sale documents filed with the court
show that MIO stands to receive a 3%
break-up fee if the sale isnt completed.
The sale was brokered by Guggenheim Securities.
The unsecured creditors committee
voiced concern about the price New
Streams estate will receive for the portfolio, and also about the structure and
amount of the debtor-in-possession financing MIO is providing. The committee asked the court to deny approval of
the financing until it can seek alternative financing.
3
Court documents show that $40

million in debt from before the bankruptcy filing is included in the structuring of the DIP loan. Some of this debt
includes premium payments MIO was
making for New Stream after agreeing
to buy its life settlement portfolio last
summer.
Permitting this roll-up for which the
Debtors have offered no valid justification will do nothing to benefit the Debtors estates and will have a significant
chilling effect on any effort to refinance
the DIP, the unsecured creditors committee said in a court filing. The issue
of repaying the MIO entities on account
of their pre-petition claims should be
separated from the sale process.
Judge Mary Walrath ruled last week
that New Stream could use only $7.6
million of the DIP financing until she
rules on its validity.
April 21, 2011
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is also challenging a proposal that New
Stream has made to provide a priority lien on the DIP financing to claims
from investors in New Streams Bermuda-domiciled feeder fund.
Last summer, Swiss-based fund
manager Gottex won receivership of
the Bermuda feeder fund in a Bermuda
court. Court filings show that Gottex
has more than $200 million invested in
the feeder fund.
Since then, New Stream has offered
the court-appointed Bermuda receivers all available cash in the fund and
agreed to pay around $3 million in receiver fees.
filed a motion to stop fees from being
paid to the Bermuda receivers from
cash of the bankruptcy estate. The unsecured creditors claim that the fees are
not secured and were not approved by
a majority of New Streams creditors.
New Streams pre-packaged bankruptcy plan had stated that a majority
of investors had approved the DIP financing and the fees.
The firm has delayed its request to
the court to approve the pre-packaged
plan. Lawyers for investors in New
Streams U.S. and Cayman Islands-domiciled feeder funds say they expect
the plan to be withdrawn.
Meanwhile, a separate involuntary
Chapter 11 bankruptcy petition against
New Stream that was brought by the
U.S. and Cayman investors is moving
forward.
The disgruntled investors, with
around $90 million in the hedge fund,
were granted access to documents
showing how the funds were used to
buy life settlement assets and depositions of New Stream managers that
marketed the fund to investors.
The U.S. and Cayman investors
argue in court documents that these
managers solicited millions in additional funds in 2007 by promising a restructuring of the fund that would have
given all investors equal claims to the

funds.
Testimony in the Bermuda court
case showed that Gottex, the largest investor in the fund, never approved the
restructuring.
U.S. investors have filed claims of
unjust enrichment and inequitable
subordination by the Bermuda investors and asked the court to determine
if their actions to secure senior claims
were legal.
Bermuda-based receivers John McKenna, Michael Morrison and Charles
Thresh of KPMG filed motions with the
court arguing that the Bermuda receivers hold the true economic interest in
New Streams bankruptcy estates. The
receivers state that Bermuda investors
are entitled to be paid in full before any
distributions are made to the U.S. and
Cayman feeder fund.
The receivers also warned the court
last Friday that the value of the remaining assets in the funds wont even
cover the full claims of the Bermuda
investors, potentially leaving the U.S.,
and Cayman investors with nothing.
A court filing shows that the Bermuda
senior secured creditors in New Stream
Secured Capital Fund Limited are owed
a total of $369 million. After the life settlement assets are sold for $125 million,
the Bermuda investors would still be
owed $141 million.
was a barrier to gathering enough data

to draw reliable conclusions, they said.
However, the researchers said
the number of open-end life settlement funds has grown in recent years,
making it possible to analyze return
distributions, a general performance
measurement, and a comparison to established asset classes.
The paper said that there are about
a half dozen new open-end funds currently being prepared to launch as well.
Between December 2003 and June
2010, the study said life settlement
funds produced a 37.3% return, only
coming in behind hedge funds tracked
by the HFRI Fund Weighted Composite Index, which generated 45.9%, and
government bonds as measured by the
FTSE U.S. Government Bond Index,
which returned 37.38%.
Over that period, life settlement
funds beat the Dow Jones Corporate
Bond Index, which generated a 2%
return, Standard & Poors Case-Shiller
Home Price Index, which lost 0.84%,
the S&P Listed Private Equity Index,
which lost 1.9%, the S&P 500, which
lost 2.6%, and the commodity index
S&P GSCI, which lost 4.97%.
The study obtained performance
data from advisory firm AA-Partners
of Zurich, Switzerland, which compiles
the AAP Life Settlement Index. The university assigned code numbers to the
17 individual funds to keep their identities confidential in the research paper.
Beat Hess, managing partner of AAPartners, said his firm provided all of
the data it had available to the researchers, but the fear of lawsuits from life
settlement funds that didnt want attention called to their performance created
problems.
One-third of the funds were not
happy to be in the index, he said. The
rest of the funds were quite happy to
be in the index.
The performance data on the funds
in the index is calculated by an independent company, Structured Solutions
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Study Finds Life Settlement

Funds Outperform Other Assets
Open-end life settlement funds in
recent years have on average delivered
investors higher returns than a range
of more traditional investments, according to a study by the University of St.
Gallen in Switzerland.
The March 2011 study, Performance and Risks of Open-End Life
Settlement Funds, is the first analysis
of such investment vehicles, according
to its authors. In the past, the overthe-counter nature of the investments
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AG of Frankfurt, Germany, Hess said.

Of the 17 funds analyzed in the
study, the oldest fund was launched in
December 2003 and the newest fund
came to the market in 2008.
The fee structures vary, but on average these funds charged a management fee of 2% and a performance fee
of about 20%. Most accept subscriptions
and redemptions on a monthly basis.
Several of the funds impose redemption
gates and lock-up periods of six months
to three years on their investors.
The funds held between eight and
567 policies. The sum of face value
ranged from $20 million to $2.37
billion.
The authors of the study are Alexander Braun, a researcher at the University of St. Gallen Institute of Insurance
Economics, and Nadine Gatzert, chair
for insurance economics at the University of Erlangen-Nurnberg, Germany.
Hato Schmeiser, chair for risk management and insurance at the University of
St. Gallen, edited the paper.
The report cautioned that investors
should engage in extensive due diligence before investing in any specific
fund. It suggested a close look at valuation methodology, cash management,
asset pipelines and the identities and
track records of the business partners
involved in the fund.
Nonetheless, our results also illustrated that within reasonable limits
life settlements certainly provide a
suitable means for diversification as
they seem to be genuinely uncorrelated
with the broader capital markets, the
paper said.
It is a useful contribution to the literature, said Dr. David Blake, director of the pensions institute at the City
University London and co-founder of
the J.P. Morgan LifeMetrix Index, which
provides mortality rates and life expectancies for populations in the U.S. and
several European countries.
However, he questioned what portion of the market the 17 funds actually
account for. The original data set represents a very small segment of the
total market, Blake said. We do not
know how representative it is.
Hess said the data largely covers the
market.
Schmeiser, who edited the paper,
said that although the approach to
investing followed by open-end life
settlement funds is quite sound, the individual funds are highly vulnerable to
liquidity issues.
Life settlements are an inherently
illiquid asset, he said.
Investors should make their own assessment of whether a fund has made
adequate provision for accessing capital if confronted with unusual liquidity
stress, said Schmeiser.
The March paper is the universitys
second attempt at coming up with an
analysis that satisfied academic experts
in the field, he said. A 2009 paper on
the subject was met with reservations
about the data and methodology by the
referees who evaluated it for publication in an academic journal, according
to Schmeiser. The authors accepted
those criticisms and went back to work,
he said.
The latest paper has been accepted
for publication by The Journal of Risk
and Insurance, a publication of the
American Risk and Insurance Association. It is expected to be published in
several weeks.
The Building Society will be required to pay the fine in addition to

the voluntary payments it has already
agreed to make to customers who lost
money in the collapse of the Keydata
investments and to reimburse the Financial Services Compensation Scheme
(FSCS) for payments it has made to
Keydata victims.
The FSA said N&P is obligated to
pay 51 million to compensate Keydata
victims. The Building Society had previously set aside 57 million to cover
its obligations in connection with the
Keydata sales.
Over a period of three years, N&P
recommended Keydatas life settlement
products to 3,200 of its customers who
went on to invest in them, the FSA said
in a statement. The Building Society
designated these customers as having
a higher tolerance of risk than was appropriate, the FSA said.
The FSA said the fact that the Keydata products were unsuited to many
of the Building Societys clients was
discovered by N&P itself in June 2007.
Their compliance team produced a
report setting out concerns about the
suitability of advice given to customers, the FSA said. No effective action
was taken and Keydata sales remained
consistently high.
In the first three months of 2007,
Keydata products accounted for 30%
of all investment products sold by the
Building Society, the FSA said.
N&P failed in its basic duty to provide suitable advice to its customers,
despite an internal compliance report
pointing out that there were problems
as early as 2007, said Tracy McDermott, the FSAs acting director of enforcement and financial crime. Firms
cannot treat customers fairly unless
they pay attention to their financial circumstances and attitude to risk when
they make recommendations. This is
the only way to prevent widespread
mis-selling like this.
N&P said in a statement that it has
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FSA Fines N&P $2.3M

Over Keydata Advice
The Financial Services Authority in
the U.K. imposed a 1.4 million ($2.27
million) fine on the Norwich & Peterborough Building Society for
giving its customers bad advice when
it sold them life settlement investments
marketed by Keydata Investment
Services.
Two Luxembourg-domiciled special
purposes vehicles, Lifemark SA and
SLS Capital, backed the investment
products.
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April 21, 2011

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been open and cooperative with the

FSA and maintained a full dialogue
with the Financial Ombudsman Service which is handling some complaints relating to the Keydata collapse.
The Building Society has agreed
with the FSA to commission an independent review of non-Keydata investments previously sold by its Financial
Advice Services. The authority said
N&P has agreed that if other cases
of customers being given unsuitable
advice are discovered, the society will
pay redress where appropriate.
Jule Rousseau, an attorney with

the law firm Arent Fox in New York,
said this will be an important decision.
He said in an email that providers and
tertiary market participants will have
greater confidence in the value of a
policy if it cant be challenged after it
is settled.
New Class Action Lawsuits

Filed Against Life Partners
The latest class action lawsuit filed
in federal court against Life Partners
and its top executives claims that two
investors who purchased portfolios of
life settlements from the Waco, Texas,
provider were damaged by false and
misleading statements.
Bryan Springston and James Connell
sued April 14 in U.S. District Court in
Del Rio, Texas.
They claimed that projections by the
providers life expectancy physicianunderwriter, Dr. Donald Cassidy of
Reno, Nev., were inaccurate. Citing stories in The Life Settlements Report and
The Wall Street Journal, the suit said as
investors now know, Cassidys analyses
were severely flawed and completely
unreliable.
The lawsuit said Life Partners derives its operating revenues from fees.
The company is able to charge
higher fees for life settlements with
shorter durations. Thus, the company
has an interest in increasing the volume
of life settlement investments and
shortening the expected duration of a
policy, the suit said.
The suit said common issues for
members of the class include whether Life Partners defendants breached
their fiduciary duties, misrepresented
or omitted material facts, whether the
defendants were unjustly enriched,
whether the defendants violated Texas
securities law, as well as the damage
sustained by class members.
The law firms handling the case are
Barroway Topaz Kessler Meltzer &
Check in Radnor, Pa., and Nelson,
Roselius, Terry & Morton of Oklahoma City.

In another class action lawsuit
against Life Partners, the provider is accused of paying excessive premiums to
insurers to keep policies in force.
The suit, filed April 8 in district court
in Ellis County, Texas, said the investor, John Willingham, never agreed to
simply give extra money to the insurer
that would provide no added benefit
to him.
Willingham, a resident of Ellis
County, purchased fractional interests
in several policies between 2006 and
2008 ranging from a 0.33% interest in
one policy to 23.33% interest in another
policy, the suit said.
Willingham said that Life Partners
failed to take steps to ensure that he
was only paying the amount necessary
to maintain the policies.
Participants in the life settlement industry normally optimize premiums or
pay the least amount possible to keep
policies in force.
After news reports surfaced of a Securities and Exchange Commission investigation of the firm and alleged short
life expectancies provided by Cassidy,
the provider changed its business practices in January and began optimizing
premiums.
Under its new 7 X 7 program,
investors wont be responsible for
premium calls on a policy with a fiveyear life expectancy until after seven
years.
The suit accuses Life Partners of
breaching its fiduciary duty and breaching its contract by allowing the excessive premium payments.
The Heygood, Orr & Pearson law
firm of Dallas seeks class action status
for Texas residents who bought interests in the policies from Life Partners.
Yet another class action lawsuit was
filed April 4 on behalf of investors in
Life Partners policies. The federal court
case in California alleges breach of fiduciary duty and breach of contract, as
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Delaware Court to Address

Insurable Interest Issue
The Delaware Supreme Court

agreed last Thursday to answer several
questions, including whether a policys
insurable interest can be challenged
after the two-year contestability period
expires.
The issues were brought to the Supreme Court by the U.S. District Court
in Wilmington, Del. The lawsuit was
filed by PHL Variable Insurance Co.
against the Price Dawe 2006 Insurance
Trust, its trustee, Christiana Bank and
Trust Co. and the Price Dawe Irrevocable Insurance Trust and its trustee,
Christopher Hammatt.
One question, similar to that addressed in New York in the Arthur
Kramer case, asks whether the states
law prohibits an insured from immediately transferring a policy on his or her
own life to someone without insurable
interest.
Steven Sklaver, an attorney with
the Susman Godfrey law firm in Los
Angeles, said this case is broader than
what was addressed in Kramer because
the federal court also asked Delawares
highest court whether a life insurance
company can contest a policy lacking insurable interest two years after
issuance.
The Caruso case in New York
prohibits such challenges after
contestability.
April 21, 2011

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well as violation of the states business

and professions code.
Most cases against the provider have
been filed on behalf of the firms shareholders, but the plaintiffs in this case
and several others are investors who
bought fractional interests in policies
sold by the provider. This case, like the
others, cites the allegedly inaccurate life
expectancies by the providers physician-underwriter that were the basis for
pricing the policies.
The case was filed in U.S. District
Court in San Jose, Calif. The plaintiffs
are Frederick Vieira of Watsonville,
Calif., who purchased $99,625 in fractional interests in policies and Anthony
Taylor of Aptos, Calif., who invested
$82,878 in policies, the lawsuit said.
Steven Sklaver, an attorney with the
Susman Godfrey law firm in Los Angeles who is representing the plaintiffs,
said Life Partners had a duty not to be
self-dealing, be truthful to investors
by putting their interests first.
insurance industries to work together

on it.
We strongly support the bill and
hope it will get moved as soon as possible, said Elstermeyer.
The next step is for the committee
to report the legislation out favorably,
she said in an email. She expects that
to happen soon, but the House is in
the middle of a budget debate, which
will occur the last week of April. Once
thats concluded, she said she expects
the settlement legislation to be taken
up.
The Koutoujian bill is based on the
model act developed by the National
Conference of Insurance Legislators,
but with a revised definition of stranger-originated life insurance favored by
the settlement industry.
If it passes, the bill will replace the
states viatical law. Massachusetts does
not regulate life settlements.
Numerous class action lawsuits

have been filed against Life Partners
on behalf of shareholders and investors
following revelations that the Waco,
Texas, provider relied on life expectancies from a single source, physician-underwriter Dr. Donald Cassidy of Reno,
Nev. His estimates are considered
markedly shorter than other underwriters in the market.
Life Partners also has been under
investigation by the Securities and Exchange Commission.
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Mass. Committee Takes No

Action on Settlement Bill
Massachusetts legislators held a

hearing April 13 to consider life settlement legislation, which allows policies
to be sold two years after issuance.
The Joint Committee on Financial
Services took no action yet on HO
2069, sponsored by former House Rep.
Peter Koutoujian who accepted a job as
a Massachusetts county sheriff in January. The bill had carried over from last
year.
A similar bill, HO 1203, sponsored
by House Rep. Ron Mariano, also was
carried over from last session. But
it hasnt been revised after moving
through the legislative process.
Coleen Elstermeyer, chief of staff
for Mariano, said her office supports
the Koutoujian version. Koutoujian had
been chairman of the Joint Committee
on Financial Services and had orchestrated agreement on the bill by urging
members of the life settlement and life
Judge Recused Over

Friendship with Pardo
Judge Walter Smith of the U.S. District Court in Waco, Texas, has recused
himself from five lawsuits naming Brian
Pardo, chief executive of Life Partners
Holdings, citing his friendship with
Pardo.
Brian Pardo, individual defendant
and a major stockholder in Life Partners
Companies, has been a close personal
friend of the undersigned for several
years. The nature of that friendship
mandates recusal, Smith said in a filing
last month.
The Life Settlements Report raised the
possible conflict of interest in a Feb. 17
story after a person familiar with the situation said Pardo had a close relationship with the judge and had entertained
him on his yacht in Fort Lauderdale,
Fla. Smith had declined to return a call
at the time on whether he planned to
recuse himself from the Life Partners
cases.
The cases have been assigned to the
courts Del Rio division.
7
EEA Fund Available

in South Africa
The Guernsey-domiciled EEA Life
Settlements Fund has a new sales
outlet in South Africa. The fund will
be available to South African investors through Momentum Group and
Sygnia Life Ltd.
Industry analysts said the main obstacle to winning over South Africas
retail investors is likely to be explaining that EEAs policies are completely
different from the poorly performing
endowment policies that were popular
in the U.K., but are out of favor now.
Mark Alexander, a director of Riverstone Distribution Services, which
handles the EEA funds distribution
in South Africa, said EEA has never
bought U.K. endowment policies.
EEA Life Settlements Funds has had
annualized returns of 9.7% in its British
pound share class since the fund was
launched in December 2005, Alexander
said. The share classes in other currencies have been quite similar, with the
variations attributable to shifting values
in the international foreign exchange
market.
Only policies from the U.S. are
suitable for life settlement funds, he
said. We are provided with certainty
through the non-contestability rule.
After two years of payments, life assurors are not allowed to refuse the
payout.
South Africa has quickly recovered
April 21, 2011
LSR
News
from the global recession due to its

surging agriculture and mining sectors.
South Africas central bank is forecasting 3.7% economic growth this year
and 3.9% in 2012.
Two New Providers

Licensed in Florida
Florida insurance regulators recently
issued licenses to two new providers,
allowing them to conduct life settlement business in the state.
The licenses, which the industry
contends are tough to get, were granted in February to Vespera Life and
Eagil Life Settlements.
There are now 16 providers that are
licensed in the state.
Jan-Eric Samuel, chairman of Vespera, based in Luxembourg, said the
firm essentially is dormant.
He said he obtained the license because a customer was potentially interested in buying policies, saying well
see in six months or a year if we have
use for it.
Vespera has no staff and he does
not contemplate applying to any other
states for licenses.
Samuel also is chairman of Litai
Assets, a servicing firm in Pompano
Beach, Fla.
Eagil, a Woodcliff Lake, N.J.-based
firm, is licensed in other states as a provider as well.
fiduciary duty, insurable interest, policy

origination, protection of the insureds
identity, competition and marketplace
education.
SEC Suspends Trading

of MaxLife Fund
The Securities and Exchange Commission temporarily suspended trading
of securities in MaxLife Fund.
The SEC said it halted the trading
of securities in the firm because of a
lack of current and accurate information about the company concerning the
control of its stock, its market price and
trading. The suspension began April 8
and was to end today.
MaxLife, a Toronto-based firm, most
recently tried but failed to raise money
to purchase early life settlements from
Trinity Life Settlements of Downers
Grove, Ill.
Bennett Kurtz, chief executive
of MaxLife, was not available for
comment.
a financing entity, is not seeking

re-election.
Other candidates are: Adam Balinsky,
president of Caldwell Life Strategies,
a Stamford, Conn., portfolio manager;
Terry Barr of Parcside Equity, a New
York-based provider; Robert Finfer,
president of Integrity Capital Partners, a Bethesda, Md.-based broker;
Vince Granieri, chief underwriter at
21st Services, a Minneapolis-based life
expectancy provider; David Hartman, a
management team member with MMS
Advisors in Baltimore, a former LISA
board president; Jim Maxson, an attorney with Morris, Manning & Martin
in Atlanta; Jon Mendelsohn, president of
Ashar Group, an Orlando, Fla.-based
broker; Cynthia Poveda, vice president
for secondary markets with Crump Life
Insurance Services, a Roseland, N.J.based broker; and John Welcom, president of Welcome Funds, a Boca Raton,
Fla.-based broker.
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Vida Capital, Silver

Point Join ILMA
Vida Capital, an Austin, Texasbased asset manager, and Silver Point
Capital, a Greenwich, Conn.-based investment firm, have joined the Institutional Life Markets Association (ILMA)
as allied members, ILMA said in an
April 11 statement.
Both are active in the life settlement
market.
The trade group said allied members agree to comply with the trade
groups guiding principles focusing
on transparency, consumer choice,
Thirteen Candidates Vying

for Five LISA Board Seats
Thirteen candidates, including four

of the five incumbents, are seeking
election to fill five, two-year seats on
the board of the Life Insurance Settlement Association (LISA).
The group will hold its election May
5, according to an April 4 memo sent
to LISA members from Darwin Bayston,
the groups executive director.
Incumbents seeking to hold on to
their seats are Rob Haynie, managing
director of Life Insurance Settlements, a Fort Lauderdale, Fla.-based
broker; Russel Dorsett, director of
Veris Settlement Partners, a broker
in Houston; Brian Casey, an attorney
with Locke, Lord Bissell & Liddell, a
law firm in Atlanta; and Ramiro Rencurrell, president of Magna Life Settlements, a Coral Gables, Fla.-based
provider. The fifth incumbent whose
term is up, Brad Thompson, president
of Fidelity Assurance Associates,
8
Aspinwall Heads
Index Committee
Dr. Jim Aspinwall, an adjunct professor at Florida Southern College in
Lakeland, Fla., has been named as
chair of a committee planning a new
life settlement index, the International
Society of Life Settlement Professionals
(ISLSP) said.
At Chase Manhattan Bank, Aspinwall helped develop the banks REALM
risk management and derivatives pricing system. He is a co-author of the
book, Life Settlements and Longevity
Structures.
Aspinwall is currently working on a
new publication tentatively titled, Mortality Synthetics and Derivatives.
George Polzer, president of ISLSP,
said the committee headed by Aspinwall will develop a life settlement index
to be made available to financial information publishers, including Reuters.
One of the committees first projects will be to develop best practices
guidelines for indexation, Polzer said.
April 21, 2011
LSR
News
Polzer said the other committee

members are Dr. Geoff Chaplin, an
actuary and head of CDAnalytics;
Edward Jones, an acquisition and funding agent for The Dominion Fund;
and Dr. Wai Tang, president of Kappa
Life, a consulting firm that specializes
in mortality arbitrage trading.
Veris Settlement Offers

Life Settlement Class
Veris Settlement Partners, a New
York-based life settlement broker, plans
to offer a life settlement master class for
financial advisers, life insurance agents,
wealth managers, certified public accountants and estate planning attorneys
May 3 in New York.
Topics will include the life settlement landscape, evaluating and pricing
policies, the regulatory and compliance

environment, taxation and the investors point of view.
To register in advance for free admission, contact Randy Vogt of Veris at
631-239-6655 or randy@go2veris.com.
Hirings & Firings

Ken Ross, commissioner of the
Michigan Office of Financial and Insurance Regulation, resigned his job effective last Friday.
He was appointed to the job in
February 2008 by then-Gov. Jennifer
Granholm and continued on in the
job during Gov. Rick Snyders term,
according to a statement from the
state.
Absolute Life Solutions chief executive Moshe Oratz has resigned and
his position has been taken over by his

brother, Avrohom Oratz, the firms chief
financial officer, according to the firms
latest filing with the Securities and Exchange Commission.
In addition, Joshua Yifat has been
appointed as the new chief financial
officer.
Moshe Oratz will continue to help
during the transition, a statement from
the firm said.
Kevin Malone, president of
underwriting for Examination
Management Services Inc. (EMSI),
recently told market players he was
leaving his position to return to
consulting. He had rejoined EMSI a
year ago after stepping down from the
position once before in July 2008 to act
as a consultant.
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NOTICE OF PUBLIC AUCTION
Please take notice that pursuant to (a) Section 9-610 of the Uniform Commercial Code as adopted in the State of New York (the UCC) and otherwise applicable state law and (b) that certain credit and security agreement,
dated as of February 12, 2010 and amended by the first amendment to the credit and security agreement dated as of June 3, 2010 (collectively, the Credit Facility Agreement) in each case among Brentwood Holdings,
LLC (the Borrower), the financial institutions parties thereto from time to time as lenders (the Lenders) and Fortress Credit Corp., as program agent (the Program Agent), the Program Agent will offer for sale to the
public (the Auction) certain collateral (the Collateral) for the Borrowers obligations under the Credit Facility Agreement, including the Borrowers interests in a portfolio of 195 life settlement policies with an aggregate
face value of $1.36 billion. The Collateral is being sold on an AS IS WHERE IS basis pursuant to the following terms and conditions.
TIMING/LOCATION OF INDICATIONS OF INTEREST AND INITIAL BIDS: Indications of interest are due by 5:00pm EDT on April 21, 2011. Initial bids are due by 5:00pm EDT on May 2, 2011. All indications of interest and initial bids
may be made by hand, certified mail, email or fax to Houlihan Lokey Capital, Inc., as marketing agent to the Program Agent (Houlihan) at the address below.
TIMING/LOCATION OF THE AUCTION: Date and Time of Sale: May 11, 2011 at 11:00am EDT. Location of Sale: Sidley Austin LLP, 787 Seventh Avenue, New York, New York 10019. Bidding may take place in person or via telephone.
TERMS AND CONDITIONS OF THE AUCTION. 1. The Collateral will be offered for sale as described above and pursuant to the following terms and conditions. The successful bidder on the Collateral at the Auction must be prepared to
purchase all of the Collateral. The Collateral will be sold to the qualified bidder that makes the highest and best bid at the Auction. The Program Agent reserves the right to reject any bid which it deems to have been made by a bidder that
is unable to satisfy the requirements imposed by the Program Agent on prospective bidders in connection with the auction or to whom, in the Program Agents sole judgment, a sale may not lawfully be made. The Program Agent reserves
the right to reallocate the Collateral. 2. Subject to executing such confidentiality agreements as the Program Agent, in its sole discretion, deems appropriate, parties interested in bidding at the Auction may obtain additional information and
detail concerning the Collateral and the indication of interest, bid and Auction procedures by contacting Houlihan at the address provided below. 3. To participate in the Auction, the Program Agent requests that interested parties submit
an indication of interest by hand, certified mail, email or fax to Houlihan (at the address below) by 5:00pm EDT on April 21, 2011. After the Program Agent evaluates the indications of interest, qualified bidders will be contacted by Houlihan.
Qualified bidders must submit an initial bid by hand, certified mail, email or fax to Houlihan (at the address below) by 5:00pm EDT on May 2, 2011, together with an initial deposit equal to 10% of the purchase price indicated in its initial
bid (the Initial Deposit) which will be held in escrow with a third-party nationally recognized escrow agent. If a bidder withdraws prior to the Auction or does not submit the Winning Bid or is not the Back-up Bidder (as described below),
its Initial Deposit will be returned. If a bidder submits a Winning Bid, but does not provide the required Deposit or the Balance (as described below) its Initial Deposit will be forfeited. 4. The Collateral is being sold on an AS IS WHERE
IS basis, without recourse, warranty or guaranty, whether express or implied. Neither the Program Agent nor any Lender makes or will make any representations or warranties with respect to the Collateral, and the sale of the Collateral
is specifically subject to all taxes, liens (other than those of the Program Agent and the Lenders), claims, assessments, liabilities and encumbrances, if any, that may exist against the Collateral under the UCC or other applicable law.
Without limiting the generality of the foregoing, the Program Agent and each Lender expressly disclaims all representations and warranties relating to the origination of any policy, the presence of insurable interest under any policy, the
death benefits under any policy, the condition of title to, the completeness or accuracy of any description of, or any other rights, liabilities or obligations that may accompany any of the Collateral. 5. The Program Agent may require certain
representations from bidders to ensure the bidders are qualified and the sale complies with applicable law. 6. In order to participate in the Auction, each potential bidder must either join the Auction via telephone or be physically present at
the Auction, and demonstrate to the satisfaction of the Program Agent, in its sole discretion, that each such bidder has the financial means and is otherwise qualified to close on any bids made at the Auction. The Program Agent reserves
the right to reject any bid or all bids at the Auction, to announce such other terms at the Auction as may be commercially reasonable in the Program Agents sole discretion, or to accept non-conforming bids. Further, the Program Agent
reserves the right to cancel, postpone or adjourn the Auction by announcement made at the Auction, either before or after the commencement of bidding without written notice or further publication. The Program Agent reserves the right
to credit bid at the Auction on behalf of the Lenders, either directly or through one or more designees or assignees, all or any portion of the then outstanding secured indebtedness of such Lenders. The Program Agent reserves the right to
implement such other terms or conditions prior to or at the Auction regarding the Auction procedures as the Program Agent, in its sole discretion, determines to be commercially reasonable under the circumstances. 7. The Program Agent
will determine the highest and best bid, based on all relevant considerations including, without limitation, price, financial means to consummate a sale and mechanics and timeliness of closing, for the Collateral made by a qualified bidder
at the Auction (the Winning Bid). The Program Agent reserves the right to select the second highest and best bid for the Collateral by a qualified bidder at the Auction (Back-up Bidder) as a back-up bid (the Back-up Bid). Unless the
Winning Bid is made by the Program Agent on behalf of the Lenders or their designees or assignees via credit bid, the party submitting such Winning Bid (the Successful Bidder) must provide, at the Auction, a cashiers, bank or certified
check made payable to the Program Agent in the amount of not less than 10% of the Winning Bid less the amount of its Initial Deposit (the Deposit). The Successful Bidder shall deliver the Balance of the Winning Bid (the Balance)
by wire transfer or certified funds within twenty-four hours of the conclusion of the Auction (the Payment Deadline). If the Successful Bidder fails to pay the Balance by the Payment Deadline, its Deposit will be forfeited to the Program
Agent as liquidated damages. Following such default, the Program Agent may sell the Collateral to the Back-up Bidder, if any, without further notice. 8. Upon indefeasible payment in full of the Winning Bid by the Successful Bidder or the
Back-up Bidder, as applicable, the Program Agent will cause to be delivered to such Successful Bidder or its qualified designee a bill of sale covering the Collateral.
REQUEST FOR FURTHER INFORMATION
All inquires concerning this Notice of Public Auction and the terms and conditions of the Auction should be made to: Jeff Bollerman, Houlihan Lokey Capital, Inc., 245 Park Avenue, 20th floor, New York, NY, 10167, telephone:
(212) 497-7968, facsimile: (212) 661-3070, email: JBollerman@HL.com. The Program Agent reserves the right to require any person making such request to: (i) disclose the person or entity on whose behalf such information is being
sought and (ii) maintain the confidentiality of the information provided to it.
April 21, 2011

LSR
Legislation Update
Items updated this issue appear in blue.
Previous 12 Months Legislative Activity

Last Action
State
Bill
Bill Source
Arizona
SB 1461
NCOIL
Passed Senate April 19, sent to governor.
Date
NCOIL
Public hearing on consumer-disclosure bill.
Feb. 22, 2011
Adds viatical settlement contract to Delaware securities law; assigned to House Judiciary Committee.
April 13, 2011

Jan. 11, 2011
April 20, 2011
Connecticut
SB 172
Delaware
HB 88
Indiana
SB 400
NCOIL
First reading of a consumer-disclosure bill, referred to Committee on Insurance and Financial Institutions.
Indiana
SB 415
NCOIL
First reading of a consumer-disclosure bill, referred to Committee on Insurance and Financial Institutions.
Jan. 11, 2011
Massachusetts
HO 2069
NCOIL
Regulates market, includes anti-STOLI provision; hearing in Joint Committee on Financial Services.
April 13, 2011
Massachusetts
HO 1203
NCOIL
Regulates market, includes anti-STOLI provision; hearing in Joint Committee on Financial Services.
April 13, 2011
Michigan
HB 4230
Printed bill filed, anti-STOLI provisions.
Feb. 15, 2011
Michigan
SB 0129
Anti-STOLI provisions; referred to Committee on Insurance.
Feb. 10, 2011
Makes changes to STOLI definition. Re-referred to committee.
Feb. 22, 2011
New Hampshire SB 74-FN
NCOIL
New Mexico
SB 410
NCOIL
New York
S0 4427
New York
A 7143
Virginia
HB 2529
NCOIL
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Action postponed indefinitely.
Feb. 4, 2011
Revises law on licensure, reporting and disclosure requirements; sent to Senate insurance committee.
April 5, 2011
Revises law on licensure, reporting and disclosure requirements; sent to Assembly insurance committee.
April 13, 2011
Consumer-disclosure bill tabled by voice vote in Committee on Commerce and Labor.
Feb. 1, 2011
NCOIL: National Conference of Insurance Legislators NAIC: National Association of Insurance Commissioners
2
Life Settlement Laws
Washington
Montana
Oregon
Idaho
North Dakota
Wyoming
California
Nevada
South Dakota
Pennsylvania
Ohio
Indiana
Kansas
Missouri
PD
Kentucky
Arizona
Illinois
Colorado
LD
New
York
Michigan
Iowa
Nebraska
Utah
New Hampshire
Vermont
Minnesota
4-yr. waiting
period
Wisconsin
West
Virginia
Virginia
PD
New Mexico
Oklahoma
Miss.
Texas
D
PD
P
PD
Mass.
R.I.
Conn.
New
Jersey
Delaware
Maryland
North Carolina
Tennessee
Arkansas
Maine
Georgia
South
Carolina
Alabama
Hawaii
Louisiana
Alaska
2-year Waiting Period
P Pending
D Settlement Disclosure Required
5-year Waiting Period
P Pending
LD Limited Disclosure Required
Other Source
Florida
10
Pre-2008 Laws
Unregulated
April 21, 2011
LSR
Term Conversion
Continued from front page

rulings in and outside New York, it
Larry Simon, chief executive of San insurance regulation. Other states will
further legitimizes the life settlement Diego-based provider Life Settlement take notice, he said.
industry.
Solutions, said in an email that the deStanton said he doubts other states
John Hancock denied a request in cision reaffirms the rights of policyhold- will even take up consideration of such
December 2009 by a wealthy, 76-year- ers. A life insurance policy is a contract, cases. Theyd rather just yield to a
old woman to convert her convertible and the insurer should not be able to precedent in another state, he said.
term policy, alleging that the conversion unilaterally change the terms of the conThe opinion could impact a case
constituted a new policy. The case was tract to suit its own interests, he said.
against John Hancock in U.S. District
presented to the departCourt in Los Angeles. John
ment July 17 and the opinHancock has been acion was issued in a Feb.
cused of undermining a
Industry practice doesnt consider the
25 letter. Gary Edelston, a
life settlement in California
converted policy to be a new policy.
life settlement broker with
by paying the policyholder
Theres no application, theres no
GE Insurance Services of
the same $45,000 that CovMinneapolis, represented
entry First had offered to
underwriting, theres no nothing.
in the case by Shapo, said
buy the policy, a move
Chiahua Pan
the letter formalized a dethat prompted Coventry
Virtual Law Partners
cision expressed verbally
to file suit in March for inby the departments office
terference with an existing
of general counsel last fall.
contract.
Industry insiders estimate that about
The New York insurance department,
You wonder if the New York case
in the Feb. 25 letter by Assistant Deputy 15% of the policies headed for settle- will play into that at all, said Redle.
Superintendent and Counsel Paul Zuck- ment are term-limited and require conShapo, who is also representing
erman, said that John Hancock could not version to permanent status to attract Coventry in the case, said that the New
deny the insureds request to convert her investors.
York opinion could impact the CaliforHowever, Stephen Stanton, chair- nia case. If and when the question of
term policy because she planned to sell
it. The department said a conversion of a man of Downers Grove, Ill.-based pro- insurable interest on a term conversion
policy without an increase in the death vider Trinity Life Settlements, which is addressed in that case, we would
benefit is merely the continuation of the specializes in term conversions, said he hope that the court would take the
same policy, state law doesnt prevent wondered how much impact the opinion same position, said Shapo. We think
such a conversion, and the state Legisla- would have on the life settlement market the New York opinion reached the right
ture did not intend its insurance laws to because its a reflection of what is already result with sound reasoning behind it.
common insurance industry practice.
limit such conversions.
Robin Weinberger, director of naKatie Redle, a manager of life settle- tional accounts for the Fort Lauderdale,
Zuckerman said that John Hancock
had never before asserted the need to ments marketing with Akron, Ohio- Fla.-based broker Life Insurance Setrevisit the insurable-interest issue in based broker ValMark Securities, said tlements, said some companies will do
other policies it has converted to per- that this was the first scenario of a car- anything they can to stop a settlement.
manent coverage. Surely, JHNY is not rier not allowing conversion. Had they
Insurance companies have a bad
asserting that its past conversions were been able to limit it, it obviously would taste in their mouth with life settlehave limited the number of policies ments because of the negative experiinvalid, the decision said.
Williams said that John Hancocks available for settlement, she said.
ence they had with stranger-originated
Pan said that John Hancock has life insurance (STOLI), she said. I think
position was contrary to New York insurance law. I think the department been a problem in the life settlement that life settlements got a lot of bad
business. I think John Hancocks effort press because of STOLI. Now that
got it right, he said.
Industry practice doesnt consider was yet another desperate attempt to STOLI is pretty much over, its still
the converted policy to be a new policy, stem the tide, she said.
having a negative residual impact.
Williams said he believes that it is
said Chiahua Pan, an attorney in New
Industry observers were skeptical
York with the law firm Virtual Law Part- very important that New York took this about John Hancocks fear that the New
ners. Theres no application, theres no position about converting term policies York case was a STOLI. Every state that
because it is a bellwether state for has a life settlements law, such as New
underwriting, theres no nothing.
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11
April 21, 2011

LSR
Term Conversion
York, also has a waiting period to settle

a policy, said Pan. The whole point of
the waiting period is to prevent STOLI
providers.
The opinion pointed out that STOLI
only arises at the time the policy is
originally procured, and in this case, no
new insurance was being purchased.
STOLI claims are to some extent
the stalking horse for the life insurance
industrys general attack on the life settlement industry, said Williams.
Redle said she believes that the New
York opinion will be good for both the
life settlement market and the policyholders because it keeps the option
open to settle.
The department is essentially
saying, we understand you, the [insurance] industry, dont like life settlements,
but you can only go so far in stopping
them, said Williams. At some point,
the life insurance industry will recognize

that the life settlement industry is here
to stay and stop spending a significant
amount of resources trying to put it out
of business. Theyre pushing a very large
rock up a pretty steep hill.
Simon said in an email that the
opinion adds another element of stability for consumers and institutional
investors. Consumers will know that
their right to transact a settlement will
be upheld and investors will have confidence that carriers cant interfere with
unilateral actions.
Its good because investors will acknowledge that they can monetize otherwise latent assets, Stanton said.
Weinberger said the opinion could
even be turned into a selling point for
carriers, comparing it to the secondary
housing market.
If people know theres a secondary
market more people might buy

insurance, she said. Not because theyre
planning on selling it, but because they
know theres that option.
Unless your company holds a

multi-user license, it is a violation of U.S. copyright law to
photocopy or reproduce any
part of this publication, or forward it electronically, without
first obtaining permission from
DealFlow Media. For details
about upgrading your license,
contact Lenny La Sala at (516)
876-8006 or lenny@dealflow.
com.
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April 21, 2011

LSR
Fortress
Continued from front page

distressed portfolios by Fortress, Apollo
and others are necessary before money
will return in a sizeable way to the
secondary market. Whether these big
firms will remain in the market for the
long term is unclear. Some say they
are merely looking to buy cheap assets
generating returns as high as 30% and
will be gone once the market normalizes. Others believe theyll turn their attention to the secondary market when
the distressed assets are cleared out
because of the steep learning curve to
understand life settlements and the infrastructure put in place to buy them.
Robin Willi, principal and chief investment officer of fund manager Rigi
Capital Partners in Cham, Switzerland, believes that those looking to
buy troubled assets are only here for
the short haul.
All the guys youre talking about
tend to be opportunistic players. They

have to put money to work institutionally. They cant afford to engage with
every provider individually on policies, Willi said. I cant see these guys
bothering with the secondary market.
Scott Rose, principal of Barrett Advisors, a Tarrytown, N.Y.-based asset
management and advisory firm, said,
however, the new players are prepared
to remain in the market for the long term.
No one who is smart is getting into
the business today with a short-term
view, Rose said. Theyre much more
sophisticated than the ones that got hurt.
Part of that is because they have a
healthy suspicion of the accuracy of
the mortality estimates and realize that
this could be a long-term investment,
he said.
Although the big boys are buying at
deep discounts, they expect the market to
improve in the next
two to three years,
Rose said. This
means if theyre
buying paper today
at a 25% yield,
theyre expectA DealFlow Media Event
ing to sell it down
the road at a 15%
Event Book & Complete Audio CD
return, he added.
If you missed The Life Settlements Conference
He forecast that
2010 in Las Vegas, you can still get
there will be continued contraction
the complete set of audio
and consolidation
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in the market. Ulwith the Event Book &
timately, he said
Resource Guide.
he believes private equity players
The Life
will try to turn the
Settlements
secondary market
Conference 2010
into a more efAudio Kit
ficient business
without all the
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fragmentation.
The thing
ONLY $395
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distressed portfolio
is its a good way
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to get into this asset class quickly and in

a significant way, said Nick Williams,
an attorney with the Clifford Chance
law firm in New York. Overnight you
can own 200, 300, 400 or 500 policies by
purchasing several portfolios.
He said he believes that some of the
investors of distressed assets will then
become engaged in the market and see
it as a long time play.
Some market players forecast that
trading of distressed portfolios will
run through the end of the year while
others believe it will last for another
year or year and a half.
At the same time, market participants say money has started trickling
back into the secondary market. Nate
Evans, chief executive of Maple Life
Financial, a Bethesda, Md.-based provider, said he secured two new funders
in the first quarter and has several more
new entrants who will deploy money
in the next six to eight weeks.
Meanwhile, the latest public auction for one-half of the HM Ruby Fund
portfolio, which holds 195 policies with
$1.36 billion in face value, is expected
to conclude shortly.
A person said there was an agreement that if the HM Ruby fund ever
breached its loan contract the portfolio
would go up for auction.
Indications of interest must be expressed by today, initial bids are due
by May 2 and the auction itself will be
held May 11, according to a public auction notice published in The Life Settlements Report. Houlihan Lokey, an
investment bank in New York, is handling the auction.
The auction is being held because
Brentwood Holdings, a special purpose vehicle set up by HM Ruby, was
unable to make payments on a $65 million loan to Fortress.
Fortress had extended a $65 million line of credit to HM Ruby to pay
premiums in 2010, but the firm needed
another $35 million to pay premiums
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2010
C
THE LIFE ETTLEMENTS

CONFERENCE
Las Vegas
The Life Settlements

Conference 2010
on CD
13
April 21, 2011

LSR
Fortress
News
Fortress has set up an unfair process by not offering enough time to

evaluate the portfolio, not providing
full documentation, and by imposing a
strict disclosure process that has kept
many market players from bidding, the
market players said.
Representatives of Houlihan Lokeys
secondary advisory group in New York,
which is running the auction, declined
to comment.
However, a person with knowledge
of the matter disputed the assertion that
an unfair auction process is under way,
and said that Fortress has mandated
that Houlihan Lokey go as broadly as
possible and transparently as possible.
The marketing effort has been extensive and the portfolio has been shopped
to hundreds of entities, the person familiar with the situation said. The person
said the effort got under way in midMarch. Besides the ad giving notice of
the auction in The
Life Settlements
Report that ran
SUBSCRIBE TO
April 7 and today,
HE IFE ETTLEMENTS EPORT there also was an
ad in The Wall
The only resource dedicated to trackStreet Journal on
ing news, information and analysis of
March 25 and 26.
However, one
the secondary market for life
person said Forinsurance.
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minimize interest in the auction
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so they can win.
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commodities, bonds
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the person said.
A person close
to
the situation
Call
(516)
876-8006
or
visit
dealflow.com
Call (516) 876-8006 or visit www.dealflowmedia.com
this year, a person with knowledge

of the matter previously told The Life
Settlements Report. Fortress told HM
Ruby that it would continue to act as
its lender, but backed out of the agreement the day before Thanksgiving last
year, the person familiar with the situation previously said.
HM Ruby now owes Fortress about
$80 million in principal and interest
and premium payments that Fortress
has paid since HM Ruby breached its
loan agreement on Dec. 10, the person
with knowledge of the matter said. The
person estimated that the portfolios
value is more than $150 million.
Despite the announcement of the
public auction, Fortress would prefer
to take over the portfolio itself rather
than face stiff competition from buyers
who might bid up the price, according
to two market players who wished to
remain unnamed.
indicated that the assertion about lack of

documentation was untrue and that it was
comparable to what is provided in similar
auctions. The person said one item that is
not included is identifiable personal information on the underlying insureds, which
is not needed to make bids on the asset.
Another market participant previously involved in a distressed portfolio
deal said it appears that Fortress hopes
to obtain ownership of the portfolio because not enough time has been allotted
to analyze the portfolio. The person said
it usually takes three to four weeks to
analyze such a portfolio, but the person
only learned about it two weeks ago.
Furthermore, the market player said
many potential bidders have declined to
participate because of what they consider onerous non-disclosure agreements.
Instead of merely requiring prospective
buyers to agree not to disclose the contents of the portfolio, Fortress is requiring
a disclosure that prohibits participants
from even discussing with anyone that
they have signed such an agreement.
A person familiar with the situation
said that certain people in the market may
not be used to standard disclosure agreements. The goal of such an agreement is
to allow the portfolio seller to deal with
the principals directly who can write the
checks and winnow out brokers or people
without direct access to capital, the person
familiar with the situation added.
In addition, to meet regulatory requirements in some states, the buyer is
expected to be a qualified institutional
buyer, or an institution that manages
$100 million in securities, an entity
owned by qualified investors, or registered broker-dealers owning and investing $10 million in securities.
Elliott Kroll, a partner with the
Arent Fox law firm in New York, said
the type of disclosure required in this
case isnt unusual.
Violations of such disclosures can be
a serious matter, he said, adding he has a
case in federal court in such a situation.
But he said its a good sign that Fortress
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14
April 21, 2011

LSR
Fortress
is interested in the settlement market.

I know Fortress has looked at this
area for a number of years, Kroll said.
Theyre very smart people. I think its
a very good indication for the market
in general. If all the big funds wanted
nothing to do with the life settlement
field, what would that say? The fact that
theyre interested is a good indication.
Fortress also is said to be the winner
of the $500 million SageCrest portfolio,
but the deal still must be approved by
the judge in U.S. Bankruptcy Court in
Bridgeport, Conn., before the end of the
month. There were four bidders in the
recent auction for the portfolio containing 123 policies, which include a mix of
premium-financed and traditional policies. The minimum bid was $35 million.
The winning bid made by Fortress
was not immediately available.
The other half of the HM Ruby Fund

portfolio, which has been marketed
by fund manager Himelsein Mandel
Fund Management, may have found
a buyer. The original deal for purchase
of 180 policies with a face value of $1.2
billion with Gerova Financial Group
fell apart after the Bermuda-based firm
failed to make its initial $1 million cash
payment, a person familiar with the
matter previously said. Gerova had intended to obtain the policies and loans
from the fund for $105 million, including $11 million in cash and $94 million in Gerova shares. Gerova has been
facing an implosion in its business and
a steep decline in its share price.
Serious discussions are under way
with a private asset management firm to
buy the portfolio, a person familiar with
the matter said. The terms of the deal
would include an upfront payment and

mortality participation, meaning proceeds of every insureds death would be
shared by the new owner and investors
in the fund, the person said.
Rose of Barrett Advisors believes
that the distressed activity is almost at
an end.
I think it has a limited life span left,
the end of the year, Rose said. All of
the large portfolios are trading.
He said hes worked with portfolios
containing 1,000 policies, those with
400 policies, and currently hes seeing
smaller portfolios with about 50 policies.
By the end of the calendar year,
anything worth trading I think will have
traded, Rose said.
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a
S op
C
Senior Editor Donna Horowitz may be

reached at donna@dealflow.com.

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THE LIFE SETTLEMENTS REPORT

FORTRESS MAY SNAG TWO

think its [the deadline to spend the money]

April 21, 2011

Through February 2011

Source: AA-Partners; Indexes at 100 in December 2006.

NEW YORK TERM CONVERSION

Editor & Publisher Brett Goetschius

Maria Brosnan Liebel

The Standard & Poors securitization of the American International

that investors were dissatisfied with the

Production Editor Gary Newman

THE LIFE SETTLEMENTS REPORT

AIG SECURITIZATION FAILING

The Life Settlements Report is published twice

The Life Settlements Report 2011 DealFlow Media

April 21, 2011

The portfolio offered diversified

Since it began buying policies in

NEW STREAM MAY BE FORCED

Bankrupt New Stream Capital

The Life Settlements Report 2011 DealFlow Media

and secured bridge financing from MIO

Court documents show that $40

The unsecured creditors committee

given all investors equal claims to the

was a barrier to gathering enough data

The Life Settlements Report 2011 DealFlow Media

Study Finds Life Settlement

April 21, 2011

AG of Frankfurt, Germany, Hess said.

The Building Society will be required to pay the fine in addition to

The Life Settlements Report 2011 DealFlow Media

FSA Fines N&P $2.3M

April 21, 2011

been open and cooperative with the

Jule Rousseau, an attorney with

New Class Action Lawsuits

Roselius, Terry & Morton of Oklahoma City.

Delaware Court to Address

The Delaware Supreme Court

The Life Settlements Report 2011 DealFlow Media

April 21, 2011

well as violation of the states business

insurance industries to work together

Numerous class action lawsuits

Mass. Committee Takes No

Massachusetts legislators held a

The Life Settlements Report 2011 DealFlow Media

Judge Recused Over

EEA Fund Available

from the global recession due to its

Two New Providers

fiduciary duty, insurable interest, policy

SEC Suspends Trading

a financing entity, is not seeking

Vida Capital, Silver

Thirteen Candidates Vying

Thirteen candidates, including four

Polzer said the other committee

Veris Settlement Offers

policies, the regulatory and compliance

Hirings & Firings