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Investment in Life Settlements
 12 Months Ended
Dec. 31, 2011
Investment in Life Settlements

6. Investment in Life Settlements

A life settlement contract is a contract between the policy owner of a life insurance policy and a third-party investor who obtains the ownership and beneficiary rights of the underlying life insurance policy. During 2010, the Company formed Tiger Capital LLC (“Tiger”) with a subsidiary of ACAC for the purposes of acquiring life settlement contracts. In 2011, the Company formed AMT Capital Alpha, LLC (“AMT Alpha”) with a subsidiary of ACAC and AMT Capital Holdings, S.A. (“AMTCH”) with ACP Re, LTD., an entity controlled by Michael Karfunkel, for the purposes of acquiring additional life settlement contracts. The Company has a fifty percent ownership interest in each of Tiger, AMT Alpha and AMTCH (collectively, the “LSC entities”). Tiger may also acquire premium finance loans made in connection with the borrowers’ purchase of life insurance policies that are secured by the policies, which are in default at the time of purchase. The LSC entities acquire the underlying policies through the borrowers’ voluntary surrender of the policy in satisfaction of the loan or foreclosure. A third party serves as the administrator of the Tiger life settlement contract portfolio, for which it receives an annual fee. Under the terms of an agreement for Tiger, the third party administrator is eligible to receive a percentage of profits after certain time and performance thresholds have been met. The Company provides for certain actuarial and finance functions related to the LSC entities. Additionally, in conjunction with the Company’s 21.25% ownership percentage of ACAC, the Company ultimately receives 60.6% of the profits and losses of Tiger and AMT Alpha. As such, in accordance with ASC 810-10, Consolidation, we have been deemed the primary beneficiary and, therefore, consolidate the LSC entities.

The Company accounts for investments in life settlements in accordance with ASC 325-30, Investments in Insurance Contracts, which states that an investor shall elect to account for its investments in life settlement contracts by using either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. The Company has elected to account for these policies using the fair value method. The Company determines fair value on a discounted cash flow basis of anticipated death benefits, incorporating current life expectancy assumptions, premium payments, the credit exposure to the insurance company that issued the life settlement contracts and the rate of return that a buyer would require on the contracts as no comparable market pricing is available.

Total capital contributions of $43,000 and $22,000 were made to the LSC entities during the years ended December 31, 2011 and 2010, respectively, for which the Company contributed their fifty percent ownership share of approximately $21,500 and $11,000 in those same periods. The LSC entities used a majority of the contributed capital to acquire certain life insurance policies of approximately $31,000 and $4,600 for the years ended December 31, 2011 and 2010, respectively. The Company’s investments in life settlements and cash value loans were approximately $136,800 and $31,500 as of December 31, 2011 and 2010, respectively and are included in Prepaid expenses and other assets on the Consolidated Balance Sheet. The Company recorded other income for the years ended December 31, 2011 and 2010 of approximately $46,900 and $11,900, respectively, related to the life settlement contracts.

In addition to the 237 and 79 policies disclosed in the table below as of December 31, 2011 and 2010, respectively, Tiger owned 36 and 143 premium finance loans as of December 31, 2011 and 2010, respectively, which were secured by life insurance policies and were carried at a value of $5,391 and $9,302 as of December 31, 2011 and 2010, respectively. As of December 31, 2011, the face value amount of the related 237 life insurance policies and 36 premium finance loans were approximately $1,518,183 and $217,950, respectively. All of the premium finance loans are in default and Tiger is enforcing its rights in the collateral. Upon the voluntary surrender of the underlying life insurance policy in satisfaction of the loan or foreclosure, Tiger will become the owner of and beneficiary under the underlying life insurance policy and will have the option to continue to make premium payments on the policies or allow the policies to lapse. If a policyholder wishes to cure his or her default and repay the loan, Tiger will be repaid the total amount due under the premium finance loans, including all premium payments made by Tiger to maintain the policy in force since its acquisition of the loan.

The following tables describe the Company’s investment in life settlements as of December 31, 2011 and 2010:

     
(Amounts in thousands, except
Life Settlement Contracts)
Expected Maturity Term in Years		   Number of
Life Settlement
Contracts		   Fair Value   Face Value
As of December 31, 2011:
                           
0 – 1     —     $ —     $ —  
1 – 2     —       —       —  
2 – 3     1       6,665       10,000  
3 – 4     1       2,703       5,000  
4 – 5     2       9,630       20,000  
Thereafter     233       112,389       1,483,183  
Total     237     $ 131,387     $ 1,518,183  
As of December 31, 2010:
                           
0 – 1     —     $ —     $ —  
1 – 2     —       —       —  
2 – 3     —       —       —  
3 – 4     —       —       —  
4 – 5     —       —       —  
Thereafter     79       22,155       495,183  
Total     79     $ 22,155     $ 495,183  

Premiums to be paid for each of the five succeeding fiscal years to keep the life insurance policies in force as of December 31, 2011, are as follows:

     
(Amounts in Thousands)   Premiums
Due on Life
Settlement
Contracts		   Premiums
Due on
Premium Finance Loans		   Total
2012   $ 20,077     $ 2,367     $ 22,444  
2013     23,386       2,671       26,057  
2014     24,413       2,738       27,151  
2015     25,209       2,957       28,166  
2016     33,029       4,241       37,270  
Thereafter     439,038       81,907       520,945  
     $ 565,152     $ 96,881     $ 662,033