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8-K - LIFE PARTNERS HOLDINGS INC | v206236_8k.htm |
Letter
from Life Partners Holdings, Inc.’s CEO Regarding
Wall Street Journal
Article
WACO,
TX — December 21, 2010
Dear
Investors,
This
morning, the Wall Street
Journal ran an article that, in our view, provided a misleading depiction
of some of our business practices and appeared to be based on anecdotal or
incomplete information and the self-serving criticisms of some of our
competitors. We would like to set the record straight.
One of
the focal points of this article was the system utilized by Life Partners to
obtain estimates of life expectancies (“LE”). According to the
article, a higher-than-expected number of insureds are exceeding the LEs on
policies purchased through Life Partners Holdings, Inc.’s operating subsidiary,
Life Partners, Inc. (“LPI”). However, as trade publications have
reported, this phenomenon has been experienced throughout the life settlement
industry and is not exclusive to LPI. The one factor in a life
settlement transaction that can be controlled and adjusted is the discount at
which the policy is acquired. Unlike other companies, LPI calculates
sensitivity of return utilizing LE to set a reasonable premium escrow amount,
and does not rely exclusively upon LE as the primary factor for profitability.
LPI only purchases policies that are economically feasible, under both predicted
circumstances as well as in the event the insured outlives their LE by a number
of years.
LPI also
provides its clients with analytical tools that can be applied to any policy
being considered for purchase, so that the breakeven point can be
determined. This refocuses the key element of profitability from LE
accuracy to the discount to face amount. Few if any LPI clients are
able to acquire interests in a large enough universe of policies to recreate
statistical mortality tables. Therefore, statistical probabilities
should not be considered to be the principal predictive factor with respect to
potential returns. Instead, each life settlement transaction is
structured with the goal of achieving the purchaser’s target return and at a
minimum, a positive return even if the insured outlives their LE
prediction. In that way, the purchaser has the potential for superior
returns, but also has a safety margin in the event that the LE for any or all
policies is exceeded.
Further,
as the article fails to note, the vast majority of purchasers acquire fractional
interests in a number of policies, which provides them with risk
diversification. While the LE for some of those policies may be
exceeded, the purchaser may receive the proceeds on others significantly prior
to their LE timeframe. It is the overall return on the funds that
each purchaser dedicates to the purchase of policies that matters, not just the
selected policies on which LE may have been exceeded.
The Wall Street Journal article
also raises unwarranted issues regarding LPI’s fee structure. During the past
fiscal year, LPI’s net income as a percentage of the face amount of policies
that were the subject of life settlements arranged by LPI was approximately 11%.
This amount is borne by the sellers of the policies as a discount to the price
that they would otherwise receive if they were able to negotiate with a willing
purchaser or group of purchasers directly. The discount at which LPI prices most
policies allows for investors to achieve positive returns even when a policy is
held for 12 years, including premium payments.
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By
purchasing policies at a significant discount to face value, LPI provides an
opportunity for purchasers to both preserve principal and achieve a modest
return, even if the LE is exceeded by five to seven years.
As
always, we are continually reviewing our processes and operations with an eye
toward providing even greater value to our investors and purchaser clients. We
believe investors who are looking for long-term growth in an alternative asset
class will continue to recognize the value that life settlement transactions
bring to both the purchasers and the sellers of these policies.
Brian
Pardo
CEO/Chairman
of Life Partners Holdings, Inc.
Life Partners is the world’s
oldest and one of the most active companies in the United States engaged in the
secondary market for life insurance, commonly called “life settlements.” Since
its incorporation in 1991, Life Partners has completed over 126,000 transactions
for its worldwide client base of over 27,000 high net worth individuals and
institutions in connection with the purchase of over 6,400 policies totaling
approximately $2.7 billion in face value.
Safe
Harbor - This press release contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various
factors. The statements in this news release that are not historical
statements, including statements regarding future financial performance, the
market for our services, the growth in the life settlement market and our growth
within that market, are forward-looking statements within the meaning of the
federal securities laws. These statements are subject to numerous
risks and uncertainties, many of which are beyond our control, that could cause
actual results to differ materially from such statements. For
information concerning these risks and uncertainties, see our most recent Form
10-K. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required by law.
************
LPHI-G
FOR MORE INFORMATION,
CONTACT:
Shareholder
Relations (254) 751-7797 or info@
LPHI.com
Visit our
website at: www.lphi.com
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