Additional Criteria
But a handsome bid is worth nothing if the buyer doesn't come through. As Shapiro relates, "Frequently a seller will come to us saying, 'I went with the provider who made the highest offer and now at the last minute they can't close the deal. Can you?'" You want to use an established settlement company with a track record of performing. Ask providers about their tenure in the business, their volume and the types of transactions they have handled, says Scott Hawkins, a vice president at Conning Research.
While you're at it, ask how the provider gets its money, he adds. Avoid deals where the contract will be resold to an individual investor. Funding should be institutional.
It also should be diverse. In this credit crunch, transactions have failed when the provider's funding dried up. Seek settlement companies with multiple capital sources, Hawkins advises.
Multisourced funding
aids sellers in another way. It widens a provider's ability to buy,
explains Zohar Elhanani, chief operating officer of Legacy Benefits
LLC, a New York City-based provider. The company, which partnered with
Merrill Lynch on a pioneering life-settlement securitization
transaction in 2004, buys for banks, hedge funds and other
institutions. "We also buy utilizing our own capital when policy
characteristics meet our criteria, enabling expanded purchasing," says
Elhanani, adding that his business nearly tripled last year and is
presently industry Top Five.
How the provider protects personal information is also important. Ask how confidential data such as the client's Social
Security number and medical records will be treated. At Q Capital, "we minimize printing of documents and keep files locked to prevent information leakage," Shapiro says. "The platform we built displays to employees only the data they need to get their jobs done."
Ultimately it's all about integrity. If your state regulates life settlements, contact the insurance department to verify that the provider is licensed and determine whether it's in good standing. "If there are a lot of issues with the company, you'll find out," says Orr, the former regulator.
Somewhere along the way you should query colleagues about which providers are good to work with. When we did that in a random, completely unscientific manner, numerous companies were mentioned but three were cited particularly often: Q Capital, Legacy Benefits and Life Equity LLC of Hudson, Ohio, which was founded in 2000 and now claims to be No. 3 in the marketplace, having grown to about 70 employees from less than two dozen two years ago. "I think we have established ourselves as a company that makes fair offers," says Life Equity's managing director of business development, Stephen Washington. "We understand how to price policies."
The Broker's Broker
If the foregoing sounds like a lot to bite off, then you understand why Orlando-based Advanced Settlements Inc. will broker $2 billion in settlements this year. "A broker canvasses the market while you focus on what you do best. A good broker has his finger on the pulse of the market and knows which reputable providers are buying which types of policies," says Scott Kirby, co-president of Advanced Settlements, formed in 2000.