A publicly traded life settlement company says the total face value of acquired policies doubled during the quarter that ended Aug. 31.
Life Partners Holdings Inc., Waco, Texas, has a fiscal year that starts March 1.
Life Partners is reporting $504,404 in comprehensive income for its second quarter on $6.6 million in revenue, up from $310,415 in comprehensive income on $4.9 million in revenue for the second quarter of 2005.
Life Partners includes unrealized gains and losses on investment securities in its comprehensive income but not in its net income.
The company’s net income for the second quarter fell to $223,743, from $247,521, the company says.
Although revenue was up, operating income fell, in part because fees to the brokers who helped Life Partners find and purchase in-force life insurance policies from the policyholders increased to $4.1 million, from $2.3 million.
Settlement costs fell to $78,505, from $157,557, and policy acquisition expenses recorded fell to $0, from $620,024.
Life Partners says it completed 61 settlements with a total policy face value of $31 million during the second quarter, compared with 78 settlements with a total policy face value of $16 million during the second quarter of 2005.
Average revenue increased to $107,977 per settlement, from $62,753, Life Partners says.
Unusual expenses include a $336,572 charge related to the impairment of a limited partnership, Life Partners says.
“The limited partnership was designed to invest $50 million in life settlement contracts purchased through Life Partners during fiscal 2007,” Life Partners says in its Form 10-Q quarterly report. “Due to the stringent underwriting standards that the general partner applied to the available contracts, the limited partnership purchased no policies prior to Aug. 13, 2006. Pursuant to the terms of the limited partnership agreement, we terminated the arrangement without penalty as of Aug. 13, 2006. As a result, we took an impairment expense to our limited partnership asset of $336,575 last quarter and have taken a similar impairment of $336,572 this quarter.”
Life Partners notes that it faces a suit filed in a state court in McLennan County, Texas, which alleges that the company breached its contract with policy purchasers by selecting life insurance policies insuring individuals who were not actually terminally ill. The suit also deals with complaints from the policy purchasers about the need to supply premium to fund policies for which the premium escrow funds have been exhausted.
“We believe there are numerous and substantial legal and factual issues which will prevent this matter from being certified as a class action and which will not support the claims made in this case,” Life Partners says. “We intend to vigorously defend this action, but we cannot predict or guarantee the outcome of the action.”
Life Partners also has reported a $223,743 boost to net income resulting from a new rule from the Financial Accounting Standards Board, Norwalk, Conn. The change lets a life settlement company value the policies purchased for its own account at the purchase value, rather than using the difference between the purchase price and the cash value as the carrying value.