Critical Accounting Policies
Critical Accounting Estimates
The preparation of our consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for the valuation of investments in life insurance policies have the greatest potential impact on our consolidated financial statements and accordingly believe these to be our critical accounting estimates. Below we discuss the critical accounting policies associated with these estimates as well as certain other critical accounting policies.
Ownership of Life Insurance Policies—Fair Value Option
Our primary business involves the purchasing and financing of life insurance policies. As such, we account for the purchase of life insurance policies in accordance with ASC 325-30, Investments in Insurance Contracts, which requires us to use either the investment method or the fair value method. The election is made on an instrument-by-instrument basis and is irrevocable. We have elected to account for these life insurance policies as investments using the fair value method.
We initially record our purchase of life insurance policies at the transaction price, which is the amount paid for the policy, inclusive of all fees and costs associated with the acquisition. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the life insurance policies are based on periodic evaluations and are recorded as changes in fair value of life insurance policies in our consolidated and combined statement of operations. The fair value is determined as the net present value of the life insurance portfolio’s future expected cash flows that incorporates current life expectancy and discount rate assumptions.
In addition to reporting our results of operations and financial condition based on the fair value of our life insurance policies as required by GAAP, management also makes calculations based on the weighted average expected internal rate of return of the policies. See “Non-GAAP Financial Measures” below.
Valuation of Insurance Policies
Unobservable inputs, as discussed below, are a critical component of our estimate for the fair value of our investments in life insurance policies. We currently use a probabilistic method of valuing life insurance policies, which we believe to be the preferred and most prevalent valuation method in the industry. In this regard, the most significant assumptions we make are the life expectancy of the insured and the discount rate.
In determining the life expectancy estimate, we generally use actuarial medical reviews from independent medical underwriters. These medical underwriters summarize the health of the insured by reviewing historical and current medical records. The medical underwriters evaluate the health condition of the insured in order to produce an estimate of the insured’s mortality—a life expectancy report. In the case of a small face policy ($250,000 face value or less), we may use one life expectancy report or estimate life expectancy based on a modified methodology. The life expectancy report represents a range of probabilities for the insured’s mortality against a group of cohorts with the same age, sex and smoking status. These mortality probabilities represent a mathematical curve known as a mortality curve, which is then used to generate a series of expected cash flows from the life insurance policy over the expected lifespan of the insured. A discount rate is used to calculate the net present value of the expected cash flows. The discount rate represents the internal rate of return we expect to earn on investments in a policy or in the portfolio as a whole. The discount rate used to calculate fair value of our portfolio incorporates the guidance provided by ASC 820, Fair Value Measurements and Disclosures.
The table below provides the discount rate used to estimate the fair value of the life insurance policies for the period ending:
| | March 31, 2013 | | December 31, 2012 | |
| | 12.12% | | 12.08% | |
The change in the discount rate incorporates current information about market interest rates, the credit exposure to the issuing insurance companies and our estimate of the risk premium an investor would require to receive the future cash flows derived from our portfolio of life insurance policies.
We engaged a third party, Model Actuarial Pricing Systems (MAPS), to prepare a third-party valuation of our life settlement portfolio. MAPS owns and maintains the portfolio pricing software used by the Company. MAPS processed policy data, future premium data, life expectancy data, and other actuarial information supplied by the Company to calculate a net present value for our portfolio using the specified discount rate of 12.12%. MAPS independently calculated the net present value of our portfolio of 235 policies to be $185,020,000, which is the same fair value estimate used by the Company on the balance sheet as of March 31, 2013, and furnished us with a letter documenting its calculation. A copy of such letter is filed as Exhibit 99.1 to this report.
JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 for complying with new or revised accounting standards. This means that an “emerging growth company” can make an election to delay the adoption of certain accounting standards until those standards would apply to private companies. We have elected to delay such adoption of new or revised accounting standards and, as a result, we may not comply with new or revised accounting standards at the same time as other public reporting companies that are not “emerging growth companies.” This exemption will apply for a period of five years following our first sale of common equity securities under an effective registration statement or until we no longer qualify as an “emerging growth company” as defined under the JOBS Act, whichever is earlier.
Deferred Income Taxes
FASB ASC 740, Income Taxes, requires the Company to recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established for any portion of deferred tax assets that is not considered more likely than not to be realized.
The Company has provided a valuation allowance against the deferred tax asset related to a note receivable because it believes that, when realized for tax purposes, it will result in a capital loss that will not be utilized because the Company has no expectation of generating a capital gain within the applicable carry-forward period. Therefore, the Company does not believe that it is more likely than not that the deferred tax asset will be realized.
A valuation allowance is required to be recognized to reduce deferred tax assets to an amount that is more likely than not to be realized. Realization of deferred tax assets depends upon having sufficient past or future taxable income in periods to which the deductible temporary differences are expected to be recovered or within any applicable carryback or carryforward periods. The Company believes that it is more likely than not that it will be able to realize all of its deferred tax assets other than that which is expected to result in a capital loss.
Deferred Financing and Issuance Costs
Financing costs incurred to obtain financing under the revolving credit facility have been capitalized and are amortized using the straight-line method over the term of the revolving credit facility. The Series I Secured note obligations are reported net of issuance costs, sales commissions and other direct expenses, which are amortized using the interest method over the term of each respective borrowing. The Renewable Secured Debentures are reported net of issuance costs, sales commissions and other direct expenses, which are amortized using the interest method over the term of each respective borrowing. The Series A preferred stock is reported net of issuance costs, sales commissions, including the fair value of warrants issued, and other direct expenses, which are amortized using the interest method as interest expense over the three year redemption period.
Risk Relating to Forward-Looking Statements
Certain matters discussed in this section of this report, and elsewhere in this report, are forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. Nevertheless, these forward-looking statements are subject to risks, uncertainties and assumptions about our operations and the investments we make, including, among other things, the following:
| ● | changes in the secondary market for life insurance; |
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| ● | our limited operating history; |
| ● | the valuation of assets reflected on our financial statements; |
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| ● | the reliability of assumptions underlying our actuarial models; |
| ● | our reliance of debt financing; |
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| ● | risks relating to the validity and enforceability of the life insurance policies we purchase; |
| ● | our reliance on information provided and obtained by third parties; |
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| ● | federal and state regulatory matters; |
| ● | additional expenses, not reflected in our operating history, related to being a public reporting company; |
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| ● | competition in the secondary life insurance market; |
| ● | the relative illiquidity of life insurance policies; |
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| ● | life insurance company credit exposure; |
| ● | economic outlook; |
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| ● | performance of our investments in life insurance policies; |
| ● | financing requirements; |
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| ● | litigation risks; and |
| ● | restrictive covenants contained in borrowing agreements. |
Forward-looking statements can generally be identified by the use of words like “believes,” “could,” “possibly,” “probably,” “anticipates,” “estimates,” “projects,” “expects,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect” or “consider,” or the negative of these expressions or other variations, or by discussions of strategy that involve risks and uncertainties. All forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements. We caution you that the forward-looking statements in this report are only estimates and predictions, or statements of current intent. Actual results or outcomes, or actions that we ultimately undertake, could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements.
Principal Revenue and Expense Items
We earn revenues from three primary sources as described below.
● | Policy Benefits Realized. We recognize the difference between the death benefits and carrying values of the policy when an insured event has occurred and the Company determines that settlement and ultimate collection of the death benefits is realizable and reasonably assured. Revenue from a transaction must meet both criteria in order to be recognized. We generally collect the face value of the life insurance policy from the insurance company within 45 days of the insured’s mortality. |
● | Sale of a Life Insurance Policy or a Portfolio of Life Insurance Policies. In an event of a sale of a policy the Company recognizes gain or loss as the difference between the sale price and the carrying value of the policy on the date of the receipt of payment on such sale. |
● | Change in Fair Value of Life Insurance Policies. We have elected to carry our investments in life insurance policies at fair value in accordance with ASC 325-30,Investments in Life Insurance Contracts. Accordingly, we value our investments in life insurance policies each reporting period in accordance with the fair value principles discussed herein, which includes the expected payment of premiums for future periods. |
Our main components of expense are summarized below.
● | Selling, General and Administrative Expenses. We recognize and record expenses incurred in the operations of the purchasing and servicing of life insurance policies. These expenses include professional fees, salaries, and sales and marketing expenditures. |
● | Interest Expense. We recognize and record interest expenses associated with the costs of financing our life insurance portfolio for the current period. These expenses include interest paid to our senior lender under our revolving credit facility, as well as all interest paid on our debentures and other outstanding indebtedness such as our subsidiary secured notes and dividends on convertible, redeemable preferred stock. When we issue long-term indebtedness, we amortize the issuance costs associated with such indebtedness over the outstanding term of the financing, and classify it as interest expense. |
Results of Operations — Three Months Ended March 31, 2013 Compared to the Same Period in 2012
The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with our consolidated financial statements and related notes.
Revenue. Revenue recognized from the receipt of policy benefits was $2,510,000 and $0 during the three months ended March 31, 2013 and 2012, respectively. Revenue recognized from the change in fair value of our life insurance policies, net of premiums and carrying costs, was $5,830,000 and $602,000 for the three month ended March 31, 2013 and 2012, respectively. During the three-month period ended March 31, 2013, we purchased a higher volume of life insurance policies than we did during the same period in 2012. The change in fair value related to new policies acquired during the three months ended March 31, 2013 and 2012 was $6,057,000 and $329,000 respectively. In each case, the increases in fair value were due to changes in the discount rates we use to calculate the net present value of cash flows expected from our portfolio of life insurance policies, change in fair value of policies acquired during the period, and aging of the policies. Decreases in fair value were due to changes in life expectancy estimates. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance companies that issued the life insurance policies in our portfolio and our estimate of the risk premium an investor would require to receive the future cash flows from our portfolio of life insurance policies. The discount rate used to estimate the fair value of the life insurance policies we own was 12.12% as of March 31, 2013, compared to 13.45% for the same date in 2012. The decrease in discount rate was due to an increase in the size and diversity of policies held in our portfolio of life insurance policies that resulted in lower risk premium to a potential buyer of the portfolio in its entirety. The carrying value of policies acquired during each quarterly reporting period are adjusted to their current fair value using the fair value discount rate applied to the portfolio as of that reporting date.
Expenses. Interest expense, including amortization of deferred financing costs and preferred stock dividends, was $4,467,000 during the three months ended March 31, 2013 compared to $2,438,000 during the same period of 2012, an increase of $2,029,000. The increase was due to increased average debt outstanding, increased Series A preferred stock, and higher interest rate associated with the revolving line of credit. Selling, general, and administrative expenses were $3,407,000, and $1,457,000 during the three-month periods ending March 31, 2013 and 2012, respectively, an increase of $1,951,000. The increase is mostly due to employee expenses and benefits as well as higher sales and marketing costs associated with raising funds through renewable secured debentures.
Income Tax Expense. For the three months ended March 31, 2013, the Company recorded income tax expense of $566,000, or 89.4% of income before taxes, compared to the recognition of an income tax benefit of $1,139,000, or 34.6% for the three months ended March 31, 2012. The primary differences between the Company’s March 31, 2013 effective tax rate and the statutory federal rate are the accrual of preferred stock dividend expense, state taxes, and other non-deductible expenses. Excluding the impact of the dividends and other permanent differences, the effective tax rate for the three months ended March 31, 2013 would have been 40.5%.
The most significant temporary differences between GAAP net income and taxable net income are the treatment of interest costs with respect to the acquisition of the life insurance policies and revenue recognition with respect to the mark-to-market of life insurance portfolio.
Liquidity and Capital Resources
We finance our business through a combination of policy benefit revenues, origination fees, equity offerings, debt offerings, and a credit facility. We have used our debt offerings and credit facility primarily for policy acquisition, policy servicing and portfolio related financing expenditures. We charge an intercompany origination fee in the amount of one to four percent of the face value of a life insurance policy’s benefit when we acquire the related life insurance policy. The origination fee we charge is included in the total purchase price we pay for a life insurance policy for our purposes and of our valuation and expected internal rate of return calculations, but is not netted against the purchase price we pay to a seller of an insurance policy. We generated cash flows of $1,278,000 and $148,200 from origination fees during the three months ended March 31, 2013 and 2012 respectively. The higher amount in 2013 was due to a higher volume of purchases of life insurance policies compared to that in the same period of 2012. Profit from intra-company origination fees for life insurance policies retained by the Company are eliminated from our consolidated statements of operations. As such, the origination fees collected under our life insurance policy financing arrangements are reflected in our consolidated statements of cash flows as cash flows from financing activities as they are paid in the form of borrowings used to finance the acquisition. Our revolving bank line allows GWG DLP Funding II to borrow the funds necessary to pay origination fees to GWG Life Settlements, LLC. Our borrowing agreements allow us to use net proceeds of the renewable secured debentures for policy acquisition, which includes origination fees. If the policy acquisition is not financed, no fees are included in the consolidated cash flows. See “—Cash Flows” below for further information. We determine the purchase price of life insurance policies in accordance with ASC 325-30, Investments in Insurance Contracts, using the fair value method. Under the fair value method, the initial investment is recorded at the transaction price. Since the origination fees are paid from a wholly owned subsidiary to the parent company, these fees are not included in the transaction price for our consolidated financial statements. For further discussion on our accounting policies for life settlements, please refer to note 1 to our consolidated financial statements.
As of March 31, 2013, we had approximately $35.0 million in combined available cash and available borrowing base surplus capacity under our revolving credit facility for the purpose of purchasing additional life insurance policies, paying premiums on existing policies, paying portfolio servicing expenses, and paying principal and interest on our outstanding financing obligations.
In September 2012, we concluded a Series A preferred stock offering, receiving an aggregate $24.6 million in subscriptions for our Series A preferred stock. These subscriptions consisted of $14.0 million in conversions of outstanding Series I subsidiary secured notes and $10.6 million of new investments. We have used the proceeds from the sale of our Series A preferred stock, together with the origination fees we received to purchase and finance life insurance policies to fund our operational expenditures.
In June 2011, we registered a $250.0 million debt offering of our Renewable Secured Debentures with the SEC, which registration became effective on January 31, 2012. As of March 31, 2013, we had received $81.4 million in subscriptions for our Renewable Secured Debentures.
Additionally, our wholly owned subsidiary, GWG Life Settlements, LLC, or GWG Life, issued Series I Secured notes beginning in November 2009 on a private placement basis to accredited investors only. As of March 31, 2013, we had approximately $37.5 million in principal amount of Series I Secured notes outstanding. This offering was closed in November 2011.
The weighted-average interest rate of our outstanding Series I Secured notes as of March 31, 2013 was 8.25% and the weighted-average maturity at that date was 1.39 years. The Series I Secured notes have renewal features. Since we first issued our Series I Secured notes, we have experienced $93,333,000 in maturities, of which $73,845,000 has renewed for an additional term as of March 31, 2013. This has provided us with an aggregate renewal rate of approximately 79% for investments in our subsidiary secured notes. Future contractual maturities of Series I Secured notes payable at March 31, 2013 are as follows:
| Years Ending December 31, | | | |
| Nine months ending December 31, 2013 | | $ | 15,316,000 | |
| 2014 | | | 10,348,000 | |
| 2015 | | | 5,692,000 | |
| 2016 | | | 1,273,000 | |
| 2017 | | | 4,085,000 | |
| Thereafter | | | 754,000 | |
| | | $ | 37,468,000 | |
The weighted-average interest rate of our outstanding Renewable Secured Debentures as of March 31, 2013 was 7.60% and the weighted-average maturity at that date was 2.82 years. Our Renewable Secured Debentures have renewal features. Since we first issued our Renewable Secured Debentures, we have experienced $3,960,000 in maturities, of which $3,004,000 has renewed for an additional term as of March 31, 2013. This has provided us with an aggregate renewal rate of approximately 76% for investments in our Renewable Secured Debentures. Future contractual maturities of Renewable Secured Debentures at March 31, 2013 are as follows:
| Years Ending December 31, | | | |
| Nine months ending December 31, 2013 | | $ | 12,001,000 | |
| 2014 | | | 12,968,000 | |
| 2015 | | | 25,045,000 | |
| 2016 | | | 11,200,000 | |
| 2017 | | | 6,001,000 | |
| Thereafter | | | 13,185,000 | |
| | | $ | 80,400,000 | |
The Renewable Secured Debentures and Series I Secured notes are secured by all our assets, and are subordinate to our revolving credit facility with Autobahn/DZ Bank. The Renewable Secured Debentures and Series I Secured notes are pari passu with respect to our assets pursuant to an inter-creditor agreement (see notes 7 and 8 to our consolidated financial statements).
We maintain a $100 million revolving credit facility with Autobahn/DZ Bank through our wholly owned subsidiary GWG DLP Funding II, or DLP Funding II. As of March 31, 2013, we had $79.0 million outstanding under the revolving credit facility and maintained an available borrowing base surplus of $0.4 million (see note 6 to our consolidated financial statements).
We expect to meet our ongoing operational capital needs through a combination of policy benefit revenues, origination fees, and proceeds from financing transactions. We expect to meet our policy acquisition, servicing, and financing capital needs principally from the receipt of policy benefit revenues from our portfolio of life insurance policies, net proceeds from our offering of Renewable Secured Debentures, and from our revolving credit facility. Because we only receive origination fees when we purchase a policy, our receipt of those fees is contingent upon our consummation of policy purchases, which is, in turn, contingent upon our receipt of external funding. Despite recent adverse capital market conditions, including a prolonged credit crisis, we demonstrate continued access to credit and financing markets. Furthermore, we expect to begin receiving insurance benefit payments on our portfolio of life insurance policies as the average age of the insureds increase and mortality events occur over time—which we expect to begin more significantly in 2015 and steadily increasing until 2018. As a result of the foregoing, we estimate that our liquidity and capital resources are sufficient for our current and projected financial needs. Nevertheless, if we are unable to continue our offering of Renewable Secured Debentures for any reason, and we are unable to obtain capital from other sources, we expect that our business would be materially and adversely affected. In addition, our business would be materially and adversely affected if we did not receive the policy benefits we forecast and if holders of our Renewable Secured Debentures or Series I Secured notes failed to renew with the frequency we have historically experienced. In such a case, we could be forced to sell our investments in life insurance policies, in order to service or satisfy our debt-related obligations and continue to pay policy premiums.
Capital expenditures have historically not been material and we do not anticipate making material capital expenditures in 2013 or beyond.
Debt Financings Summary
We had the following outstanding debt balances as of March 31, 2013:
| Issuer/Borrower | | Principal Amount Outstanding | | | Weighted Average Interest Rate | |
| GWG Holdings, Inc. - Renewable Secured Debentures | | $ | 80,400,000 | | | | 7.60 | % |
| GWG Life Settlements, LLC -Series I Notes, secured | | | 37,468,000 | | | | 8.25 | % |
| GWG DLP Funding II, LLC - Revolving credit facility | | | 79,000,000 | | | | 6.26 | % |
| Total | | $ | 196,868,000 | | | | 7.19 | % |
Our total credit facility and other indebtedness balance as of March 31, 2013 was $196,868,000. The total outstanding face amount under our Series I Secured notes outstanding at March 31, 2013 was $37,468,000, less unamortized selling costs of $824,000, plus $30,000 of redemptions in process, resulting in a carrying amount of $36,674,000. The total outstanding face amount of Renewable Secured Debentures outstanding at March 31, 2013 was $80,400,000 plus $1,015,000 of subscriptions in process, less unamortized selling costs of $3,656,000, resulting in a carrying amount of $77,759,000. The fair value of our investments in life insurance policies of $185,020,000 plus our cash balance of $34,552,000 and our restricted cash balance of $6,624,000, totaled $226,196,000, representing an excess of portfolio assets over secured indebtedness of $29,328,000 at March 31, 2013. The Renewable Secured Debentures and Series I Secured notes are secured by all our assets and are subordinate to our revolving credit facility with Autobahn/DZ Bank. The Renewable Secured Debentures and Series I Secured notes are pari passu with respect to shared collateral pursuant to an inter-creditor agreement.
On January 29, 2013, GWG Holdings entered into an Amended and Restated Credit and Security Agreement with Autobahn Funding Company LLC, as the conduit lender, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as the committed lender and as the agent on behalf of secured parties under such agreement. The Amended and Restated Credit and Security Agreement extends the maturity date of borrowings made by the Company’s subsidiary, GWG DLP Funding II, LLC, to December 31, 2014, and removes certain GWG-related parties to the original Credit and Security Agreement dated June 15, 2008. In connection with the Amended and Restated Credit and Security Agreement, GWG Holdings and its subsidiaries entered into certain other agreements and amendments and restatement of earlier agreements entered into in connection with the original Credit and Security Agreement. Included among these other agreements was a Reaffirmation and Modification Agreement that reaffirms the performance guaranty that GWG Holdings earlier provided in connection with the original Credit and Security Agreement to DZ Bank AG Deutsche Zentral-Genossenschaftsbank, as agent.
Cash Flows
The payment of premiums and servicing costs to maintain life insurance policies represents our most significant requirement for cash disbursement. When a policy is purchased, we are able to calculate the minimum premium payments required to maintain the policy in-force. Over time as the insured ages, premium payments will increase; however, the probability of actually needing to pay the premiums decreases since mortality becomes more likely. These scheduled premiums and associated probabilities are factored into our expected internal rate of return and cash-flow modeling. Beyond premiums, we incur policy servicing costs, including annual trustee and tracking costs, and debt servicing costs, including principal and interest payments. Until we receive a stable amount of proceeds from the policy benefits, we intend to pay these costs from our credit facility and through the issuance of debt securities. We presently expect that by 2015, the cash inflows from the receipt of policy benefits will exceed the premium obligations on the remaining life insurance policies held within the portfolio.
We expect to begin servicing and paying down our outstanding indebtedness from these cash flows when we receive payments from the policy benefits. See “Business—Portfolio Management.”
The amount of payments that we will be required to make over the next five years to cover the payment of premiums and servicing costs to maintain the current portfolio of life insurance policies is set forth in the table below.
| Year | | Premiums and Servicing | |
| Nine months ending December 31, 2013 | | $ | 15,781,000 | |
| 2014 | | | 21,166,000 | |
| 2015 | | | 22,903,000 | |
| 2016 | | | 25,054,000 | |
| 2017 | | | 27,452,000 | |
| Total | | $ | 112,356,000 | |
Most of the insurance policies owned by our wholly owned subsidiary, GWG DLP Funding II, are subject to a collateral arrangement with the agent to our revolving credit lender, as described in note 6 to the consolidated financial statements. Under this arrangement, collection and escrow accounts are used to fund purchases and premiums of the insurance policies and to pay interest and other charges under our revolving credit facility. The lender and its agent must authorize all disbursements from these accounts, including any distributions to GWG Life or Holdings. Distributions are limited to an amount that would result in the borrowers (GWG DLP Funding II, LLC, GWG Life Settlements, LLC, and GWG Holdings, Inc.) realizing an annualized rate of return on the equity funded amount for such assets of not more than 18%, as determined by the agent. After such amount is reached, the credit agreement requires that excess funds be used to fund repayments or a reserve account in a certain amount before any additional distributions may be made. In the future, these arrangements may restrict the cash flows available for payment of principal and interest on our debt obligations.
Inflation
Changes in inflation do not necessarily correlate with changes in interest rates. We presently do not foresee any material impact of inflation on our results of operations in the periods presented in our consolidated financial statements.
Off-Balance Sheet Arrangements
Operating Lease - The Company entered into an office lease with U.S. Bank National Association as the landlord. The lease was effective April 22, 2012 with a term through August 31, 2015. The lease is for 8,881 square feet of office space located at 220 South Sixth Street, Minneapolis, Minnesota. The Company is obligated to pay base rent plus common area maintenance and a share of the building operating costs. Minimum lease payments under the lease are as follows:
| Nine months ending December 31, 2013 | | $ | 74,000 | |
| 2014 | | $ | 104,000 | |
| 2015 | | $ | 70,000 | |
| Total | | $ | 248,000 | |
Credit Risk
We review the credit risk associated with our portfolio of life insurance policies when estimating its fair value. In evaluating the policies’ credit risk we consider insurance company solvency, credit risk indicators, economic conditions, ongoing credit evaluations, and company positions. We attempt to manage our credit risk related to life insurance policies typically by purchasing policies issued only from companies with an investment grade credit rating by either Standard & Poor’s, Moody’s, or A.M. Best Company. As of March 31, 2013, 99.03% of our life insurance policies, by face value benefits, were issued by companies that maintained an investment grade rating (BBB- or better) by Standard & Poor’s.
Interest Rate Risk
Our credit facility is floating-rate financing. In addition, our ability to offer interest rates that attract capital (including in the offer and sale of Renewable Secured Debentures) is generally impacted by prevailing interest rates. Furthermore, while our other indebtedness provides us with fixed-rate financing, our debt coverage ratio is calculated in relation to our total cost of financing. Therefore, fluctuations in interest rates impact our business by increasing our borrowing costs, and reducing availability under our debt financing arrangements. Furthermore, we calculate our portfolio earnings based upon the spread generated between the return on our life insurance portfolio and the cost of our financing. As a result, increases in interest rates will reduce the earnings we expect to achieve from our investments in life insurance policies.
Non-GAAP Financial Measures
We use non-GAAP financial measures when evaluating our financial results, for planning and forecasting purposes, and for maintaining compliance with covenants contained in our borrowing agreements. Non-GAAP financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing our financial condition and operating results. These non-GAAP financial measures are not in accordance with GAAP and may be different from non-GAAP measures used by other companies, including other companies within our industry. This presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for comparable amounts prepared in accordance with GAAP. See the notes to our consolidated financial statements and our audited financial statements contained herein.
We have elected to carry our investments in life insurance policies at fair value in accordance with ASC 325-30, Investments in Life Insurance Contracts. Accordingly, we value our investments in life insurance policies at the conclusion of each reporting period in accordance with GAAP fair value accounting principles. In addition to GAAP, we are required to report non-GAAP financial measures to Autobahn/DZ Bank under certain financial covenants made to that lender under our revolving credit facility. As indicated above, we also use non-GAAP financial reporting to manage and evaluate the financial performance of our business.
GAAP-based fair value requires us to mark-to-market our investments in life insurance policies, which by its nature, is based upon Level 3 measurements that are unobservable. As a result, this accounting treatment imports financial market volatility and subjective inputs into our financial reporting. We believe this type of accounting reporting is at odds with one of the key attractions for purchasing life insurance policies: The non-correlated nature of the returns to be derived from such policies. Therefore, in contrast to a GAAP-based fair valuation, we seek to measure the accrual of the actuarial gain occurring within life insurance policies at their expected internal rate of return based on statistical mortality probabilities for an insured (using primarily the insured’s age, sex and smoking status). The expected internal rate of return tracks actuarial gain occurring within the policies according to a mortality table as the insureds’ age increases. By comparing the actuarial gain accruing within our life insurance policies against our costs during the same period, we can estimate, manage and evaluate the overall financial profitability of our business without regard to mark-to-market volatility. We use this information to balance our life insurance policy purchasing and manage our capital structure, including the issuance of debt and utilization of our other sources of capital, and to monitor our compliance with borrowing covenants. We believe that these non-GAAP financial measures provide information that is useful for investors to understand period-over-period operating results separate and apart from fair value items that may, or could, have a disproportionately positive or negative impact on results in any particular period.
Our credit facility requires us to maintain a “positive net income” and “tangible net worth” each of which are calculated on an adjusted non-GAAP basis on the method described above, without regard to GAAP-based fair value measures. In addition, our revolving credit facility requires us to maintain an “excess spread,” which is the difference between (i) the weighted average of our expected internal rate of return of our portfolio of life insurance policies and (ii) the weighted average of our credit facility’s interest rate. These calculations are made using non-GAAP measures in the method described below, without regard to GAAP-based fair value measures.
In addition, our Renewable Secured Debentures and Series I subsidiary secured notes require us to maintain a “debt coverage ratio” designed to ensure that the expected cash flows from our portfolio of life insurance policies is able to adequately service our total outstanding indebtedness. In addition, our Renewable Secured Debentures requires us to maintain a “subordination ratio” which limits the total amount of indebtedness that can be issued senior in rank to the Renewable Secured Debentures and Series I subsidiary secured notes. These ratios are calculated using non-GAAP measures in the method described below, without regard to GAAP-based fair value measures.
Adjusted Non-GAAP Net Income. Our credit facility requires us to maintain a positive net income calculated on an adjusted non-GAAP basis. We calculate the adjusted net income by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our costs during the same period to calculate our net income on a non-GAAP basis.
| Three months ended March 31, | | 2013 | | | 2012 | |
| GAAP net income (loss) | | $ | 67,000 | | | $ | (2,153,000 | ) |
| Unrealized fair value gain (1) | | | (11,495,000 | ) | | | (602,000 | ) |
| Adjusted cost basis increase (2) | | | 10,256,000 | | | | 1,581,000 | |
| Accrual of unrealized actuarial gain (3) | | | 5,033,000 | | | | 4,056,000 | |
| Total adjusted non-GAAP income (4) | | $ | 3,861,000 | | | $ | 2,882,000 | |
| (1) | Reversal of unrealized fair value gain of life insurance policies for current period. |
| (2) | Adjusted cost basis is increased to include those acquisition and servicing expenses which are not capitalized by GAAP. |
| (3) | Accrual of actuarial gain at expected internal rate of return based on investment cost basis for the period. |
| (4) | We must maintain an annual positive consolidated net income, calculated on a non-GAAP basis, to maintain compliance with our revolving credit facility with DZ Bank/Autobahn. |
Below is a full non-GAAP statement of operations in the form that we prepare and use internally to assess our performance, and that we provide to Autobahn/DZ Bank in satisfaction of certain covenants under our revolving credit facility.
Non-GAAP statement of operations:
| Three months ended March 31, | | 2013 | | | 2012 | |
| Income | | | | | | |
| Investments in life settlement contracts (Unrealized) | | $ | 5,033,000 | | | $ | 4,055,000 | |
| Investments in life settlement contracts (Realized) | | | 2,510,000 | | | | - | |
| Origination fees and other income | | | 1,446,000 | | | | 150,000 | |
| Total Income | | | 8,989,000 | | | | 4,205,000 | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Operations | | | 4,042,000 | | | | 1,951,000 | |
| Facility, Series I secured notes and renewable secured debentures marketing and deferred financing costs | | | 520,000 | | | | 509,000 | |
| Total Expenses | | | 4,562,000 | | | | 2,461,000 | |
| Net income before tax | | | 4,427,000 | | | | 1,744,000 | |
| | | | | | | | | |
| Income tax expense (benefit) | | | 566,000 | | | | (1,139,000) | |
| | | | | | | | | |
| Net Income | | | 3,861,000 | | | | 2,882,000 | |
| | | | | | | | | |
| Income per share | | | | | | | | |
| Basic and diluted | | $ | 0.39 | | | $ | 0.29 | |
| Fully diluted assuming conversion of preferred stock | | $ | 0.26 | | | $ | 0.22 | |
| | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | |
| Basic and diluted | | | 9,989,000 | | | | 9,989,000 | |
| Fully diluted assuming conversion of preferred stock | | | 15,014,881 | | | | 13,260,188 | |
Adjusted Non-GAAP Tangible Net Worth. Our revolving credit facility requires us to maintain a tangible net worth in excess of $15 million calculated on an adjusted non-GAAP basis. We calculate the adjusted tangible net worth by recognizing the actuarial gain accruing within our life insurance policies at the expected internal rate of return of the policies we own without regard to fair value. We net this actuarial gain against our costs during the same period to calculate our tangible net worth on a non-GAAP basis.
| | | As of March 31, 2013 | | | As of December 31, 2012 | |
| GAAP net worth (1) | | $ | 22,608,000 | | | $ | 22,644,000 | |
| Less intangible assets | | | (5,902,000 | ) | | | (3,650,000 | ) |
| GAAP tangible net worth | | | 16,706,000 | | | | 18,994,000 | |
| Unrealized fair value gain (2) | | | (86,901,000 | ) | | | (75,406,000 | ) |
| Adjusted cost basis increase (3) | | | 77,279,000 | | | | 67,123,000 | |
| Accrual of unrealized actuarial gain (4) | | | 32,877,000 | | | | 27,845,000 | |
| Total adjusted non-GAAP tangible net worth (5) | | $ | 39,961,000 | | | $ | 38,556,000 | |
| (1) | Includes termination of redeemable member’s interest prior to corporate conversion and preferred stock classified as temporary equity. |
| (2) | Reversal of cumulative unrealized fair value gain or loss of life insurance policies. |
| (3) | Adjusted cost basis is increased by acquisition and servicing expenses which are not capitalized under GAAP. |
| (4) | Accrual of cumulative actuarial gain at expected internal rate of return based on investment cost basis. |
| (5) | We must maintain a total adjusted non-GAAP tangible net worth of $5 million to maintain compliance with our revolving credit facility with DZ Bank/Autobahn. |
Excess Spread. Our revolving credit facility requires us to maintain a 2.00% “excess spread” between our weighted-average expected internal rate of return of our portfolio of life insurance policies and the credit facility’s interest rate. A presentation of our excess spread and our total excess spread is set forth below. Management uses the “total excess spread” to gauge expected profitability of our investments, and uses the “excess spread” to monitor compliance with our borrowing
| | | As of March 31, 2013 | | | As of December 31, 2012 | |
| Weighted-average expected IRR (1) | | | 12.92 | % | | | 12.84 | % |
| Weighted-average revolving credit facility interest rate (2) | | | 6.26 | % | | | 2.02 | % |
| Excess spread (3) | | | 6.66 | % | | | 10.82 | % |
| Total weighted-average interest rate on indebtedness for borrowed money (4) | | | 7.19 | % | | | 5.39 | % |
| Total excess spread | | | 5.73 | % | | | 7.45 | % |
| (1) | This represents the weighted-average expected internal rate of return of the life insurance policies as of the measurement date based upon our investment cost basis of the insurance policies and the expected cash flows from the life insurance portfolio. The expected internal rate of return as of December 31, 2012 includes an adjustment to increase, by an average of 8.67%, any life expectancy provided by 21st Services. As a result of this adjustment, our expected internal rate of return at December 31, 2012 decreased from 14.27% to 12.84%. Our investment cost basis is calculated as our cash investment in the life insurance policies, without regard to GAAP-based fair value measurements, and is set forth below: |
| Investment Cost Basis | | As of March 31, 2013 | | | As of December 31, 2012 | |
| GAAP fair value | | $ | 185,020,000 | | | $ | 164,317,000 | |
| Unrealized fair value gain (A) | | | (86,901,000 | ) | | | (75,406,000 | ) |
| Adjusted cost basis increase (B) | | | 77,279,000 | | | | 67,123,000 | |
| Investment cost basis (C) | | $ | 175,398,000 | | | $ | 156,034,000 | |
| | (A) | This represents the reversal of cumulative unrealized GAAP fair value gain of life insurance policies. |
| | (B) | Adjusted cost basis is increased to include those acquisition and servicing expenses that are not capitalized by GAAP. |
| | (C) | This is the full cash investment cost basis in life insurance policies from which our expected internal rate of return is calculated. |
| (2) | This is the weighted-average revolving credit relating to our revolving credit facility interest rate as of the measurement date. |
| (3) | We must maintain an excess spread of 2.00% relating to our revolving credit facility to maintain compliance under such facility. |
| (4) | Represents the weighted-average interest rate paid on all outstanding indebtedness as of the measurement date, determined as follows: |
Outstanding Indebtedness | | As of March 31, 2013 | | | As of December 31, 2012 | |
| Revolving credit facility | | $ | 79,000,000 | | | $ | 71,000,000 | |
| Series I Subsidiary secured notes | | | 37,468,000 | | | | 38,570,000 | |
| Renewable Secured Debentures | | | 80,400,000 | | | | 57,609,000 | |
| Total | | $ | 196,868,000 | | | $ | 167,179,000 | |
| Interest Rates on Indebtedness | | | |
| Revolving credit facility | | | 6.26 | % | | | 2.02 | % |
| Series I subsidiary secured notes | | | 8.25 | % | | | 8.22 | % |
| Renewable Secured Debentures | | | 7.60 | % | | | 7.65 | % |
| Weighted-average interest rates on indebtedness | | | 7.19 | % | | | 5.39 | % |
Debt Coverage Ratio and Subordination Ratio. Our Renewable Secured Debentures and Series I subsidiary secured notes requires us to maintain a “debt coverage ratio” of less than 90%. The “debt coverage ratio” is calculated by dividing the sum of our total indebtedness by the sum of our cash and cash equivalents and the net present value of the life insurance portfolio. The “subordination ratio” for our Renewable Secured Debentures is calculated by dividing the total indebtedness that is senior to Renewable Secured Debentures and Series I subsidiary secured notes by the sum of the company’s cash and cash equivalents and the net present value of the life insurance portfolio. The “subordination ratio” must be less than 50%. For purposes of both ratio calculations, the net present value of the life insurance portfolio is calculated using a discount rate equal to the weighted average interest rate of all indebtedness.
| | | As of March 31, 2013 | | | As of December 31, 2012 | |
| Life insurance portfolio policy benefits | | $ | 639,755,000 | | | $ | 572,246,000 | |
| Discount rate of future cash flows | | | 7.19 | % | | | 5.39 | % |
| Net present value of Life insurance portfolio policy benefits | | $ | 247,776,000 | | | $ | 248,702,000 | |
| Cash and cash equivalents | | | 41,176,000 | | | | 29,590,000 | |
| Total Coverage | | | 288,952,000 | | | | 278,292,000 | |
| | | | | | | | | |
| Revolving credit facility | | | 79,000,000 | | | | 71,000,000 | |
| Series I Subsidiary secured notes | | | 37,468,000 | | | | 38,570,000 | |
| Renewable Secured Debentures | | | 80,400,000 | | | | 57,609,000 | |
| Total Indebtedness | | $ | 196,868,000 | | | $ | 167,179,000 | |
| | | | | | | | | |
| Debt Coverage Ratio | | | 68.13 | % | | | 60.07 | % |
| Subordination Ratio | | | 27.34 | % | | | 25.51 | % |
As of March 31, 2013, we were in compliance with both the debt coverage ratio and the subordination ratio as required under our related financing agreements for Renewable Secured Debentures and Series I subsidiary secured notes.
Our Portfolio
Our portfolio of life insurance policies, owned by our subsidiaries as of March 31, 2013, is summarized and set forth below:
Life Insurance Portfolio Summary
| Total portfolio face value of policy benefits | | $ | 639,755,000 | |
| Average face value per policy | | $ | 2,722,000 | |
| Average face value per insured life | | $ | 2,990,000 | |
| Average age of insured (yrs.) * | | | 81.5 | |
| Average life expectancy estimate (yrs.) * | | | 7.62 | |
| Total number of policies | | | 235 | |
| Demographics | 66% Males; 34% Females | |
| Number of smokers | No insureds are smokers | |
| Largest policy as % of total portfolio | | | 1.56 | % |
| Average policy as % of total portfolio | | | 0.43 | % |
| Average Annual Premium as % of face value | | | 3.26 | % |
* Averages presented in the table are weighted averages.
Our portfolio of life insurance policies, owned by our subsidiaries as of March 31, 2013, organized by the insured’s current age and the associated policy benefits, is summarized as set forth below:
Distribution of Policy Benefits by Current Age of Insured
| Min Age | | Max Age | | Policy Benefits | | | Distribution |
| 65 | | 69 | | $ | 2,656,000 | | | | 0.42 | % |
| 70 | | 74 | | | 47,817,000 | | | | 7.47 | % |
| 75 | | 79 | | | 179,861,000 | | | | 28.11 | % |
| 80 | | 84 | | | 228,635,000 | | | | 35.74 | % |
| 85 | | 89 | | | 173,715,000 | | | | 27.15 | % |
| 90 | | 95 | | | 7,071,000 | | | | 1.11 | % |
| Total | | | | $ | 639,755,000 | | | | 100.00 | % |
Our portfolio of life insurance policies, owned by our subsidiaries as of March 31, 2013, organized by the insured’s current age and number of policies owned, is summarized as set forth below:
Distribution of Policies by Current Age of Insured
| Min Age | | Max Age | | Policies | | | Distribution |
| 65 | | 69 | | | 4 | | | | 1.70 | % |
| 70 | | 74 | | | 17 | | | | 7.23 | % |
| 75 | | 79 | | | 62 | | | | 26.38 | % |
| 80 | | 84 | | | 87 | | | | 37.03 | % |
| 85 | | 89 | | | 61 | | | | 25.96 | % |
| 90 | | 95 | | | 4 | | | | 1.70 | % |
| Total | | | | | 235 | | | | 100.00 | % |
Our portfolio of life insurance policies, owned by our subsidiaries as of March 31, 2013, organized by the insured’s estimated life expectancy and associated policy benefits, is summarized as set forth below:
Distribution of Policies by Current Life Expectancies of Insured
| Min LE (Months) | | Max LE (Months) | | Policy Benefits | | | Distribution | |
| 144 | | 168 | | $ | 25,450,000 | | | | 3.98 | % |
| 120 | | 143 | | | 72,797,000 | | | | 11.38 | % |
| 96 | | 119 | | | 191,409,000 | | | | 29.92 | % |
| 72 | | 95 | | | 162,702,000 | | | | 25.43 | % |
| 48 | | 71 | | | 157,083,000 | | | | 24.55 | % |
| 24 | | 47 | | | 30,314,000 | | | | 4.74 | % |
| Total | | | | $ | 639,755,000 | | | | 100.00 | % |
We track concentrations of pre-existing medical conditions among insured individuals within our portfolio based on information contained in life expectancy reports. We track these medical conditions with ten primary disease categories: (1) cardiovascular, (2) cerebrovascular, (3) dementia, (4) cancer, (5) diabetes, (6) respiratory disease, (7) neurological disorders, (8) other, no disease, or multiple. Our primary disease categories are summary generalizations based on the ICD-9 codes we track on each insured individuals within our portfolio. ICD-9 codes, published by the World Health Organization, are used worldwide for medical diagnoses and treatment systems, as well as morbidity and mortality statistics. Currently, cardiovascular is the only primary disease category within our portfolio that represents a concentration over 10%.
Our portfolio of life insurance policies, owned by our subsidiaries as of March 31, 2013, organized by the primary disease categories of the insured and associated policy benefits, is summarized as set forth below:
Distribution of Policy Benefits by Primary Disease Category
| Primary Disease Category | | Policy Benefits | | | Distribution | |
| Cancer | | $ | 37,400,000 | | | | 5.85 | % |
| Cardiovascular | | | 135,338,000 | | | | 21.16 | % |
| Cerebrovascular | | | 37,485,000 | | | | 5.86 | % |
| Dementia | | | 26,885,000 | | | | 4.20 | % |
| Diabetes | | | 35,967,000 | | | | 5.62 | % |
| Multiple | | | 154,510,000 | | | | 24.15 | % |
| Neurological Disorders | | | 14,600,000 | | | | 2.28 | % |
| No Disease | | | 66,486,000 | | | | 10.39 | % |
| Other | | | 87,384,000 | | | | 13.66 | % |
| Respiratory Diseases | | | 43,700,000 | | | | 6.83 | % |
| Total Policy Benefits | | $ | 639,755,000 | | | | 100.00 | % |
The primary disease category represents a general category of impairment. Within the primary disease category, there are a multitude of sub-categorizations defined more specifically by ICD-9 codes. For example, a primary disease category of cardiovascular includes subcategorizations such as atrial fibrillation, heart valve replacement, coronary atherosclerosis, etc. In addition, individuals may have more than one ICD-9 code describing multiple medical conditions within one or more primary disease categories. Where an individual’s ICD-9 codes indicate medical conditions in more than one primary disease categories, we categorize the individual as having multiple primary disease categories. We expect to continue to develop and refine our identification and tracking on the insured individuals medical conditions as we manage our portfolio of life insurance policies.
The possible insolvency or loss by a life insurance company is a significant risk to our business. To manage this risk, we seek to purchase policies that are issued by insurance companies with investment-grade ratings from either A.M. Best, Moody’s or Standard & Poor’s. To further mitigate risk, we seek to limit the face value of policy benefits issued by any one life insurance company within the total portfolio to 20%. State guaranty funds generally guaranty policy benefits up to $200,000. In addition, to assure diversity and stability in our portfolio, we regularly review the various metrics of our portfolio relating to credit risk. We track industry rating agency reports and industry journals and articles in order to gain insight into possible financial problems of life insurance companies. Recently, some of the credit ratings on insurance companies were downgraded and we will no longer consider purchasing policies issued by these insurance companies. Finally, we will only purchase those life insurance policies that meet the underwriting standards established in the indenture.
As of March 31, 2013, 99.03% of insurance companies in our portfolio hold an investment-grade rating by Standard & Poor’s (BBB- or better), and the face value of policy benefits issued by one life insurance company with in the portfolio was 15.44%. Of the forty insurance companies that insure the policies we own, ten companies insure approximately 75.92% of total face value of insurance benefits and the remaining thirty insurance companies insure the remaining approximately 24.08% of total face value of insurance benefits. The concentration risk of our ten largest insurance company holdings as of March 31, 2013 is set forth in the table below.
Rank | | Policy Benefits | | | Percentage of Policy Benefit Amt. | | Insurance Company | | Ins. Co. S&P Rating | |
| 1 | | $ | 98,780,000 | | | | 15.44% | | AXA Equitable Life Insurance Company | | A+ | |
| 2 | | $ | 78,995,000 | | | | 12.35% | | John Hancock Life Insurance Company (U.S.A) | | AA- | |
| 3 | | $ | 66,193,000 | | | | 10.35% | | Transamerica Life Insurance Company | | AA- | |
| 4 | | $ | 55,769,000 | | | | 8.72% | | Jefferson-Pilot Life Insurance Company | | AA- | |
| 5 | | $ | 50,315,000 | | | | 7.86% | | ING Life Insurance and Annuity Company | | A- | |
| 6 | | $ | 39,250,000 | | | | 6.14% | | American General Life Insurance Company | | A+ | |
| 7 | | $ | 32,735,000 | | | | 5.12% | | Massachusetts Mutual Life Insurance Company | | AA+ | |
| 8 | | $ | 25,450,000 | | | | 3.98% | | West Coast Life Insurance Company | | AA- | |
| 9 | | $ | 19,200,000 | | | | 3.00% | | Lincoln Benefit Life Company | | A+ | |
| 10 | | $ | 19,000,000 | | | | 2.97% | | Pacific Life Insurance Company | | A+ | |
Life Insurance Portfolio Detail
(as of March 31, 2013)
Policy Benefits | | Sex | | Age (1) | | LE (2) | | Carrier | | S&P Rating |
| $156,538 | | F | | 65 | | 138.6 | | New York Life Insurance Company | | AA+ |
| $500,000 | | M | | 68 | | 115.5 | | Transamerica Life Insurance Company | | AA- |
| $500,000 | | M | | 68 | | 115.5 | | North American Company for Life And Health Insurance | | A+ |
| $1,500,000 | | M | | 69 | | 121.9 | | Metropolitan Life Insurance Company | | AA- |
| $1,167,000 | | M | | 70 | | 51.8 | | Transamerica Life Insurance Company | | AA- |
| $2,500,000 | | M | | 70 | | 132.5 | | American General Life Insurance Company | | A+ |
| $500,000 | | M | | 71 | | 85.1 | | Midland National Life Insurance Company | | A+ |
| $1,000,000 | | M | | 71 | | 116.0 | | United of Omaha Life Insurance Company | | A+ |
| $3,000,000 | | M | | 71 | | 118.7 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | M | | 71 | | 148.5 | | American General Life Insurance Company | | A+ |
| $2,000,000 | | M | | 72 | | 117.9 | | U.S. Financial Life Insurance Company | | A+ |
| $200,000 | | M | | 72 | | 126.2 | | ING Life Insurance and Annuity Company | | A- |
| $3,000,000 | | F | | 72 | | 138.4 | | General American Life Insurance Company | | AA- |
| $5,000,000 | | M | | 73 | | 59.5 | | Lincoln Benefit Life Company | | A+ |
| $850,000 | | M | | 73 | | 90.9 | | New York Life Insurance Company | | AA+ |
| $8,000,000 | | M | | 73 | | 129.1 | | Metropolitan Life Insurance Company | | AA- |
| $5,000,000 | | M | | 73 | | 178.8 | | Prudential Life Insurance Company | | AA- |
| $5,000,000 | | M | | 74 | | 95.5 | | West Coast Life Insurance Company | | AA- |
| $600,000 | | M | | 74 | | 108.9 | | Protective Life Insurance Company | | AA- |
| $1,000,000 | | M | | 74 | | 119.0 | | Pacific Life Insurance Company | | A+ |
| $7,000,000 | | F | | 74 | | 164.5 | | Pacific Life Insurance Company | | A+ |
| $2,000,000 | | F | | 75 | | 63.5 | | Transamerica Life Insurance Company | | AA- |
| $500,000 | | M | | 75 | | 80.2 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,750,000 | | M | | 75 | | 85.7 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $5,000,000 | | M | | 75 | | 110.9 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $500,000 | | F | | 75 | | 117.3 | | Columbus Life Insurance Company | | AA+ |
| $5,000,000 | | M | | 75 | | 119.6 | | Transamerica Life Insurance Company | | AA- |
| $2,840,000 | | M | | 75 | | 126.0 | | Transamerica Life Insurance Company | | AA- |
| $1,000,000 | | M | | 75 | | 126.5 | | Metropolitan Life Insurance Company | | AA- |
| $750,000 | | M | | 75 | | 138.2 | | U.S. Financial Life Insurance Company | | A+ |
| $1,009,467 | | M | | 76 | | 60.9 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,250,000 | | M | | 76 | | 82.5 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $3,750,000 | | M | | 76 | | 83.4 | | AXA Equitable Life Insurance Company | | A+ |
| $5,000,000 | | M | | 76 | | 85.7 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,000,000 | | M | | 76 | | 92.7 | | Sun Life Assurance Company of Canada (U.S.) | | BBB |
| $4,000,000 | | M | | 76 | | 93.7 | | MetLife Investors USA Insurance Company | | AA- |
| $5,000,000 | | M | | 76 | | 98.4 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,500,000 | | M | | 76 | | 109.4 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $2,500,000 | | M | | 76 | | 109.4 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $1,000,000 | | M | | 76 | | 112.0 | | Metropolitan Life Insurance Company | | AA- |
| $5,000,000 | | M | | 76 | | 116.4 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $3,000,000 | | M | | 76 | | 116.6 | | Principal Life Insurance Company | | A+ |
| $5,000,000 | | F | | 76 | | 152.8 | | ING Life Insurance and Annuity Company | | A- |
| $3,000,000 | | M | | 77 | | 67.8 | | Pacific Life Insurance Company | | A+ |
| $3,000,000 | | M | | 77 | | 67.8 | | Minnesota Life Insurance Company | | A+ |
| $3,000,000 | | M | | 77 | | 67.8 | | Prudential Life Insurance Company | | AA- |
| $130,000 | | M | | 77 | | 70.4 | | Genworth Life Insurance Company | | A- |
| $750,000 | | M | | 77 | | 86.1 | | Lincoln National Life Insurance Company | | AA- |
| $500,000 | | M | | 77 | | 92.0 | | Transamerica Life Insurance Company | | AA- |
| $5,000,000 | | M | | 77 | | 96.7 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $3,601,500 | | M | | 77 | | 98.6 | | Transamerica Life Insurance Company | | AA- |
| $7,000,000 | | M | | 77 | | 108.1 | | Lincoln Benefit Life Company | | A+ |
| $4,000,000 | | M | | 77 | | 110.3 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $5,000,000 | | M | | 77 | | 114.7 | | Principal Life Insurance Company | | A+ |
| $4,300,000 | | F | | 77 | | 128.5 | | American National Insurance Company | | A |
| $1,000,000 | | M | | 77 | | 145.4 | | Empire General Life Assurance Corporation | | AA- |
| $1,000,000 | | M | | 78 | | 62.8 | | AXA Equitable Life Insurance Company | | A+ |
| $250,000 | | M | | 78 | | 85.3 | | American General Life Insurance Company | | A+ |
| $5,000,000 | | M | | 78 | | 98.2 | | AXA Equitable Life Insurance Company | | A+ |
| $5,000,000 | | M | | 78 | | 98.2 | | AXA Equitable Life Insurance Company | | A+ |
| $8,000,000 | | M | | 78 | | 105.0 | | AXA Equitable Life Insurance Company | | A+ |
| $1,750,000 | | M | | 78 | | 107.8 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | F | | 78 | | 110.9 | | Pacific Life Insurance Company | | A+ |
| $3,000,000 | | M | | 78 | | 114.6 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,000,000 | | F | | 78 | | 133.2 | | Transamerica Life Insurance Company | | AA- |
| $3,000,000 | | M | | 78 | | 135.3 | | Principal Life Insurance Company | | A+ |
| $5,000,000 | | M | | 79 | | 63.6 | | AXA Equitable Life Insurance Company | | A+ |
| $3,000,000 | | M | | 79 | | 88.6 | | Protective Life Insurance Company | | AA- |
| $1,500,000 | | M | | 79 | | 88.6 | | American General Life Insurance Company | | A+ |
| $1,680,000 | | F | | 79 | | 91.5 | | AXA Equitable Life Insurance Company | | A+ |
| $1,250,000 | | F | | 79 | | 96.2 | | Principal Life Insurance Company | | A+ |
| $2,000,000 | | M | | 79 | | 98.8 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $2,000,000 | | M | | 79 | | 99.0 | | Ohio National Life Assurance Corporation | | AA |
| $1,000,000 | | M | | 79 | | 99.0 | | Ohio National Life Assurance Corporation | | AA |
| $7,000,000 | | M | | 79 | | 113.8 | | Genworth Life Insurance Company | | A- |
| $10,000,000 | | M | | 79 | | 115.0 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,000,000 | | M | | 79 | | 118.4 | | AXA Equitable Life Insurance Company | | A+ |
| $3,000,000 | | F | | 79 | | 118.4 | | West Coast Life Insurance Company | | AA- |
| $1,000,000 | | F | | 79 | | 119.8 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $5,000,000 | | M | | 79 | | 124.0 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | F | | 79 | | 126.1 | | Transamerica Life Insurance Company | | AA- |
| $550,000 | | M | | 79 | | 137.0 | | Genworth Life Insurance Company | | A- |
| $1,250,000 | | M | | 79 | | 147.2 | | Metropolitan Life Insurance Company | | AA- |
| $250,000 | | M | | 80 | | 50.7 | | Jackson National Life Insurance Company | | AA |
| $500,000 | | M | | 80 | | 60.5 | | New York Life Insurance Company | | AA+ |
| $500,000 | | M | | 80 | | 60.5 | | New York Life Insurance Company | | AA+ |
| $1,900,000 | | M | | 80 | | 66.0 | | American National Insurance Company | | A |
| $750,000 | | M | | 80 | | 71.3 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $350,000 | | M | | 80 | | 74.2 | | Reassure America Life Insurance Company | | AA |
| $3,000,000 | | M | | 80 | | 74.3 | | U.S. Financial Life Insurance Company | | A+ |
| $1,500,000 | | M | | 80 | | 74.7 | | Pacific Life Insurance Company | | A+ |
| $5,000,000 | | M | | 80 | | 83.4 | | Transamerica Life Insurance Company | | AA- |
| $1,000,000 | | M | | 80 | | 88.1 | | Lincoln National Life Insurance Company | | AA- |
| $1,995,000 | | F | | 80 | | 92.6 | | Transamerica Life Insurance Company | | AA- |
| $4,000,000 | | M | | 80 | | 92.8 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $5,000,000 | | F | | 80 | | 94.5 | | Sun Life Assurance Company of Canada (U.S.) | | BBB |
| $2,500,000 | | F | | 80 | | 95.4 | | ING Life Insurance and Annuity Company | | A- |
| $1,250,000 | | F | | 80 | | 96.2 | | Columbus Life Insurance Company | | AA+ |
| $5,000,000 | | M | | 80 | | 98.2 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $3,500,000 | | F | | 80 | | 113.0 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $6,217,200 | | F | | 80 | | 114.8 | | Phoenix Life Insurance Company | | BB- |
| $5,000,000 | | M | | 80 | | 130.4 | | American General Life Insurance Company | | A+ |
| $2,000,000 | | M | | 81 | | 58.6 | | National Life Insurance Company | | A |
| $500,000 | | M | | 81 | | 60.3 | | West Coast Life Insurance Company | | AA- |
| $5,000,000 | | M | | 81 | | 75.1 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $10,000,000 | | F | | 81 | | 76.2 | | American National Insurance Company | | A |
| $5,000,000 | | M | | 81 | | 77.7 | | AXA Equitable Life Insurance Company | | A+ |
| $4,500,000 | | M | | 81 | | 79.3 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | M | | 81 | | 85.9 | | Pacific Life Insurance Company | | A+ |
| $3,500,000 | | M | | 81 | | 90.9 | | AXA Equitable Life Insurance Company | | A+ |
| $5,000,000 | | M | | 81 | | 96.2 | | AXA Equitable Life Insurance Company | | A+ |
| $3,500,000 | | F | | 81 | | 98.1 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | F | | 81 | | 109.8 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $2,275,000 | | M | | 81 | | 112.9 | | ING Life Insurance and Annuity Company | | A- |
| $750,000 | | M | | 81 | | 114.8 | | West Coast Life Insurance Company | | AA- |
| $500,000 | | F | | 81 | | 119.1 | | AXA Equitable Life Insurance Company | | A+ |
| $500,000 | | M | | 81 | | 119.9 | | Metropolitan Life Insurance Company | | AA- |
| $1,500,000 | | M | | 81 | | 125.8 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $4,200,000 | | F | | 81 | | 150.2 | | Transamerica Life Insurance Company | | AA- |
| $829,022 | | F | | 82 | | 36.0 | | Hartford Life and Annuity Insurance Company | | BBB+ |
| $4,000,000 | | M | | 82 | | 56.1 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $500,000 | | M | | 82 | | 60.7 | | Genworth Life Insurance Company | | A- |
| $3,000,000 | | F | | 82 | | 61.6 | | AXA Equitable Life Insurance Company | | A+ |
| $4,000,000 | | F | | 82 | | 63.3 | | ING Life Insurance and Annuity Company | | A- |
| $1,500,000 | | M | | 82 | | 65.9 | | Transamerica Life Insurance Company | | AA- |
| $2,700,000 | | M | | 82 | | 71.1 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,000,000 | | M | | 82 | | 74.1 | | Hartford Life and Annuity Insurance Company | | BBB+ |
| $1,500,000 | | M | | 82 | | 76.2 | | AXA Equitable Life Insurance Company | | A+ |
| $1,703,959 | | M | | 82 | | 81.4 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $2,500,000 | | F | | 82 | | 83.0 | | American General Life Insurance Company | | A+ |
| $1,000,000 | | M | | 82 | | 88.6 | | ING Life Insurance and Annuity Company | | A- |
| $1,000,000 | | M | | 82 | | 89.3 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $5,000,000 | | M | | 82 | | 92.1 | | ING Life Insurance and Annuity Company | | A- |
| $1,000,000 | | F | | 82 | | 100.0 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $3,500,000 | | F | | 82 | | 116.5 | | Lincoln Benefit Life Company | | A+ |
| $5,000,000 | | F | | 82 | | 117.8 | | AXA Equitable Life Insurance Company | | A+ |
| $1,500,000 | | F | | 82 | | 118.4 | | Lincoln Benefit Life Company | | A+ |
| $7,600,000 | | F | | 82 | | 119.0 | | Transamerica Life Insurance Company | | AA- |
| $6,000,000 | | F | | 82 | | 119.8 | | American General Life Insurance Company | | A+ |
| $2,000,000 | | F | | 82 | | 133.1 | | Lincoln Benefit Life Company | | A+ |
| $750,000 | | M | | 83 | | 37.4 | | ING Life Insurance and Annuity Company | | A- |
| $750,000 | | M | | 83 | | 37.4 | | ING Life Insurance and Annuity Company | | A- |
| $2,000,000 | | M | | 83 | | 47.8 | | Transamerica Life Insurance Company | | AA- |
| $1,000,000 | | M | | 83 | | 49.9 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,000,000 | | M | | 83 | | 54.4 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $1,800,000 | | M | | 83 | | 58.1 | | John Hancock Variable Life Insurance Company | | AA- |
| $1,000,000 | | M | | 83 | | 64.5 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,500,000 | | M | | 83 | | 72.0 | | ING Life Insurance and Annuity Company | | A- |
| $1,500,000 | | M | | 83 | | 72.0 | | ING Life Insurance and Annuity Company | | A- |
| $2,000,000 | | M | | 83 | | 81.5 | | AXA Equitable Life Insurance Company | | A+ |
| $1,750,000 | | M | | 83 | | 81.5 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | M | | 83 | | 84.8 | | Transamerica Life Insurance Company | | AA- |
| $3,750,000 | | M | | 83 | | 96.8 | | AXA Equitable Life Insurance Company | | A+ |
| $3,000,000 | | F | | 83 | | 98.0 | | Sun Life Assurance Company of Canada (U.S.) | | BBB |
| $2,000,000 | | F | | 83 | | 103.6 | | AXA Equitable Life Insurance Company | | A+ |
| $1,365,000 | | F | | 83 | | 111.5 | | Transamerica Life Insurance Company | | AA- |
| $3,000,000 | | F | | 83 | | 116.5 | | Transamerica Life Insurance Company | | AA- |
| $5,000,000 | | F | | 83 | | 129.0 | | American General Life Insurance Company | | A+ |
| $1,000,000 | | M | | 84 | | 55.8 | | American General Life Insurance Company | | A+ |
| $5,000,000 | | M | | 84 | | 65.0 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $1,000,000 | | M | | 84 | | 73.8 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,000,000 | | M | | 84 | | 73.8 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $5,000,000 | | M | | 84 | | 83.2 | | Lincoln National Life Insurance Company | | AA- |
| $8,500,000 | | M | | 84 | | 84.9 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $1,200,000 | | M | | 84 | | 93.6 | | Transamerica Life Insurance Company | | AA- |
| $3,000,000 | | M | | 84 | | 106.1 | | AXA Equitable Life Insurance Company | | A+ |
| $1,000,000 | | F | | 84 | | 110.0 | | ING Life Insurance and Annuity Company | | A- |
| $2,000,000 | | M | | 84 | | 118.4 | | ING Life Insurance and Annuity Company | | A- |
| $2,000,000 | | M | | 84 | | 118.4 | | ING Life Insurance and Annuity Company | | A- |
| $2,000,000 | | M | | 84 | | 118.4 | | ING Life Insurance and Annuity Company | | A- |
| $1,600,000 | | F | | 85 | | 44.2 | | ING Life Insurance and Annuity Company | | A- |
| $7,500,000 | | M | | 85 | | 52.6 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $5,000,000 | | F | | 85 | | 53.5 | | Transamerica Life Insurance Company | | AA- |
| $2,000,000 | | M | | 85 | | 58.7 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,000,000 | | F | | 85 | | 60.3 | | West Coast Life Insurance Company | | AA- |
| $2,000,000 | | F | | 85 | | 60.3 | | West Coast Life Insurance Company | | AA- |
| $500,000 | | F | | 85 | | 61.9 | | Sun Life Assurance Company of Canada (U.S.) | | BBB |
| $3,000,000 | | M | | 85 | | 62.2 | | Transamerica Life Insurance Company | | AA- |
| $200,000 | | M | | 85 | | 62.9 | | Lincoln Benefit Life Company | | A+ |
| $5,570,000 | | F | | 85 | | 68.0 | | ING Life Insurance and Annuity Company | | A- |
| $5,570,000 | | F | | 85 | | 68.0 | | ING Life Insurance and Annuity Company | | A- |
| $2,500,000 | | M | | 85 | | 70.0 | | Transamerica Life Insurance Company | | AA- |
| $5,000,000 | | F | | 85 | | 70.1 | | Penn Mutual Life Insurance Company | | AA- |
| $4,445,467 | | M | | 85 | | 70.4 | | Penn Mutual Life Insurance Company | | AA- |
| $800,000 | | M | | 85 | | 73.1 | | National Western Life Insurance Company | | A |
| $1,000,000 | | F | | 85 | | 75.8 | | New York Life Insurance Company | | AA+ |
| $1,000,000 | | M | | 85 | | 78.1 | | AXA Equitable Life Insurance Company | | A+ |
| $250,000 | | M | | 85 | | 81.9 | | Metropolitan Life Insurance Company | | AA- |
| $1,682,773 | | M | | 85 | | 87.1 | | Hartford Life and Annuity Insurance Company | | BBB+ |
| $4,000,000 | | F | | 85 | | 90.6 | | Transamerica Life Insurance Company | | AA- |
| $3,600,000 | | F | | 85 | | 93.1 | | AXA Equitable Life Insurance Company | | A+ |
| $2,000,000 | | F | | 85 | | 101.3 | | U.S. Financial Life Insurance Company | | A+ |
| $10,000,000 | | F | | 85 | | 120.3 | | West Coast Life Insurance Company | | AA- |
| $100,000 | | M | | 86 | | 41.2 | | Protective Life Insurance Company | | AA- |
| $100,000 | | M | | 86 | | 41.2 | | Protective Life Insurance Company | | AA- |
| $100,000 | | M | | 86 | | 41.2 | | Protective Life Insurance Company | | AA- |
| $8,985,000 | | M | | 86 | | 47.3 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $1,500,000 | | M | | 86 | | 52.4 | | Union Central Life Insurance Company | | A+ |
| $5,000,000 | | F | | 86 | | 55.4 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $1,500,000 | | M | | 86 | | 56.9 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,500,000 | | M | | 86 | | 56.9 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $3,000,000 | | M | | 86 | | 57.4 | | American General Life Insurance Company | | A+ |
| $4,785,380 | | F | | 86 | | 58.6 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,500,000 | | M | | 86 | | 59.2 | | Pacific Life Insurance Company | | A+ |
| $5,000,000 | | M | | 86 | | 60.6 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $2,500,000 | | F | | 86 | | 68.7 | | American General Life Insurance Company | | A+ |
| $1,803,455 | | F | | 86 | | 69.6 | | Metropolitan Life Insurance Company | | AA- |
| $1,529,270 | | F | | 86 | | 69.6 | | Metropolitan Life Insurance Company | | AA- |
| $3,500,000 | | F | | 86 | | 70.7 | | Lincoln National Life Insurance Company | | AA- |
| $500,000 | | M | | 86 | | 72.1 | | Lincoln National Life Insurance Company | | AA- |
| $5,000,000 | | M | | 86 | | 85.1 | | AXA Equitable Life Insurance Company | | A+ |
| $2,225,000 | | F | | 86 | | 92.4 | | Transamerica Life Insurance Company | | AA- |
| $3,000,000 | | F | | 86 | | 96.4 | | Massachusetts Mutual Life Insurance Company | | AA+ |
| $2,000,000 | | F | | 87 | | 42.1 | | American General Life Insurance Company | | A+ |
| $5,000,000 | | F | | 87 | | 45.1 | | Lincoln National Life Insurance Company | | AA- |
| $3,000,000 | | F | | 87 | | 53.5 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $1,203,520 | | M | | 87 | | 58.4 | | Columbus Life Insurance Company | | AA+ |
| $3,500,000 | | F | | 87 | | 69.1 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,500,000 | | F | | 87 | | 71.1 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $600,000 | | F | | 87 | | 71.9 | | Columbus Life Insurance Company | | AA+ |
| $5,000,000 | | F | | 87 | | 73.0 | | ING Life Insurance and Annuity Company | | A- |
| $2,500,000 | | F | | 87 | | 73.9 | | AXA Equitable Life Insurance Company | | A+ |
| $2,500,000 | | F | | 87 | | 73.9 | | AXA Equitable Life Insurance Company | | A+ |
| $1,350,000 | | F | | 87 | | 76.4 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $715,000 | | F | | 87 | | 82.6 | | Jefferson-Pilot Life Insurance Company | | AA- |
| $5,000,000 | | F | | 88 | | 41.9 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $5,000,000 | | M | | 88 | | 51.6 | | John Hancock Life Insurance Company (U.S.A) | | AA- |
| $1,000,000 | | F | | 89 | | 30.5 | | Protective Life Insurance Company | | AA- |
| $2,000,000 | | F | | 89 | | 37.3 | | Pruco Life Insurance Company | | AA- |
| $2,500,000 | | M | | 89 | | 54.5 | | Columbus Life Insurance Company | | AA+ |
| $5,000,000 | | F | | 89 | | 75.8 | | American General Life Insurance Company | | A+ |
| $1,000,000 | | F | | 90 | | 27.8 | | American General Life Insurance Company | | A+ |
| $3,200,000 | | M | | 91 | | 78.9 | | West Coast Life Insurance Company | | AA- |
| $1,100,000 | | M | | 92 | | 39.4 | | ING Life Insurance and Annuity Company | | A- |
| $1,770,726 | | F | | 92 | | 48.6 | | Aviva Life Insurance Company | | A- |
| $639,755,000 | | | | | | | | | | |
| (1) | The insured’s age is current as of the measurement date. |
| (2) | The insured’s life expectancy estimate, other than for a small face value insurance policy benefit, is the average of two life expectancy estimates provided by independent third-party medical actuarial underwriting firms at the time of purchase, actuarially adjusted through the measurement date. This listing includes an adjusting increase of an average of 8.67% to life expectancies provided by 21st Services. Numbers in this column represent months. For more information, please refer to our Annual Report on Form 10-K for the year ended December 31, 2012. |
| ITEM 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance the objectives of the control system are met.
As of March 31, 2013, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures are effective as of March 31, 2013.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Use of Proceeds
Our Form S-1 registration statement relating to our offer and sale of “Renewable Secured Debentures” (File Nos. 333-174887 and 333-174887-01) was declared effective by the SEC on January 31, 2012, and our offering of debentures commenced on such date. The debentures are secured in part by a guarantee from our subsidiary GWG Life and an associated grant of a security interest in substantially all of the assets of GWG Life, which guarantee was also registered as a security under the referenced registration statement. Arque Capital Ltd. serves as our managing broker-dealer and underwriter for the offering.
The registration statement covers up to $250 million in principal amount of debentures. From January 31, 2012 through March 31, 2013, we sold a total of $80,400,051 in principal amount of debentures, and incurred associated underwriting commissions, and expenses paid or payable to underwriters in the amount of $4,440,249 of which $784,186 was amortized. We have an un-papered receipt of $1,015,500 resulting in net proceeds of $77,759,488. None of the payments for offering expenses were directly or indirectly made to directors or officers (or their associates) of the Company, affiliates of the Company, or to persons owning 10% or more of any class of equity securities of the Company. No net proceeds were used for direct or indirect payments to directors or officers (or their associates) of the Company, affiliates of the Company, or to persons owning 10% or more of any class of equity securities of the Company.
Our use of proceeds from the sale of Renewable Secured Debentures from January 31, 2012 to March 31, 2013 is as follows:
| Gross Offering Proceeds | | $ | 82,526,000 | | | | |
| Net Offering Proceeds | | | 77,361,000 | | | | |
| Held in Short-Term Investments | | | 25,884,000 | | | | |
| | | | | | | | |
| Net Offering Proceeds Used | | $ | 51,477,000 | | | | 100 | % |
| Purchase Policies | | | 28,735,000 | | | | 56 | % |
| Payment of Premiums | | | 7,900,000 | | | | 15 | % |
| Payment of Principal and Interest | | | 10,538,000 | | | | 21 | % |
| Other Expenditures | | | 4,304,000 | | | | 8 | % |
| Exhibit | |
| 31.1 | Section 302 Certification of the Chief Executive Officer (filed herewith). |
| 31.2 | Section 302 Certification of the Chief Financial Officer (filed herewith). |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). |
| 99.1 | Letter from Model Actuarial Pricing Systems, dated April 18, 2013 (filed herewith). |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | GWG HOLDINGS, INC. |
| | | |
| Date: May 9, 2013 | By: | /s/ Jon R. Sabes |
| | | Chief Executive Officer |
| | | |
| Date: May 9, 2013 | By: | /s/ Jon Gangelhoff |
| | | Chief Financial Officer |
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