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LPHI
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9:49 am
January 23, 2011


Jason

Ontario, Canada

Member

posts 24
3

You should read this latest update by Citron Research on LPHI (dated July 28, 2010):

http://www.citronresearch.com/…..asdaqlphi/

 

If what they're saying is all up to par then I would not invest in this stock until it got much cheaper (even then I would have to examine why it got cheaper – material bad news, or simple investor fear/capitulation). Too many red flags for me to invest in it right now as mentioned in the report above:

 

1) Mangement has checkered history: financial misstatement.

 

2) Business model is under serious pressure and most likely unsustainable: most of it was overstating value of products and selling to unsophisticated "investors" – the type of predatory practice that lead to subprime blowup.

 

3) Recent SEC investigation confirmation is the smoke, where's the fire?

 

I just think with this type of risk profile there should be a solid growth story to compensate but with this company it seems more like the entire business model of the company is under attack and therefore the only upside would occur if the company managed to convince the government not to regulate the life insurance resale market, or if they changed their entire business model. I guess you could estimate their cash flows/profitability AFTER regulation (i.e. cut out all their revenues from sales to unsophisticated investors – as would happen if life insurances were regulated as securities), along with the margin compression brought on by more sophisticated investors entering the field (either to sell or buy life insurances). Personally, I will pass on this until, like I said above, it gets much cheaper (and then for the right reasons).

Eager to learn.

8:13 am
January 23, 2011


somrh

Member

posts 336
2

I remember looking at LPHI briefly mid(?)-2009. I didn't research it too much at the time. I think the odd business model and my unwillingness to better understand that model made me avoid it. I had also read a criticism that basically said that what they gave to customers was relatively small so there could be competitors in the future putting their business at risk.

As for life expectancies, what I would probably do if I were conducting this business is the same thing an insurance company does: have actuaries calculate expected values based on the inputs given. This is what they state they do:

We
price settlements based on the policy face amount, the anticipated life
expectancy of an insured and policy maintenance costs.  Life
expectancies are estimated generally from standard medical and actuarial data
based on the historical experiences of similarly situated
persons.  The data is based necessarily on averages involving
mortality and morbidity statistics.  The outcome of a single
settlement may vary significantly from the statistical average.  It is
impossible to predict any one insured’s life expectancy exactly.  To
mitigate the risk that an insured will outlive his or her predicted life
expectancy, we price life settlements to yield competitive returns even if this
life expectancy prediction is exceeded by several years.  In addition,
life settlement purchasers must be able to bear a non-liquid investment for an
indeterminate period. (10K 2010)

Later one they confirm your suspicions:

One factor in policy pricing is assessing life expectancy,
which is determined in our model by an independent medical
doctor. (10K – 2010)

I guess I'm curious why the SEC is investigating this. It does make me wonder if there are some accounting mistatements. I may have to give this one another look. I think one of the main concerns is how accounting takes place.

11:42 am
January 22, 2011


Cam

North Albany, Oregon

Member

posts 10
1

Life Partners Holding Inc. facilitates the selling of unwanted life insurance policies to investors (buyers) at a discounted rate. In other words, elderly people sell their life insurance policies for cash and when they die, the investor collects the insurance policy. LPHI facilitates this process and charges a fairly nice fee for their efforts. Sounds pretty weird huh? The investors who purchase these policies pay a premium while the sellers are still alive and the longer these sellers live, the less profitable it is for the buyers.

 

So far, this appears to be a fairly profitable business for LPHI. They have a very strong balance sheet, increasing and positive net income, and increasing cash.

 

As I'm sure some of you are aware, LPHI has recently (confirmed on Thursday) become the subject to an investigation by the SEC and have subsequently lost 21% of their market price. As it appears in the reports, the SEC is looking into how LPHI comes up with the life expectancies for its sellers. I have read (can't remember where) that LPHI uses life expectancies from one doctor. (I could be wrong about this.) It appears that there are many sellers who are outliving their life expectancies.

 

Do any of your gurus know anything about this subject? I am wondering: (a) What could happen to LPHI if the SEC decides that they are intentionally underestimating these life expectancies, and (b) is this the type of investment that Cornwall Capital would be looking into as a possible Capital-One-style investment? (I don't know about the price of options on LPHI, and I am not saying they are grossly underpriced, just curious.)

 

Important note: Brian Pardo, LPHI's CEO and founder, has also been involved with the SEC before, while with a different company.

 

Thank you in advance, for any insight into LPHI and their current situation.

 

-Cam
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