Life Partners Holdings, Inc. (LPHI, Nasdaq) is the only publicly-traded company that engages in the business of viatical and life settlements. This is an industry with a checkered past. The market for “viaticals” first materialized over 20 years ago, when it was predominantly AIDS patients who sought a way to have some cash to spend for their few expected remaining months or years of life. They found they could sign over the rights to their life insurance policy by selling those rights to the eventual death benefit to an investor. The investor was (albeit morbidly) betting that the AIDS sufferer would die as scheduled, thus earning a profit by giving said seller a discounted price (a percentage of the life insurance policy’s face amount) and pocketing the difference later at death. ...
Viaticals—and the broader category of what the industry distinguishes as life settlements—has continued to grow rapidly; and is likely to into the future as well. In LPHI’s case, they broker transactions in the life settlements area for people aged 70 and above; in part, the amount by which a policy is discounted is based on the seller’s life expectancy, healthy or not. I expect this industry—though it will still be occasionally beset by growing pains—to grow almost exponentially into the future. More and more retirees—its ranks being added to as Baby boomers retire—are looking for ways to raise spendable cash as their retirement years go by. ...
Evidencing the growth of this financial and even demographically-fueled trend, LPHI’s revenues and earnings have grown over the last few years by an average of over 50% per year. In the fiscal year just past, however, that growth slowed; the company logged net earnings per share of $1.98 in the FY ended on February 28, up only modestly from the prior year’s $1.83. Much of that was due to one-time accounting issues, however; it is expected that more rapid growth will be evidenced again in the new fiscal year, to upwards of $2.40 per share in net earnings. The strength of LPHI is that its business model—somewhat secretive due to proprietary information, according to the company—does NOT involve the company owning any policies itself. LPHI behaves as an intermediary, somewhat as a title insurance company would do in a real estate transaction. Its revenue is based on fee and other transaction income for arranging sales of life insurance policies to both private and institutional investors. ...
Besides the seeming long-term allure of the life settlements industry, I have been particularly interested in how LPHI’s stock price movement often bears no relation to the overall market. This should help going forward. In short—with so few choices now, given that almost nothing is acting like a defensive stock—LPHI is one with the best prospects of doing so going forward. Its healthy 4.9% yield appears not only safe, but its $1.00 annual dividend is likely to be increased before too many more quarters go by.
Chris Temple, The National Investor
