November 2004
source: South Florida CEO Magazine

The dirty secret about the life insurance business is that it has more to do with death than with living, since the return on investment comes after a policyholder passes away. But one Miami Beach company is hoping enough longtime policyholders will want a payout sooner.

Life Asset Group describes itself as a viatical and life settlement brokerage firm — one that reaps profits by pooling together and selling life insurance policies gathered from policyholders who would rather have a lump sum payout before they die. Investors continue to pay the premiums on the policies and get their return on investment when the policyholders expire.

“We’re managing the growth of an exploding company in a rapidly growing industry,” says the firm’s president, Gary Brecka. “I call it drinking from a fire hose on full blast.”

That may be so, but experts say the viatical business has far to go before it can shake off the shady image garnered during the 1980s, when investors began offering the cash-strapped terminally ill a way to cash out on life insurance policies. Unscrupulous operators preyed on the elderly and people dying of complications from AIDS. The industry crashed, though, as advances in medicine extended the life expectancy of those infirmed and investors were left paying premiums years longer than they expected to.

Brecka says Life Asset Group works differently by shopping a policy to a group of qualified investors. Life Asset receives a commission on the sale of those policies — the higher the sale price, the bigger the commission.

In 2003, its first full year of operation, Life Asset Group took in approximately $1 million in revenue, says Brecka, and he projects 2004 revenues of $10 million. Life Asset Group handles more than 200 new cases per quarter, and in third quarter 2004, sold policies valued at more than $450 million, Brecka says.

The firm was launched in August 2002, when Brecka and long-time friend Jon Kidd met investment banker Mark Goode. The partners hired Jolene D. Fullerton, an industry attorney and co-author of the National Association of Insurance Commissioners model act for viatical regulation. “This is a piece of legislation that a number of states use to adopt regulation in their state,” Brecka says. With Fullerton on the team, Brecka felt confident the company had the credibility to go forward. Fullerton wrote “the industry’s most comprehensive anti-fraud and theft practices policy,” he says. Life Asset is now licensed or authorized to operate in 41 states.

“It’s independently regulated in every state, so you have 30 or 40 different regulatory bodies to deal with,” Brecka says. “People come to Life Asset Group because we have a dedicated compliance expert and in-house legal counsel that does nothing but keep abreast of state regulatory changes.”

The company also requires the purchasing institution disclose its future plans for the policy, in an attempt to avoid outside parties having access to sensitive medical information about the original policyholder.

But dealing with only institutional investors doesn’t necessarily assure safety, according to Joseph M. Belth, professor emeritus of insurance for the Kelley School of Business at Indiana University and author of “Viatical Transactions: The Frightening Secondary Market for Life Insurance Policies.” Belth says the problem lies in the fact that “the large institutional investor now owns your policy and can sell it any time he wants to someone else.”

Brecka says policyholders are selling out as part of routine financial planning.
“Only about 2 percent of our policy sales are because of a financial need or because of a terminal illness,” he says. “Ninety-eight percent of all the policies that we settle are purely for estate planning purposes or because there’s a more appropriate financial product that they can put in place.”

It is a trend the rest of the industry is also following, says Edward E. Graves, a professor at The American College in Bryn Mawr, Pa. Graves says the industry “has migrated away from those with terminal illnesses to anyone who has a policy who no longer wants it.” For example, he says, a person whose children are now adults and whose spouse has died, no longer has beneficiaries to support so it may make sense to sell the policy to shift the monthly premium off on an investor.

Still, some financial planners remain wary of using viaticals as a financial planning tool. Randy S. Herz, senior vice president of wealth management firm Herz Financial, says, “You definitely want to deal with a reputable company.” Because buyers of viaticals are essentially making bets on when a policyholder will die, they request access to reams of financial and personal health information. And choosing a company may be difficult because there are so few of them. Herz says that as the industry grows, competition will too: “It is really just catching ground. It’s still an infant industry.”

At Life Asset, however, it is full steam ahead. In the last two years, the firm went from four to 24 employees and Brecka says he plans to hire more than 30 additional employees by the start of 2005. The company has also purchased 11,500 square feet of additional office space for its operations. Next year, he expects to broker in excess of $1 billion worth of policies. — Jaclyn Alcantara

*IN TEXAS, D/B/A LAG SETTLEMENTS, LLC (See also Important Limitations in Texas)

Life Asset Group, LLC and/or Gary E. Brecka, as an individual, are licensed as a life settlement broker or viatical settlement broker in the following regulated states.

Gary E. Brecka, individually, can broker a life insurance policy owned by a resident of the following states: AR, CO, FL, GA, HI, IN, KS, KY, LA, MD, ME, MS, MT, NV, NC, NJ, OK, PA, TN, TX, UT, VA.

Life Asset Group, LLC, as a licensed entity, can broker a life insurance policy owned by a resident of the following states: AR, CT, FL, HI, LA, MD, ME, NV, NJ, OH, OK, PA, TX*, VA.

Depending on the medical condition of the insured, Life Asset Group, LLC and/or Gary E. Brecka, as an individual, may or may not be able to broker a life insurance policy owned by a resident of the following states: CA, DE, IL, MA, MI, MN, NM, NY, OR, VT, WA, WI.

Life Asset Group, LLC and/or Gary E. Brecka, as an individual, may broker a life insurance policy owned by a resident of the following states that are not regulated and do not require licensure: AL, AZ, DC, ID, MO, NH, RI, SC, SD, WY.

Life Asset Group, LLC is in the process of becoming licensed in the following states: AK, IA, NE, ND, WV, PR.

*IN TEXAS, D/B/A LAG SETTLEMENTS, LLC

This Compliance Notice is current as of August 26, 2008 and is subject to change.