Occasionally your receivership estate may involve dealing with a portfolio of life insurance policies. In a recent Federal Equity case, we had 275 such policies with a face value of over $1 billion. The catch: it was initially costing the estate about $75 million per year to keep the policies in place to maturity. What to do? Step 1 is get court approval to retain a professional actuary firm that specializes in this area. They can forecast the likely remaining term of each policy, the cost to maintain to maturity, and the market value of the policies—the larger the number of policies in the portfolio, the more accurate the estimates. If you have the cash to support the portfolio, there can be a financial benefit for the investors in the long term. Step 2 is to make sure the policies are valid and not subject to claims of a forced policy– this is called “Stranger Originated Life Insurance” or “STOLI” for short (illegal in some states). If you have green lights so far, Step 3 is to explore the possibility of transferring the policies to the investors or you may be required to keep the receivership estate open 20 to 25 years hence or more. If the investors get enough cash with the transferred policies or have independent wealth, then the investor can keep the policy current until maturity. In the above referenced case (Private Equity Management – a billion-dollar Ponzi scheme) here is how it resolved: Of the 275 policies at the time of appointment, approximately 45 matured during the receivership prior to the transfer, 5 were challenged as being improper and abandoned, and roughly 225 were transferred to the investors who continue to pay the premiums. Post transfer reports from the investors confirm that they are now cash positive – maturities each year are greater than the annual cost of the premiums for the remaining policies, and the portfolio is viewed to have a long-term value of a net $150 to $250 million over the next decade (or longer) – life expectancies keep extending, so holder beware! Good luck with this one.

*Ryan C. Baker is a Southern California receiver and trustee at Mosier & Company, Inc., a firm specializing in receiverships and Court Appointed matters