Life Settlement Firm Plans to Go Public Through $619M SPAC Deal

What You Need to Know

Abacus Life hopes to go public by the end of the year.
The company could get more money it could use to buy life insurance policies from the insureds.
In theory, the deal could lead to more demand for the policies held by your clients.

Abacus Life hopes to put its stock in the hands of public investors, and that move could lead to richer opportunities for advisor clients who want to sell unwanted life insurance policies.

The Orlando, Florida-based company and its Longevity Market Assets affiliate announced Tuesday that they plan to go public by merging with East Resources Acquisition Co. by the end of the year.

East Resources is a “special purpose acquisition company,” or SPAC, that exists solely to provide the regulatory arrangements another company needs to get its stock listed on a stock exchange. The SPAC now has stock that trades on the Nasdaq, under the symbol “ERES.”

Abacus Life intends to call the combined company “Abacus Life” and change the stock symbol to “ABAL.” Like East Resources, the combined company would list its stock on the Nasdaq.

Life settlement companies buy life insurance policies from the original policyholders. The benefits then flow to the life settlement companies, or to investors that buy the policies from the life settlement companies, rather than to the original beneficiaries.

The companies argue that the arrangements can be a good deal for consumers who have life insurance policies they no longer need, or who need cash more than they need life insurance.

What It Means

Jay Jackson, CEO of Abacus Life, said Tuesday on a conference call aimed at investors and securities analysts that the company wants to attract more institutional capital and expand efforts to educate consumers about the value of their life insurance policies.

“Life insurance is one of the largest markets globally — a massive $13 trillion in the United States,” Jackson said. “That’s two times the U.S. residential real estate market.”

But most of the value vanishes, because the policyholders let 90% of the policies lapse, Jackson said.

Abacus Life can make the life insurance market more fair to the policyholders by paying policy sellers prices that average about eight times what insurers would pay those policyholders if they surrendered the policies and received cash surrender value payments from the life insurers, according to company estimates.

In theory, if Abacus Life and other life settlement market players had more cash, they could pay better prices for policies and buy a wider range of policies.

Life settlement marketers have suggested that for some consumers with the right kinds of life insurance policies, the life settlement market could be a good supplement to pension plans, individual annuities, ordinary retirement savings accounts and other sources of post-retirement cash.

The Companies

Abacus Life was founded in 2004.

The company and its affiliates have relationships with 78 financial services organizations and 30,000 individual financial professionals.

From 2019 through 2021, the company arranged the purchase of life insurance policies that are on track to pay $2.9 billion in death benefits. It made some of those transactions through relationships with KKR, the Teamsters union and other investment fund managers.

The company estimates that in the past 12 months, it has originated, owned or serviced life insurance policies that are on track to pay $950 million in benefits, and that it accounts for a 20% share of the U.S. life settlements market.

The SPAC, East Resources, is based in Boca Raton, Florida.

The Deal

Abacus Life and East Resources say the proposed deal would give the combined company an enterprise value of about $619 million.

The value would include $98 million in cash held in an East Resources trust account.

James Morrow, an Abacus Life director, says the combined company should be attractive to investors because the life settlement market is such an attractive market.

“This is an industry that incents owners to monetize their life insurance policies,” Morrow said. “It’s one of the most interesting asset classes I’ve ever seen. Time is the only variable that drives returns.”

The net proceeds from the transaction will help Abacus to lower its cost of capital, keep more life insurance policies in its own portfolio and start securitizing policy portfolios, Abacus Life said.

The deal already has the approval of the East Resources and Abacus Life boards, and it has the voting support of all of the equity holders of Abacus Life, Abacus Life said.

The companies said they expect Jackson, the Abacus Life CEO, and other Abacus Life managers to continue to manage Abacus Life.

Challenges

One market concern is that persuading consumers with unwanted policies to sell the policies, rather than simply letting the policies lapse, is difficult, and that buyer cash may be more plentiful than attractive policies.

Abacus Life is trying to increase the flow of policies up for sale by sponsoring aggressive advertising and marketing campaigns, and by offering an online policy price estimator tool.

Abacus Life and East Resources note in a list of deal risk factors that they did not use a valuation from an outside party to determine whether to pursue their merger.

Other risk factors listed include the possibility that life insurance premiums could go up, insureds’ life spans could increase, life expectancy estimates could be wrong, and life insurers could challenge life settlement arrangements.

In the past, some publicly traded life settlement players have failed.

Life Partners filed for bankruptcy court protection in 2011 after facing accusations that it had given investors inaccurate information about the life expectancies of the consumers insured by the policies in its life settlement portfolio.

GWG Holdings filed for bankruptcy protection in April after allegations of problems with bonds it created that were backed by life insurance policies purchased through the life settlement market.