On December 18, 2012, attorneys for Imperial signed a Term Sheet for Global Settlement Regarding Imperial Holdings, Inc. Matters (the “Term Sheet”). Also signing the Term Sheet were attorneys representing the plaintiffs in the previously disclosed class action lawsuits and derivative actions instituted against the Company as well attorneys for Imperial’s director and officer liability insurance carriers (“D&O Carriers”), certain individual defendants named in the class actions and the underwriters in Imperial’s initial public offering. The Term Sheet provides the terms upon which each of the parties represented by the signatories would be willing to settle the class action litigation and derivative actions as well as the declaratory relief action filed by Catlin, Imperial’s primary D&O Carrier.
Interest Income-Interest income on life finance loans is recognized when it is realizable and earned, in accordance with ASC 605, Revenue Recognition. Discounts on structured settlement receivables are accreted over the life of the settlement using the effective interest method.
any time to discontinue the payment of premiums, which would result in lapse of the policies if the Company does not otherwise pay the premiums. The Company views these policies as having uncertain value because the lender protection insurer controls what happens to the policy from a payment of premium standpoint, and the amount of the lender protection insurer’s salvage collection and subrogation claim rights on any individual life insurance policy could equal the cash flow received by the Company with respect to any such policy. For these reasons, the Company does not rely on these policies for revenue generation and these policies are considered contingent
In our life finance segment, which includes our premium finance business, its operating loss increased by $6.3 million to $13.8 million. As a result of the voluntary termination of our premium finance business, we had decreases in agency fee income of $6.5 million, interest income of $6.1 million and origination income of $6.0 million. In addition, we recorded a loss in unrealized change in fair value of life settlements, which resulted in a decrease of $6.3 million and a decrease in forgiveness of debt of $5.0 million. These decreases were offset by increase in gain on maturity of life settlements with subrogation rights, net of $2.9 million.
in interest expense, a decline in amortization of deferred costs of $4.2 million, and a decline of $3.7 million in loss on loan payoffs and settlements, net, offset by an increase of $847,000 in selling, general and administrative expenses.
Unrealized Change in Fair Value of Life Settlements. Unrealized change in fair value of life settlements was a gain of approximately $570,000 for the year ended December 31, 2011 compared to $10.2 million for the year ended December 31, 2010. The change in fair value is included in unrealized change in fair value of life settlements in the accompanying consolidated statement of operations. At December 31, 2011, the Company considered the discount rate based on information that was then available and further adjusted discount rates, resulting in a weighted average discount rate of 24.31%.
Gain on Maturities of Life Settlements with Subrogation Rights, net. In the third quarter of 2011, two individuals covered under policies that were subject to subrogation claims passed away. The Company collected the death benefit on one of these policies in the amount of $3.5 million during the third quarter. The other was the result of an accidental death and the $10.0 million face value of the policy was larger than average. The Company had not collected the $10.0 million death benefit under this policy as of December 31, 2011. The Company accounted for the maturities of each of these polices as contingent gains in accordance with ASC 450, Contingencies and recognized $3.2 million in death benefits net of subrogation expenses of $312,000 in its consolidated statement of operations during the third quarter of 2011. In 2012, the Company negotiated a settlement in respect of the larger policy and, in accordance with ASC 450, the Company expects to recognize death benefits, net of subrogation expenses on the larger policy in the second quarter of 2012. See Note 26-Subsequent Events. No expectations for similar gains in the future should be inferred from the events occurring in the third quarter of 2011.
Unrealized Change in Fair Value of Structured Settlement Receivables. Unrealized change in fair value of investments and structured receivables was $1.8 million for the year ended December 31, 2012 compared to $5.3 million for the same period in 2011. At December 31, 2012 we had 37 structured receivables on our balance sheet compared with 288 structured settlement receivables on our balance sheet as of December 31, 2011. The large decrease was due to the Company’s ability to finance these receivables in the dedicated Imperial Settlements Financing 2010, LLC financing facility during 2012.