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Florida firm debuts with $202.7M of insurance commission ABS

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LTC Global, a Florida-based insurance services firm, is sponsoring its first-time securitization of a "relatively new" asset esoteric class: insurance sales commission receivables.

The Insurance Commission Receivables Backed Notes, Series 2018-A is a $129.7 million bond offering secured by a stream of commission receivables from the in-house or third-party distribution of LTC-branded life and long-term healthcare products, or the acquisition of commission payment streams from other insurance agencies maketing life, healthcare and Medicare insurance products.

All of the in-house policy originations are through an LTC affiliate, ACSIA Long Term Care; the acquired commissions include those from a host of distribution companies the privately held LTC has acquired since 2002, according to a presale report from DBRS.

The note proceeds are paying for the acquisition of the receivables originally financed through its bank credit facility, according to DBRS.

Insurance ABS deals are rare, usually involving receivables from consumer premiums (such as from long-time deal sponsor PFS Corp.) or sponsored by firms like J.G. Wentworth that acquires rights to structured-settlement insurance claims.

The transaction features a single class of notes with a preliminary A rating from DBRS. The bonds are backed by $202.7 million in estimated commission receivables from 171,666 existing insurance policies. That amounts to an average actuary-estimated $1,180 per policy; the estimate does not include future annual service commission receivables averaging $193 per policy.

Those valuations, based on independent review of contract details and past commission statements, are used to determine the “appropriate” price that LTC pays for a block of commission-stream assets.

DBRS, using its methodology for determining commission applied a steep haircut to that valuation estimate to just $169.4 million in its review of the deal, although that level still provided a 23.4% overcollateralization level to secure the necessary enhancement for the single-A rating.

The weighted average age of insured at the time the policies were taken out is 59 years of age; with an average 10.1 years seasoning, the current age of policyholders of the products in the collateral pool is 69.

DBRS said the insurance commission asset acquisition and finance industry “remains relatively new, with few participants.” LTC itself acquired only long-term care insurance commission assets in its first six years before buying up United Insurance Group Agency in 2008 to expand into Medicare-related insurance commission assets, according to DBRS.

The company has made more than two dozen insurance agency acquisitions since 2003 to build out six insurance distribution brands. It two most recent deals involved the June 2017 takeover of life insurer Pacific Southwest Financial & Insurance Services and its April 2018 acquisition of The Smith Companies.

Last September, Fort Myers, Fla.-based LTC became the sole owner of ACSIA after a September 2017 buyout of its previous undisclosed joint venture partner, DBRS reported.

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Esoteric ABS