You should read the following discussion in conjunction with the consolidated and combined financial statements and accompanying notes and the information contained in other sections of this Annual Report on Form 10-K, particularly under the headings "Risk Factors," "Selected Financial Data" and "Business." This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements." These forward-looking statements are subject to numerous risks and uncertainties, including those described under "Risk Factors." Our actual results could differ materially from those suggested or implied by any forward-looking statements.

Business Overview

We were founded in December 2006 as a Florida limited liability company and in connection with our initial public offering, in February 2011, Imperial Holdings, Inc. succeeded to the business of Imperial Holdings, LLC and its assets and liabilities.

The Company operates in two reportable business segments: life finance (formerly referred to as premium finance) and structured settlements. In the life finance business, the Company earns revenue/income from interest charged on loans, loan origination fees, agency fees from referring agents, servicing income, change in the fair value of life settlements the Company acquires and receipt of death benefits with respect to matured life insurance policies it owns. In the structured settlement business, the Company purchases structured settlements at a discounted rate and sells such assets to third parties.

In February 2011, the Company sold 17,602,614 shares of common stock in its initial public offering at a price of $10.75 per share. The Company received net proceeds of approximately $174.2 million after deducting the underwriting discounts and commissions and its offering expenses.

Recent Developments, Uncertainties & Outlook

In connection with the Non-Prosecution Agreement, which is described in "Legal Proceedings-Litigation-The USAO Investigation," Imperial voluntarily terminated its premium finance business, which accounted for approximately 58.2% of its revenues for the year ended December 31, 2011. Accordingly, the periods covered in the results of operations below will likely not be comparable to future periods as the Company will no longer recognize any agency fees and, once the Company's remaining premium finance loans mature, the Company will no longer recognize revenue from interest income or origination fees. The only material revenue that the Company expects to recognize from the premium finance business in 2012 is from changes in fair value of life settlements acquired upon default and strategic sales of certain life insurance policies in its portfolio that were acquired upon default of premium finance loans. As a result, we expect our revenue in our Life Finance segment to be materially lower in 2012 than in 2011.

Additionally, the Company's ability to generate new business in the life finance segment was limited in the fourth quarter of 2011 when the Company originated no premium finance loans and, in order to conserve capital, only purchased 7 policies through life settlement-related acquisitions. This trend has continued into 2012 with the Company only purchasing two policies through life settlement-related acquisitions during the first six months of the year. As a consequence, the Company's portfolio of life insurance policies is smaller than previously projected, which may result in more volatility and adversely affect the portfolio's performance.

In the structured settlements segment, during the quarter ended December 31, 2011, the Company did not finance any non-life contingent structured settlements using its dedicated facility for those receivables. However,

the Company continued to originate those receivables using available cash. Likewise, the Company did not finance the acquisition of life-contingent structured settlements into its dedicated facility for those receivables after becoming aware of the USAO Investigation. As a result, on December 31, 2011, the Company terminated its financing arrangements for life-contingent structured settlements and entered into a forward purchase and sale arrangement for these assets. However, this new arrangement compressed the Company's margins as it required the Company to sell life-contingent structured settlements at a discount rate that was higher than the rate used in the prior facility as a result of the entry into the Non-Prosecution Agreement. As of the filing of this Annual Report on Form 10-K, the discount rate under this forward purchase and sale arrangement is 50 basis points higher than the rate used in the prior facility.

The Company has also expended considerable resources resolving the USAO Investigation, as well as defending itself in the SEC Investigation and related litigation, advancing indemnification costs on behalf of certain employees and in conducting an independent investigation of the facts and circumstances surrounding the USAO Investigation. As of December 31, 2011 and June 30, 2012 (unaudited), the Company's legal and related fees in respect of these matters was $6.0 million and $16.2 million respectively. Moreover, the Company's D&O carriers have disputed several of the claims and reserved their rights, and the Company's primary D&O carrier filed a declaratory judgment action on June 13, 2012 seeking a judgment that the claims submitted by the Company are precluded under a prior and pending litigation exemption.

At the time of the Company's initial public offering, the Company intended to hold the majority of the life insurance policies it acquired to maturity while strategically trading in and out of certain policies. In light of the USAO Investigation, the SEC Investigation, the related shareholder litigation and the related unbudgeted expenses incurred by the Company, the Company is re-examining its strategy and cash management objectives. We estimate that we will need to pay $24.1 million in premiums to keep our current portfolio of life insurance policies in force through 2012 and an additional $24.6 million to keep the portfolio in force through 2013. As of December 31, 2011, we had approximately $75.1 million of cash, cash equivalents, and marketable securities including $691,000 of restricted cash. As of June 30, 2012, we had approximately $51.2 million of cash and cash equivalents, and marketable securities including $1.0 million of restricted cash. Additionally, we have not yet experienced the mortalities of insureds or received the resulting death benefits from our life insurance policies (other than from policies with subrogation rights that are not reported on our balance sheet and that are considered contingent assets). We expect the lack of mortalities of insureds to continue at least through 2012.

We believe we have sufficient cash and cash equivalents to pay the premiums necessary to keep the life insurance policies that we own in force and our operating expenses through at least 2012, although we will need to proactively manage our cash in advance of any liquidity shortfall. Based on our current internal forecast, we do not anticipate a liquidity shortfall prior to the third quarter of 2013. However, if we do not begin to experience mortalities and collect the related death benefits in a timely manner prior to that time, we will likely need to seek additional capital to pay the premiums, by means of debt or equity financing or the sale of some of the policies that we own. We may also seek to reduce our operating expenses in order to preserve the value of our existing portfolio of policies, and/or, under certain scenarios, lapse or sell certain of our policies or some combination of the above. The lapsing of policies, if any, would create losses as the assets would written down to zero.

Life finance business

In the life finance segment, the Company has historically provided premium finance for individual life insurance policies and purchased life insurance policies in the secondary and tertiary markets. A premium finance transaction is a transaction in which a life insurance policyholder obtains a loan to pay insurance premiums for a fixed period of time, which allows a policyholder to maintain coverage without additional out-of-pocket costs.

Our typical premium finance loan was approximately two years in duration and was collateralized by the underlying life insurance policy. The life insurance policies that served as collateral for our premium finance

loans were predominately universal life policies that had an average death benefit of approximately $4.8 million and insured persons over age 75. Generally, the borrower was an irrevocable life insurance trust established by the insured which was both the legal owner and beneficiary of a life insurance policy serving as collateral for a premium finance loan.

A borrower was not required to make any payment on the premium loan until maturity. At the end of the loan term, the borrower either repaid the loan in full (including all interest and fees) or defaulted under the loan. In the event of default, subject to loan terms and conditions, the borrower typically relinquished control of the policy serving as collateral for the loan to us. If we acquired the policy upon a loan default, we either held it for investment, sought to sell the policy, or, if the loan was insured, we were paid a claim equal to the insured value of the policy, which may have been equal to or less than the amount we are owed under the loan. The amounts received in respect of claims were used to repay our lenders from whom, prior to 2011, we borrowed funds to extend premium finance loans to borrowers. As of December 31, 2011, we had 138 premium finance loans outstanding, 65.9% of which had collateral whose value is insured.

The Company takes title to life insurance policies through two separate channels. First, we acquire life insurance policies when a borrower defaults on a premium finance loan originated by us, and we foreclose on the policy. Historically, a large portion of our borrowers defaulted on their loans and relinquished ownership of their life insurance policies to us. Our loans are secured by the underlying life insurance policy and, although we generally required a personal guarantee from the insured, are usually non-recourse to the borrower. If the borrower defaults on the obligation to repay the loan, we generally have no recourse against the borrower except for the life insurance policy that collateralizes the loan. In instances where we retained policies that served as collateral for a loan that was insured, in order to retain the policy on our balance sheet, we would typically be required to pay our lender protection insurer in order for the insurer to release its subrogation rights to the policy.

Second, we acquire life insurance policies through purchases directly from the original policy owners (the secondary market) and from institutional investors (the tertiary market). At December 31, 2011, we maintained licenses to transact life settlements in 25 of the states that currently require a license and could conduct business in 36 states and the District of Columbia.

Prior to and for a period after our initial public offering, the Company's focus in our life finance segment was on our premium finance business. Following our initial public offering, however, changing market conditions made the acquisition of life insurance policies on the secondary and tertiary markets more attractive. Since 2008, the life settlement market has been distressed as a result of the general economic downturn. With the continued decrease of liquidity in the market place, re-selling policies on the tertiary market became significantly more difficult for investors. While some institutional investors have returned to the market, trading these policies remains challenging for most investors. For institutional investors with the financial capacity to hold these policies to maturity, life insurance policies remain an attractive, high-yield investment whose returns are non-correlated to the stock and bond markets. The Company suspended originating new premium finance loans and, in an effort to conserve capital, significantly reduced purchases of life insurance policies during the end of the third quarter of 2011.

Structured Settlements

Structured settlements refer to a contract between a plaintiff and defendant whereby the plaintiff agrees to settle a lawsuit (usually a personal injury, product liability or medical malpractice claim) in exchange for periodic payments over time. A defendant's payment obligation with respect to a structured settlement is usually assumed by a casualty insurance company. This payment obligation is then satisfied by the casualty insurer through the purchase of an annuity from a highly rated life insurance company, which provides a high credit quality stream of payments to the plaintiff.

Recipients of structured settlements are permitted to sell their deferred payment streams to a structured settlement purchaser pursuant to state statutes that require certain disclosures, notice to the obligors and state

court approval. Through such sales, we purchase a certain number of fixed (life-contingent or non life-contingent), scheduled future settlement payments on a discounted basis in exchange for a single lump sum payment, thereby serving the liquidity needs of structured settlement holders.

During the capital markets dislocation in 2008 and 2009, in order to sell portfolios of structured settlements to strategic buyers, we were required to offer discount rates as high as approximately 12.0%. During the year ended December 31, 2011, our weighted average sale discount rate for sales of structured settlements was 10.5%, which includes the sale of both non-life contingent and life-contingent structured settlements. Life-contingent structured settlements are deferred payment streams that terminate upon the death of the structured settlement recipient. Non-life contingent structured settlements terminate on a pre-determined date and do not cease upon the recipient's death.

We originated 873 transactions during the year ended December 31, 2011 as compared to 565 transactions during the same period in 2010, an increase of 54.5%. We incurred total expenses of $22.0 million during the year ended December 31, 2011 as compared to $13.1 million during the year ended December 31, 2010. The historical operating results of our structured settlement segment reflect our investment in the start-up costs and the initial growth of our structured settlement operations.

Principal Revenue and Expense Items

Components of Revenue

Agency Fee Income

In connection with our premium finance business, we earned agency fees that were paid by the referring life insurance agents. Because agency fees were not paid by the borrower, such fees do not accrue over the term of the loan. Referring insurance agents paid the agency fees to our subsidiary, Imperial Life and Annuity Services, LLC, a licensed insurance agency, for the due diligence performed in underwriting the premium finance transaction. The amount of the agency fee paid by a referring life insurance agent was negotiated with the referring agents based on a number of factors, including the size of the policy and the amount of premiums on the policy. Agency fees as a percentage of the principal balance of loans originated during the periods below are as follows:

                                                              Year Ended December 31,
                                                          2011           2010          2009
Agency fees as a percentage of the principal
balance of the loans originated                             33.0 %        48.8 %        50.6 %

As a result of the voluntary termination of our premium finance business, we will not receive any revenue from agency fees in 2012 and beyond, and Imperial Life and Annuity Services, LLC has begun to voluntarily surrender its insurance agency licenses.

Interest Income

We receive interest income that accrues over the life of the premium finance loan and is due upon the date of maturity or upon repayment of the loan. Substantially all of the interest rates we charged on our premium finance loans are floating rates that were calculated at the one-month LIBOR rate plus an applicable margin. In addition, our premium finance loans have a floor interest rate and are capped at 16.0% per annum. For loans with floating rates, each month the interest rate is recalculated to equal one-month LIBOR plus the applicable margin, and then, if necessary, adjusted so as to remain at or above the stated floor rate and at or below the capped rate of 16.0% per annum. Interest income is recognized using the effective interest method over the life of the loan.

The weighted average per annum interest rate for premium finance loans outstanding as of the dates below is as follows:

Year Ended December 31, 2011 2010 2009 Weighted average per annum interest rate 12.5 % 11.4 % 10.9 %

Interest income also includes interest earned on structured settlement receivables. Until we sell our structured settlement receivables, the structured settlements are held on our balance sheet. Purchase discounts are accreted into interest income using the effective-interest method. As a result of the voluntary termination of our premium finance business, we will cease earning interest income from premium finance loans once our outstanding premium finance loans mature.

Origination Fee Income

We charged our borrowers an origination fee as part of the premium finance loan origination process. It was a one-time fee that is added to the loan amount and is due upon the date of maturity or upon repayment of the loan. Origination fees are recognized on an effective-interest method over the term of the loan.

Origination fees as a percentage of the principal balance of loans originated during the periods below are as follows:

                                                              Year Ended December 31,
                                                          2011           2010          2009
Origination fees as a percentage of the principal
balance of the loans                                        25.0 %        41.5 %        44.7 %
Origination fees per annum as a percentage of the
principal balance of the loan                               24.3 %        22.7 %        19.2 %

As a result of the voluntary termination of our premium finance business, we will cease accruing origination fee income once our outstanding premium finance loans mature.

Gain on Sale of Structured Settlements

We purchase a certain number of fixed (life-contingent or non life-contingent), scheduled future settlement payments on a discounted basis in exchange for a single lump sum payment. We negotiate a purchase price that is calculated as the present value of the future payments to be purchased, discounted at a rate equal to our required investment yield. From time to time, we sell portfolios of structured settlements to institutional investors. The sale price is calculated as the present value of the future payments to be sold, discounted at a negotiated yield. We record any amounts of sale proceeds in excess of our carrying value as a gain on sale.

Gain on the Forgiveness of Debt

We entered into a settlement agreement with Acorn Capital Group, or Acorn, as discussed below in "-Losses on Settlements and Loan Payoffs, Net", whereby our borrowings under the Acorn credit facility were cancelled, resulting in a gain on forgiveness of debt. A gain on forgiveness of debt is recorded at the time at which we are legally released from our borrowing obligations. We do not expect to recognize any material revenue from the Acorn facility in 2012.

Unrealized change in fair value of Life Settlements and Structured Settlement Receivables

We have elected to carry our investments in life settlements at fair value. As of July 1, 2010, we elected to adopt the fair value option, in accordance with ASC 825, Financial Instruments, to record certain newly-acquired

structured settlement receivables at fair value. Any change in fair value upon re-measurement of these investments is recorded through our unrealized change in fair value of life settlements and structured settlement receivables.

Gain on Sale of Life Settlements

Gain on sale of life settlements includes gain from company-owned life settlements and gains from sales on behalf of third parties.

Servicing Income

We receive income from servicing life insurance policies controlled by a third party. These services include verifying premiums are paid and correctly applied and updating files for medical history and ongoing premiums.

Gain on Maturities of Life Settlements with Subrogation Rights, net

The Company accounts for the maturities of life settlements with subrogation rights (net of subrogation expenses) as contingent gains in accordance with ASC 450, Contingencies and recognizes the revenue from the maturities of these policies when all contingencies are resolved.

Components of Expenses

Interest Expense

Interest expense is interest accrued monthly on credit facility borrowings that are used to fund premium finance loans and promissory notes that were used to fund operations and corporate expenses. Interest is generally compounded monthly and payable as the collateralized loans mature.

Our weighted average interest rate for our credit facilities and promissory notes outstanding as of the dates indicated below is as follows:

                                                                   December 31,
                                                           2011        2010        2009
 Weighted average interest rate under credit facilities     15.7 %      17.1 %      15.6 %
 Weighted average interest rate under promissory note        0.0 %      16.5 %      16.5 %
 Total weighted average interest rate                       15.7 %      17.0 %      15.7 %

Provision for Losses on Loans Receivable

We specifically evaluate all loans for impairment, on a monthly basis, based on the fair value of the underlying life insurance policies as collectability is primarily collateral dependent. The fair value of the life insurance policy is determined using our valuation model, which is a Level 3 fair value measurement. For loans with lender protection insurance, the insured value is also considered when determining the fair value of the life insurance policy. The insured value is not directly correlated to any portion of the loan, such as principal, accrued interest, accreted origination income, or other fees which may be charged or incurred on these types of loans. The insured value is the amount we would receive in the event that we filed a lender protection insurance claim. The lender protection insurer limits the insured value to an amount equal to or less than its determination of the value of the life insurance policy underlying our premium finance loan based on its own models and assumptions, which may be equal to or less than the carrying value of the loan receivable. For all loans, the amount of loan impairment, if any, is calculated as the difference in the fair value of the life insurance policy and the carrying value of the loan receivable. Loan impairments are charged to the provision for losses on loans receivable in our consolidated and combined statement of operations.

In some instances, we make a loan to an insured whereby we immediately record a loan impairment valuation adjustment against the principal of the loan. Loans that experience an immediate impairment are made when the transaction components that are not included in the loan, such as agency fees, offset or exceed the amount of the impairment.

For loans that matured and were not repaid at maturity, the borrower typically relinquishes ownership of the policy to us in exchange for our release of the debt (or we enforce our security interests in the beneficial interests in the trust that owns the policy). For loans that have lender protection insurance, we make a claim against the lender protection insurance policy and, subject to policy terms and conditions, the insurer has the right to direct control or take beneficial ownership of the policy upon payment of our claim.

For loans that had lender protection insurance and matured during the years ended December 31, 2011 and 2010, 131 and 419 loans were not repaid at maturity, respectively, all of which were submitted to our lender protection insurer. The net carrying value of the loans (which includes principal, accrued interest income, and accrued origination fees, net of impairment) at the time of payoff during the years ended December 31, 2011 and December 31, 2010 was $49.7 million and $152.8 million, respectively. The amount of cash received by us for those loans was $51.5 million and $153.3 million, respectively. This resulted in a gain during the years ended December 31, 2011 and December 31, 2010 of $737,000 and $578,000, respectively. This gain was primarily attributable to the insurance amount at the time of payoff exceeding the contractual amounts due under the terms of the loan agreement. Therefore, the amount of claims paid by the lender protection insurer was in excess of 100% of the net carrying value of the loans. The following table provides information on the insured loans that were not repaid at maturity for the periods indicated below (dollars in thousands):

                                               Year Ended                       Year Ended
                                            December 31, 2011                December 31, 2010
Number of loans matured                                    138                              426
Number of loans impaired at
maturity                                                    52                              251
Loans not repaid at maturity                               131                              419
Claims submitted to lender
protection insurer                                         131                              419
Claims paid by lender
protection insurer                                         131                              419
Amount of claims paid                      $            51,480              $           153,330
Net carrying value of loans at
payoff                                     $            49,706              $           152,752
Gain on LPIC payoffs (all
loans)                                                     737                              578
Gain on LPIC payoffs (impaired
loans)                                                     607                              165
. . .