Analysis Featured

A marketplace lender platform built as an insurance company

ReliaMax provides an end-to-end turnkey package of origination, servicing, insurance, and capital markets support on private student loans. ReliaMax has insured loans worth $2.6 billion, issued by more than 450 financial institutions to students attending colleges and universities in 49 states and District of Columbia.

Business model

ReliaxMax has a vertical business model; it’s a 3 party contract between ReliaMax, the borrower, and the lenders. ReliaMax provides borrower acquisition, designs the underwriting, and insures 100% of the principal and interest of each loan for their client financial institutions . In case of borrower default, bankruptcy, or disability, even if the debt is not discharged, ReliaMax will pay the claim to the lender, will own the loan, and will work with the borrower over the life of the loan. The revenue model of Reliamax consists of receiving a premium from the banks for insuring the loans.

ReliaMax Surety Company, an insurance company subsidiary of ReliaMax, works with banks, credit unions, alternative lenders, and institutional investors to provide insurance coverage for private student loans. They are a fully registered licensed insurance company registered across 49 states and DC, therefore, they have in-depth knowledge of regulatory framework all across the country. It also acts as barriers to entry as the founder believes it will take 10 years and a $100 mil for a competitor to attain the regulatory acceptance, technical and market expertise to challenge his company.

Lenders charge interest and the premiums are lower than the interest charged. Credit Unions are therefore still profitable and tend to absorb the fees, partially because they are not in this for the profit. Banks either add a closing-cost or they convert the additional fees into an increased interest rate for the loans. For regulatory reasons, ReliaMax needs a substantial capital reserve to cover all the loans; a substantial amount is offset by buying reinsurance from large reinsurers.

Company information

ReliaMax was founded in 2006 after its founder; Michael VanErdewyk acquired HEMAR –a 3rd party insurance company in July 2006 from Sallie Mae. By acquiring HEMAR, ReliaMax got 18 years worth of data on $12 billion of student loans. The founder had entered the insurance sector by buying HEMAR.

By acquiring HEMAR, ReliaMax got 18 years worth of data on $12 billion of student loans. The founder had entered the insurance sector by buying HEMAR in 2000, a private student loan company formed in 1986. Many key people from HEMAR joined the ReliaMax team during the transition. Their expertise, along with the proprietary modeling and database from HEMAR, created a compelling combination of industry knowledge and data that represents now over $14.6 billion in private student loan disbursements to more than 1 million students over 25 years, reason why ReliaMax is successful in the private student loan market.

ReliaMax is headquartered in Sioux Falls, South Dakota.  Sioux Falls and South Dakota are known for having no corporate income tax, a very small tax on insurance premiums, and most importantly having a very knowledgeable South Dakota Insurance Department due to 30 years of interaction with HEMAR.

The company leverages this data through custom analytical models to help their clients manage their reputational, operational, and financial risk and meet stringent regulatory requirements. ReliaMax has insured loans issued by more than 450 financial institutions, to students attending colleges and universities. The founder claims that it is the only insurer of private loans in the world. That type of innovation and domination is difficult to beat.

Michael, CEO and founder of ReliaMax feels there is huge potential in private student space as this is the second largest asset class behind mortgages. The top management consists of Jonathon Albright, Chief Financial Officer, ReliaMax Holding Company, and has more than 10 years of CFO experience in North America and Europe. Mark Payne COO of their subsidiary ReliaMax Surety Company has a lot of experience in extensive management and leadership. ReliaMax has 70 full-time working employees and they will insure $600 to $700 million in loans this year and next year is expecting to cross the $1 billion mark.

Partnering with SoFi and fintechs

The alternative lending industry provides another scope of growth and expansion for ReliaMax. Since the company has a massive reservoir of data in the private student loan space, all the new entrants in this market want to partner with ReliaMax.

One of the new entrants in the private student loan market is SoFi; who many consider as a possible threat to ReliaMax’s traditional clients. SoFi mainly deals in consolidating refinancing of loans, as they do not have the depth to go down the credit curve. They usually only provide loans to borrowers with FICO of 725 and to individuals with annual income of $200,000 or more, whereas ReliaMax’s clients can go as low as FICO 680 and in some cases even lower.

ReliaMax also feels there are more opportunities in prime as compared to the super prime space.Therefore the founder believes that SoFi could be a good partner for them and they can help SoFi expand its product offerings and go down the FICO score curve for targeting more students.

According to MeasureOne private student loan report of 2016, private student loan market is estimated to be 102 billion or 7.5 percent of the $1.36 trillion student loan market, which is presently covered by the six largest lenders in US private school lending market(Citizens Bank, Discover Bank; Navient; PNC Bank,. Sallie Mae Bank and Wells Fargo), that is nearly 67 percent of the market. By providing excellent solutions and services to the borrowers and lenders, ReliaMax’s customers can definitely take some share away from the big six companies.

Author:

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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