Information  X 
Enter a valid email address

Altern Asset Opps Ld (TLI)

  Print      Mail a friend       Annual reports

Friday 27 February, 2015

Altern Asset Opps Ld

Half Yearly Report

RNS Number : 0155G
Alternative Asset Opps PCC Ltd
27 February 2015
 



ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED

 

Half-Yearly Announcement of Results

For the period from 1 July 2014 to 31 December 2014

 

 

 

At a meeting of the Board of Directors held on 26 February 2014, the unaudited half yearly financial statements for the Company for the period from 1 July 2014 to 31 December 2014 were approved, details of which are attached.

 

The financial information set out in this announcement does not constitute the Company's statutory accounts for the period from 1 July 2014 to 31 December 2014, but is derived from those accounts. Printed accounts for the period from 1 July 2014 to 31 December 2014 will be delivered to Shareholders during March 2015.

 

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).  Whilst the financial information included in this announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company will publish condensed financial statements that comply with IFRS in March 2015.  This announcement has been prepared using accounting policies consistent with those set out in the Company's half yearly report and financial statements for the period from 1 July 2014 to 31 December 2014.

 

 

Peter Ingram

Company Secretary

 

Telephone number:  020 7065 1467

 

 

199 Bishopsgate

London EC2M 3TY

 

27 February 2015

 

 

 

 



Investor Information

For the period from 1 July 2014 to 31 December 2014

 

General information

Alternative Asset Opportunities PCC Limited (the "Company") was registered on 27 February 2004 in Guernsey, as a closed-ended protected cell company in accordance with the provisions of The Protected Cell Companies Ordinance, 1997 and The Companies (Guernsey) Law, 2008. It was established with one Cell known as the US Traded Life Interests Fund (the "Fund") which had a planned life of approximately 8 years from the date of launch. The Company is regulated by the Guernsey Financial Services Commission as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law, 2008, as amended.

 

Following a Special Resolution passed at an Extraordinary General Meeting on 28 August 2009, the Articles of Incorporation were amended to move from having a fixed life in respect of the Company's Cell, US Traded Life Interests Fund (terminating on 31 March 2012) to offering shareholders annual continuation votes from the Company's 2012 Annual General Meeting onward.               

 

With effect from 1 September 2009, the Company has been managed with a view to being approved as an Investment Trust within the meaning of the Corporation Tax Act 2010, and has been resident in the UK for tax purposes from that date.   

 

The Company's redeemable participating preference shares (the "shares") were admitted to the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange on 25 March 2004.

 

The interim financial information for the period from 1 July 2014 to 31 December 2014 has not been audited or reviewed in accordance with International Standard on Review Engagements 2410 issued by the Auditing Practices Board. The financial information for the year ended 30 June 2014 is derived from the financial statements delivered to the UK Listing Authority which do not constitute statutory accounts within the meaning of section 243 of The Companies (Guernsey) Law, 2008. The Auditors reported on these financial statements; their report was unqualified, although it included an emphasis of matter paragraph in connection with the valuation of traded life interests, but did not contain a statement under section 263 (2) of The Companies (Guernsey) Law, 2008.

 

Investment objective

The Company's objective in respect of the Fund is to provide investors with an attractive capital return through investment predominantly in a diversified portfolio of US Traded Life Interests ("TLIs").

 

FATCA

The Company is registered with the Internal Revenue Service (IRS) as a Foreign Financial Institution for the purposes of the Foreign Tax Compliance Act (FATCA).

 

The Company's Global Intermediary Identification Number (GIIN) is 1L9EHP.99999.SL.826.

 

 

Directors

Registrar

CPG Tracy (Chairman)

Capita Registrars (Guernsey) Limited

DIW Reynolds (Chairman of the Audit Committee)

TJ Emmott   

Mont Crevelt House

Bulwer Avenue

JPHS Scott

St Sampson

 

Guernsey GY2 4LH

Registered Office

 

Dorey Court

Investment Manager

Admiral Park

SL Investment Management Limited

St Peter Port

8/11 Grosvenor Court

Guernsey GY1 2HT

Foregate Street

 

Chester CH1 1HG

Manager

 

Allianz Global Investors GmbH, UK Branch

Banker (UK)

199 Bishopsgate

AIB Group (UK) PLC

London EC2M 3TY

92 Ann Street

 

Belfast

Secretary

BT1 3HH

Allianz Global Investors GmbH, UK Branch


199 Bishopsgate London

Banker (Guernsey)

London EC2M 3TY

Kleinwort Benson (Channel Islands)  Limited

(Represented by PWI Ingram FCIS)

Dorey Court, Admiral Park

 

St Peter Port

Administrator     

Guernsey GY1 2HT

Kleinwort Benson (Channel Islands)

 

Fund Services Limited        

Custodian

Dorey Court, Admiral Park

Kleinwort Benson (Guernsey) Limited

St Peter Port         

Dorey Court, Admiral Park

Guernsey GY1 2HT

St Peter Port

 

Guernsey GY1 2HT

Legal Advisers (UK)          

 

Herbert Smith Freehills LLP

Sub Custodian

Exchange House

Wells Fargo Bank Northwest N.A.

Primrose Street    

260 North Charles Lindbergh Drive

London EC2A 2HS

Salt Lake City

 

UT 84116, USA

Legal Advisers (Guernsey)

 

Carey Olsen

Financial Adviser and Corporate Broker

PO Box 98

Westhouse Securities Limited

Carey House

110 Bishopsgate

Les Banques

London EC2N 4AY

St Peter Port


Guernsey GY1 4BZ

 


Recognised Auditor


Deloitte LLP


Regency Court

 

Glategny Esplanade

 

St Peter Port

 

Guernsey GY1 3HW

 

 

Directors

The Directors have been chosen for their investment and commercial experience and are listed below:

 

Charles Tracy, Chairman, (aged 69) has over 30 years' experience as a merchant banker, covering both the investment management and banking fields. On joining N.M. Rothschild & Sons in 1975 he was made responsible for Asian and commodity-related investments, working in Malaysia and Hong Kong before taking up the post of Managing Director of N.M. Rothschild & Sons (C.I.) Ltd. in 1981, and remaining in that position until 1998. During that period he was Chairman of the Association of Guernsey Banks and of the Guernsey International Business Association. He is currently non-executive Chairman of Louvre Fund Services Limited and Chairman of the Board of the Guernsey Banking Deposit Compensation Scheme. He is a resident of Guernsey.

 

Ian Reynolds (aged 71) is a former Chief Executive of Commercial Union Life Assurance Company. He is a director of The Equitable Life Assurance Society, a former director of Liverpool Victoria Friendly Society and a former consultant actuary at Towers Perrin. Mr Reynolds is a Fellow of the Institute of Actuaries and a Chartered Director. He is UK resident.

 

Tim Emmott (aged 62) has over 35 years' experience in banking and investment in a variety of analytical, trading and management roles. He has been involved in investing in distressed, illiquid and alternative financial assets for the past 20 years and was formerly a director of Economic Lifestyle Property Investment Company Limited, a fund previously listed on the Channel Islands Stock Exchange. He is UK resident.

 

John Scott (aged 62) is currently a director of several UK investment trusts and is Chairman of Scottish Mortgage Investment Trust PLC and of Alpha Insurance Analysts Ltd. Mr Scott held a number of senior appointments at Lazard Brothers & Co., Limited between 1981 and 2001. Prior to that, he worked at Jardine Matheson & Co., Limited. He is a Fellow of the Chartered Insurance Institute and of the Chartered Institute for Securities and Investment. He is UK resident.

 

The Investment Manager

The Investment Manager, SL Investment Management Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, was formed in 1990 and is an investment adviser for a range of specialist investment products.

 

The Manager

Allianz Global Investors GmbH, UK Branch, which is authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and which is subject to limited regulation by the Financial Conduct Authority, is manager of a number of closed-ended investment companies with approximately £1.2 billion of such assets under management in a range of investment companies and investment trusts as at 31 December 2014. The Manager is responsible for managing the cash and fixed interest holdings of the Fund.

 

 

Responsibility Statement

For the period from 1 July 2014 to 31 December 2014

 

We confirm to the best of our knowledge:

 

a.     the half yearly report and unaudited condensed financial statements which have been prepared in accordance with IAS 34, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company;

 

b.     the interim management report (contained in the Chairman's Statement, Investment Manager's Review and Manager's Review) includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7R (indication of important events during the first six months, and their impact on the financial statements, and a description of principal risks and uncertainties for the remaining six months of the year); and

 

c.     the interim management report includes a fair review of the information required by Disclosure and Transparency Rule 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

 

 

DIW Reynolds                                                      JPHS Scott                                                                          

Director                                                                  Director

 

27 February 2015

 

 

 

 

 

 

Financial Highlights

For the period from 1 July 2014 to 31 December 2014

 








01.07.14


01.07.13


01.07.13








to 31.12.14


to 31.12.13


to 30.06.14








(6 months)


(6 months)


(12 months)













Shares in issue


72,000,000


72,000,000


72,000,000













Net assets at period end





£34,293,122


£33,036,994


£32,186,259













Net asset value per share at period end


47.6p


45.9p


44.7p













Total surplus/(deficit) on ordinary activities for the financial period per share


 

4.93p


 

(2.60p)


 

(3.78p)













Revenue deficit per share


(0.51p)


(0.61p)


(1.08p)

 

The half yearly financial reports have neither been audited nor reviewed by the Company's auditors. The financial information for the period ended 30 June 2014 has been extracted from the audited financial statements for that period.

 

Dividends

The Directors do not propose a dividend for the period from 1 July 2014 to 31 December 2014.

The Directors are making a distribution of 2 pence per share to be payable on 20 March 2015.

 

  

                                                                                                   

 

Chairman's Statement

For the period from 1 July 2014 to 31 December 2014

 

Summary

In my report a year ago I reported on a satisfactory cash position; six months ago I reported on the availability of sufficient cash to make a distribution to shareholders of 2 pence per share. As a result of recent maturities, the Board has now recommended a further distribution of 2 pence per share. This reflects a small number of maturities, but includes the largest policy in the portfolio by face value.

 

During the period, the Net Asset Value ("NAV") has advanced from 44.7 pence per share to 47.6 pence per share. Allowing for the distribution of 2 pence, this represents an increase of approximately 11%. It should however be noted that during the period there was a reduction in the NAV of 2.5 pence per share for the reasons explained on page 8 of the half year report and below. Ignoring this, the increase would have been in excess of 16%.

 

This is an appropriate place for me to record the Board's gratitude to Peter Ingram who has performed the role of Company Secretary to the Company on behalf of Allianz Global Investors GmbH, UK Branch since 1 September 2009. Peter's calm guidance during what has been a period of some complexity has been greatly appreciated and we wish him well on his forthcoming retirement. His post will be filled by Tracey Lago ACIS.

 

Portfolio developments

A summary of portfolio maturities since inception is given in the following table:

 

Period

76 months

12 months

12 months

12 months

6 months

Dates

Inception - 30/06/11

01/07/11- 30/06/12

01/07/12- 30/06/13

01/07/13- 30/06/14

01/07/14-

31/12/14

Number of policies matured

30

8

7

13

3

Number of lives relating to matured policies

26

6

5

12

3

Face Value of policies matured (US$ million)

US$51.2m

US$16.9m

US$5.7m

US$17.4m

US$10.5m

Premiums paid (US$ million)

US$53.6m

US$8.4m

US$8.2m

US$8.4m

US$4.2m

 

The realised gains on maturing policies in the last six months amounted to approximately              US$8.0 million in the period, or 7.1 pence per share (compared with US$10.2 million, in the preceding 12 months and US$5 million, or 4.4p per share, in the corresponding period of 2013). Although the number of maturities was somewhat lower than in comparable periods, the maturities involved three large policies, including the largest policy in the portfolio, with a face value of US$6 million.

 

As at 31 December 2014 there were a total of 86 policies in the portfolio, representing 75 lives, with a face value of US$132.0 million and a valuation of US$45.5 million. There have been no policy acquisitions since completion of the original policy purchase programme, but premiums continued to be payable on existing holdings, totalling US$4.2 million during the half year.

 

Since 31 December 2014, one policy maturity has been identified with a face value of US$0.4 million. Once recognised in the NAV, this maturity will result in an increase in NAV of approximately 0.2 pence per share.

 

The principal issues facing the Company, that is to say valuation, credit risk, gearing and hedging are discussed below.

 

Valuation  

The current NAV as released to the market is a Directors' valuation, prepared with assistance from the Investment Manager, which uses estimates of life expectancy to arrive at a table of cash flows, based on actuarial principles discounted to present value using a market-based discount rate (or internal rate of return or IRR).  The key factors in the valuation therefore are:  the policy face value and the premiums payable; the assumed life expectancy (LE) of the insured; the actuarial mortality table; and the discount rate.

 

In September 2014, 21st Services LLC, one of the firms that provide the Company with LE assessments, announced a major revision to its mortality assumptions, resulting in significant upward revision of many LEs. Initially, a total of 15 recent LEs were revised based on this new information, resulting in a reduction in the NAV as at 30 September 2014 of 0.5 pence per share. Given the materiality of this update, the Board commissioned LE updates from 21st Services on the remaining policies in the portfolio for which LEs from this firm are used. A further reduction in the NAV per share of 2.0 pence per share as at 30 November 2014 was made as result of these updates. When the Board decided to use three underwriters, the LEs provided by 21st Services were rather shorter than others, so these updates make the valuation basis more conservative than hitherto. Note particularly that the sensitivity matrix now shows the NAV per share based on the Valuation Basic Table ("VBT") is now about 4% higher than the current published NAV per share; as at 31 December 2013 the VBT-based NAV per share was actually lower than the published figure.

 

Updated life expectancy assessments were obtained for two other lives during the period, representing 2% of the total portfolio face amount.  81% of the portfolio (by face) is valued with reference to LEs obtained within the past 2 years.  The remaining 19% of the portfolio (small and uncooperative policies) are valued using the 2008 VBT table.

 

The valuation model currently uses an IRR of 12%, intended to reflect market pricing in an admittedly thin market.  Given that interest rates are low, and are likely to remain stable, this implies a substantial risk premium above current interest rates. Historical sales of policies by the Company have also given support to the use of a 12% IRR, but it must be cautioned that information on market trades is sparse.  The Board thus continues to believe that the 12% IRR assumption remains appropriate but, as before, is providing information on the effect of differing IRRs and LEs in the table below.

 

-    The first line of NAVs in the table uses the 'Latest LE' assumption, that is to say either an LE based on a recently updated assessment (obtained on or after 1 April 2013) or, for the remaining policies, an LE based on the 2008 VBT. The average LE is shown for reference (4.7 years).  NAV is then shown at four different discount rates, ranging from 10% to 20%. 

-    The second line shows the effect of an increase of one year in the valuation LEs.

-    The third line shows the effect of a decrease of one year in the valuation LEs.

-    Finally, the fourth line shows the outcome of assuming LEs are based on the current table of life expectancies for the general population, the 2008 VBT i.e. ignoring LE assessments. This shows that the portfolio LEs are now marginally longer than the general population.

 

Sensitivity Matrix

Net Asset Value in pence per share on various assumptions as at 31 December 2014

 



Discount Rates applied to cash flows

Mortality Assumptions

Average LE

(years)

10%

12% (Current)

16%

20%

Latest LE

4.7

50.4

47.6

43.1

39.4

+1 year for all LEs

5.7

38.4

35.9

32.0

29.0

-1 year for all LEs

3.7

63.8

60.9

56.0

51.9

Using 2008 VBT

4.6

52.4

49.6

45.0

41.2

 

Gearing

On 31 March 2014, the Company agreed a new revolving credit facility of up to US$10 million with AIB Group (UK) PLC, which provides financing for the period to 31 March 2016.

 

During the period the continuing positive flow of maturities enabled the Company to make a distribution of 2p per share on 8 August 2014 within the terms of the lending covenants. US$1 million had been drawn on the facility as at 31 December 2014, but this has subsequently been repaid. As at 31 January 2015 the Company had net cash balances of US$7.4 million with a further US$0.4 million in relation to the maturity announced in January 2015 expected to be received shortly. Accordingly, the stated distribution can be made within the facility covenants.

 

Credit Risk

Following the acquisition of Lincoln Benefit Life Company by Resolution Life Holdings, Inc., A.M. Best downgraded the financial strength rating of Lincoln Benefit Life Company from A+ to A- during the period.  The Company holds one policy from this life company with a face value of US$2m, representing 1.5% of the portfolio face value.

 

There were no other A.M. Best rating changes during the period that affected the portfolio.  As at the reporting date 96.1% of the Company's policies by value were issued by companies with an A.M. Best rating of 'A' or better. We continue to monitor the ratings and any that fall lower than 'A' are reviewed and continue to be held on satisfaction of creditworthiness of the relevant life company. 

 

Policies and extension options

In keeping with earlier reports I have updated below the information on policies with an extension option. The recent maturity of two large policies, one with no extension and one with a reduced death benefit on extension, has significantly improved the balance of the portfolio: policies with no expiry date now account for 44% of the portfolio compared with 41.7% a year ago.

 

Policies and extension options (continued)

 

 (Comparable figures as at

31/12/13 in brackets)

Policies

Lives

Death benefit US$000

% Death benefit

Investment value US$000

% Investment value

No Extension

           42

(47)

               38

(42)

56,992

(69,242)

43.2%

(46.1%)

20,824

(25,109)

45.8%

(47.6%)

Extension to age 115

                  7

(7)

                  7

(7)

10,300

(10,300)

7.8%

(6.9%)

3,173

(2,736)

7.0%

(5.2%)

Extension to death with reduced death benefit after age 100

                  2

(3)

                  2

(3)

4,000

(6,500)

3.0%

(4.3%)

1,476

(2,934)

3.2%

(5.5%)

No Expiry date

         35

(38)

               28

(31)

60,747

(64,097)

46.0%

(42.7%)

19,987

(22,025)

44.0%

(41.7%)


          86

(95)

      75

(83)

132,039

(150,139)

100.00%

45,460

(52,804)

100.00%

 

For the 42 policies without an extension option, the average age of the insured is currently 91.0 years, while the policy expiry dates are at an average age of 100.3 years, giving an average time to expiry of 9.3 years. According to the latest LE data, the average LE for these insureds is 4.7 years, so policy holders would on average have to live for approximately twice as long as expected for these policies to expire. Within this range of policies, of course, there are some which are more likely to expire than others. This new table below summarises the distribution of the time intervals between the LE and the expiry date:

 

Time between Life Expectancy and expiry date

Policies

Lives

Death Benefit (US$'000)

% Death Benefit

Investment value (US$'000)

% Investment value

Up to 1 year

0

0

          0

0.0%

         0

0.0%

1 year and up to 2 years

1

1

       750

0.6%

     309

0.7%

2 years and up to 3 years

8

8

  14,879

11.3%

  4,857

10.7%

3 years and up to 4 years

5

4

    5,800

4.4%

  2,179

4.8%

4 years and up to 5 years

16

14

  21,863

16.5%

  8,252

18.2%

5 years and up to 6 years

2

2

    1,200

0.9%

     447

1.0%

6 years and up to 7 years

5

4

    4,400

3.3%

  1,565

3.4%

7 years and up to 8 years

4

4

    7,600

5.8%

  3,026

6.6%

8 years and up to 9 years

0

0

          0

0.0%

         0

0.0%

9 years and up to 10 years

0

0

          0

0.0%

         0

0.0%

10 years and up to 11 years

1

1

       500

0.4%

     189

0.4%

Greater than 11 Years **

7

7

  10,300

7.8%

  3,173

7.0%

No Expiry *

37

30

  64,747

49.0%

21,463

47.2%

TOTAL

86

75

132,039

100.0%

45,460

  100.0%








* - includes 2 policies where death benefit reduces at age 100




  ** - all 7 of these policies have extension options to either age 114 or age 115

 

Policies and extension options (continued)

 

It should be noted that no policies will expire before May 2020 and that there are no policies where the current average LE is beyond the expiry date.

 

Hedging

The Company's original Investment Policy stated that it was the intention to hedge the US dollar exposure.  Following the removal of this statement as part of the changes to the policy adopted in September 2011, the Company's outstanding foreign exchange positions were closed out.

 

From 30 March 2012, the Company has operated on an unhedged basis, and there is no current intention to initiate any new currency hedges.

 

At 31 December 2014, the Company's net US dollar exposure amounted to US$45,670,000, being the value of policies of US$45,460,000, plus certain USUS$ balances totalling US$210,000.

 

Sterling improved against the US Dollar by 9.2% in the six months to 31 December 2013 and by a further 3.2% in the six months to 30 June 2014. By contrast, Sterling has been weak in the last six months, falling by 8.7%. This has had a positive impact on the Net Asset Value of approximately 4.1 pence per share.

Outlook

The Board is delighted to be able to report a further distribution of 2 pence per share to be payable on  20 March 2015. The ex-dividend date for this distribution will be 12 March 2015 and the associated record date will be 13 March 2015.

 

Generation of cash within the portfolio depends both on mortality experience and on the size of policies maturing, as has been well demonstrated by recent experience. The Board will continue to decide on future distributions based on maturities and subject to the availability of credit facilities.

 

The Company holds a well-diversified portfolio of 75 lives (86 policies) with an average life insured age of 91.0 years. With US$132 million of death benefits, compared with a carrying value of US$45 million, combined with a strong liquidity position, the Board intends to continue to hold policies to maturity, but will not ignore opportunities for policy sales on attractive terms.

 

 

 

CPG Tracy

Chairman

27 February 2015

 

 

 



Investment Manager's Review

For the period from 1 July 2014 to 31 December 2014

 

Investment Portfolio Review

 

During the six month period from 1 July 2014 to 31 December 2014 there were three policy maturities with a total death benefit of US$10.5m.  The three maturities related to three individual lives, two males and one female. As of 31 December 2014, 86 policies remained within the portfolio with exposure to 75 individual lives. 

 

Cumulatively, as of 31 December 2014 there have been 61 policy maturities across 52 lives since inception.  Death benefits from all maturities totalled US$101.6m, realising a US$45.0m gain. 

 

Since 31 December 2014, one further maturity has been identified, with a death benefit of US$0.4m. 

 

Portfolio Summary

 

Death benefit

US$132.0m

Investment value

US$45.5m

Total number of Holding Life Companies

25



Averages weighted by death benefits:




Male/Female ratio at purchase

66% / 34%

Age at purchase

81.7 years

LE at purchase

8.0 years



Current Male/Female Ratio

63% / 37%

Current Age

90.9 years

Current LE

4.8 years

 

Premium Payments

 

The expected cost of premiums for the six month period ending 30 June 2015 is US$4.2m. In the following 12-month accounting period ending 30 June 2016, scheduled premium commitments are US$9.0m, assuming no maturities during this time. SL Investment Management continues the ongoing review of all policy statements to identify any scope for further optimisation of the premium payment schedules.

 

Life Expectancy Estimates 

 

InSeptember 2014, 21st Services released details of changes to their senior mortality database and mortality tables. 21st Services conducted an analysis of their database (which contains over 90,000 lives), resulting in the decision to adjust their mortality tables to allow for their experience to date.

 

The changes primarily affected lives over 90 years old, with mortality rates reducing in this range of the table. As a consequence of the reduction in mortality rates, life expectancies produced by 21st Services are now notably longer on average than those produced using the previous table. Additionally, 21st Services made adjustments to their treatment of lives with multiple impairments, which again resulted in longer life expectancy estimates on average.

 

Following these changes, AAO obtained revised versions of all 21st Services LEs received since April 2013. The updated LEs were not based upon new underwriting or medical information; they were simply reissued using 21st Services' current methodology. On average, the revised 21st Services LEs were 18% longer. Allowing for the fact that we used three different LE providers, this resulted in an overall 5.8% reduction in the November portfolio valuation.

 

Following the LE update programme undertaken during 2014, 81% of the portfolio by death benefit is valued using LE assessments obtained in the past two years. The Board is expected to continue to operate a rolling LE update programme during 2015.   

 

The following table shows the distribution by death benefit of the policies in the portfolio by LE band. Policies are grouped by 6 month LE bands and the table shows the number of lives and the total death benefit in each group. The LEs are the valuation LEs used for the 31 December 2014 valuation.

 

It is important to stress that the LE is an average of the estimated length of future lifetime for an individual with a given age and health status. The table is not, therefore, a prediction of when actual maturities will occur and is thus not a cash flow forecast.

 

At 31 December 2014:

LE bands
(years)

No. of lives

Total death benefit
US$000

Up to 0.5 year

   0

0

0.5 year and up to 1 year

0

0

1 year and up to 1.5 years

0

0

1.5 years and up to 2 years

0

0

2 years and up to 2.5 years

1

1,300

2.5 years and up to 3 years

2

2,816

3 years and up to 3.5 years

5

9,220

3.5 years and up to 4 years

9

14,600

4 years and up to 4.5 years

13

23,735

4.5 years and up to 5 years

15

29,524

5 years and up to 5.5 years

16

27,514

5.5 years and up to 6 years

3

2,111

6 years and up to 6.5 years

6

11,469

6.5 years and up to 7 years

1

2,000

7 years and up to 7.5 years

3

6,250

7.5 years and up to 8 years

0

0

LE greater than 8 years

1

1,500

Total

75

132,039

 

 

  

 

 

Life Group (Parent Company) Distribution (Top 5)

 

Ranking by total death benefit

Parent Company

% Total death benefit

% Investment Value

1

Lincoln National Corporation

23.6%

23.2%

2

American International Group, Inc

16.7%

20.0%

3

AEGON N.V.

16.7%

17.7%

4

Massachusetts Mutual Life Insurance Co

5.8%

7.4%

5

MetLife, Inc.

5.3%

6.0%

 

 

Credit Quality Distribution by Holding Life Company

 

Following the acquisition of Lincoln Benefit Life Company by Resolution Life Holdings, Inc., which completed in April 2014, A.M. Best downgraded the financial strength rating of Lincoln Benefit Life Company from A+ to A-. Resolution Life considers Lincoln Benefit a core operating subsidiary and plans to continue to operate the company as a run-off block of business.

 

A.M. Best stated that the rating of Lincoln Benefit Life Company is reflective of a run-off company that is expected to maintain a strong capitalisation profile. A.M. Best also stated that an upward rating movement is unlikely in the near term. 

 

This affected one policy in the portfolio with a face value of US$2.0m equating to 1.5% of the portfolio.  Overall, 96.1% of the portfolio by valuation has an A.M. Best rating of A or higher.

A.M. Best Rating

Policy Count

Life Company Count

Total death benefit US$000

% total death benefit

Total Investment Value US$000

% total Investment Value

A++

9

2

14,132

10.7%

5,135

11.3%

A+

56

13

80,942

61.3%

27,314

60.1%

A

15

6

29,750

22.6%

11,252

24.7%

A-

3

3

2,950

2.2%

575

1.3%

B++

3

1

4,265

3.2%

1,185

2.6%


86

25

132,039

100%

45,461

100%

 

Period Review

 

This six month reporting period witnessed three maturities compared to seven in the previous six months. However, in terms of total death benefit realised, this period has improved compared with the previous period; US$10.5m this period versus US$7.6m in the previous six months. This reaffirms the fact that short term performance is driven not just by the frequency of maturities, but also the size of the policy maturities.

 

The average death benefit associated with each life insured in the portfolio is US$1.8m, but there is considerable variation in the size of individual death benefit amounts. The table below illustrates the distribution of the 75 lives in the portfolio by death benefit as at 31 December 2014. Where a life insured represents more than one policy in the portfolio, the life is categorised according to the total death benefit relating to that life:

 

Policy bands
(face value)

No. of lives

Total Death benefit
US$000

Total Valuation US$000

% of valuation

US$0m ≤ NDB < US$0.5m

10

3,265

1,168

2.6

US$0.5m ≤ NDB < US$1m

17

10,244

3,487

7.7

US$1m ≤ NDB < US$2.5m

29

42,138

13,790

30.3

US$2.5m ≤ NDB < US$5m

11

35,651

12,746

28.0

US$5m ≤ NDB < US$6.0m

8

40,741

14,270

31.4

Total

75

132,039

45,461

100.0

 

Although the largest policy in the portfolio (by face value) matured during the period, a large proportion of the total death benefit remains linked to a relatively small proportion of lives.  19 lives (25% of total lives) account for 58% of the total death benefit and 59% of the reported valuation.

 

Market Review

 

With the high levels of volatility prevailing in the traditional capital markets, institutional investors are searching for alternative assets that are not highly correlated to the equity or bond markets. As a result, the second half of 2014 resulted in further investment capital entering the life settlement market.  Demand for policies therefore remains high as investors look to deploy their capital quickly to minimise cash drag. This competition for suitable policies is supporting market prices and prices are expected to remain at current levels for the foreseeable future.   

 

With Life Expectancy assumptions so critical to the pricing and valuation of policies, LEs remain a key focus of the life settlement industry. The adjustment to LEs announced by 21st Services in September has reduced the disparity between the LEs provided by the major assessment firms. The convergence of LE estimates is likely to give investors more comfort, and attentions now turn to the forthcoming release of the 2014 Valuation Basic Table (VBT) mortality table.

 

The Society of Actuaries has released preliminary 2014 VBT mortality tables for comment from the Life Insurance industry, but has not yet published the final tables. Life settlement investors are monitoring the situation closely due to the significant impact the release of the last mortality table (2008 VBT) had on LE assessments. The release of the 2008 VBT resulted in significant lengthening of LEs as the underwriters rebased their mortality tables with the new population data. 

 

However, the consensus in the life settlement market is that the release of the 2014 VBT will not have as significant an impact on the LE assessments provided by the LE underwriters. This is due to the fact that the LE underwriters have now built up significantly more of their own mortality data and therefore do not rely on the wider insured population data to the extent that they used to.  All three of the LE underwriters used by AAO have indicated that they do not expect to make changes to their LE assessments as a direct result of the release of the 2014 VBT.

 

Outlook

 

The life settlement market is likely to remain competitive in 2015 as demand for policies continues to outweigh supply. Large investors will continue to look to the tertiary market in an attempt to source blocks of policies from existing portfolio holders. Market conditions will continue to be monitored closely to identify favourable sales opportunities should they arise.

 

SL Investment Management Limited

27 February 2015

 

 

Manager's Review

For the period from 1 July 2014 to 31 December 2014

                                                                                                               

Borrowings

A new Revolving Credit Facility of US$10 million was signed for a period of two years with AIB Group (UK) PLC until 31 March 2016. As at 31 December 2014, US$1,000,000 was drawn down under this facility. This compared to a nil balance drawn down as at 30 June 2014.

 

Since the period-end, the Company has repaid US$1,000,000 from matured policies and has not drawn down any further amounts. The loan balance at the date of this report stands at nil.

 

Under the terms of the Revolving Credit Facility, the Company is required to maintain asset cover (i.e. asset value divided by borrowing) of at least 3 times. As at 31 December 2014, the asset cover was 46.7 times.

 

FATCA

During the period the Company was registered with the IRS as a Foreign Financial Institution for the purposes of the Foreign Account Tax Compliance Act (FATCA).

 

Change of Name of Manager

On 28 November 2014 Allianz Global Investors Europe GmbH changed its name to Allianz Global Investors GmbH. The contractual arrangements with its UK Branch remain unchanged.

 

US dollar exposure

The Company no longer hedges its US dollar exposure, so the Company is fully exposed to the effects of exchange rates upon its US dollar positions.

 

Allianz Global Investors GmbH, UK Branch

27 February 2015

 

 


Condensed Statement of Comprehensive Income

For the period from 1 July 2014 to 31 December 2014

 


Notes


01.07.14 to 31.12.14

01.07.13 to 31.12.13

01.07.13 to 30.06.14




Revenue

Capital

Total

Revenue

Capital

Total

Revenue

Capital

Total




£

£

£

£

£

£

£

£

£

Operating income












Net gains/(losses) on investments

 

9


 

-

 

3,853,351

 

3,853,351

 

-

 

(1,413,595)

 

(1,413,595)

-

(1,822,843)

(1,822,843)

Other foreign exchange  gains/(losses)

 

14


 

-

 

65,260

 

65,260

 

-

 

(18,173)

 

(18,173)

-

(123,862)

(123,862)

Interest and similar income

3


162

-

162

103

-

103

176

-

176




162

3,918,611

3,918,773

103

(1,431,768)

(1,431,665)

176

(1,946,705)

(1,946,529)

Operating expenses












Management fee

4


(46,941)

-

(46,941)

(55,384)

-

(55,384)

(103,947)

-

(103,947)

Investment manager's fee

4


(26,186)

-

(26,186)

(73,698)

-

(73,698)

(101,855)

-

(101,855)

Custodian fee



(7,824)

-

(7,824)

(8,686)

-

(8,686)

(16,780)

-

(16,780)

Other expenses

5


(207,075)

-

(207,075)

(200,985)

-

(200,985)

(410,104)

-

(410,104)













Total operating expenses before finance costs



 

(288,026)

 

-

 

(288,026)

 

(338,753)

 

-

 

(338,753)

(632,686)

-

(632,686)













Operating profit/(loss) before finance costs



 

(287,864)

 

3,918,611

 

3,630,747

 

(338,650)

 

(1,431,768)

 

(1,770,418)

(632,510)

(1,946,705)

(2,579,215)

 












Finance costs












Finance charges including bank interest

12


(83,884)

-

(83,884)

(100,066)

-

(100,066)

(142,004)

-

(142,004)













Net surplus/(deficit)

7


(371,748)

3,918,611

3,546,863

(438,716)

(1,431,768)

(1,870,484)

(1,946,705)

(2,721,219)













Surplus/(deficit)  per share

7


 

(0.51p)

 

5.44p

 

4.93p

 

(0.61p)

 

(1.99p)

 

(2.60p)

(1.08p)

(2.70p)

(3.78p)













 

The revenue column of this statement is the revenue account of the Company. All revenue and capital items in the above statement derive from continuing operations.

The notes on pages 22 to 32 of the half year report and below are an integral part of these condensed financial statements.


Condensed Statement of Financial Position

As at 31 December 2014

 


Notes


31.12.14

31.12.13

30.06.14




£

£

£







Non-current assets






Financial assets at fair value through profit or loss

 

9


 

29,155,190

 

31,875,123

 

29,380,044







Current assets






Cash and cash equivalents



712,541

513,100

2,092,052

Other receivables

10


109,460

9,991

61,898

Maturity proceeds receivable



5,130,672

880,997

789,543










5,952,673

1,404,088

2,943,493







Total assets



35,107,863

33,279,211

32,323,537







Current liabilities






Bank loan

12


641,334

-

-

Other payables

11


173,407

242,217

137,278










814,741

242,217

137,278







Total liabilities



814,741

242,217

137,278







Net assets attributable to shareholders

14


34,293,122

33,036,994

32,186,259







Total equity and liabilities (including amounts due to shareholders)



 

35,107,863

 

33,279,211

 

32,323,537







Net asset value per share

8


47.6p

45.9p

44.7p

 

These condensed financial statements were approved by the Board of Directors on 27 February 2015.

 

Signed on behalf of the Board.

 

 

                                                                                                               

Director                                                                  Director

27 February 2015

 

 

The notes on pages 22 to 32 of the half year report and below are an integral part of these condensed financial statements.

 

 

 

 



Condensed Statement of Changes in Redeemable Participating Preference Shareholders' Funds

For the period from 1 July 2014 to 31 December 2014

 


Share

Capital

Revenue



Premium

Reserve

Reserve

Total


£

£

£

£

At 1 July 2013

48,914,968

(5,209,676)

(8,797,814)

34,907,478






Deficit for the period

-

(1,431,768)

 (438,716)

(1,870,484)






At 31 December 2013

48,914,968

(6,641,444)

(9,236,530)

33,036,994






Deficit for the period

-

(514,937)

(335,798)

(850,735)






At 30 June 2014

48,914,968

(7,156,381)

(9,572,328)

32,186,259






Surplus/(deficit) for the period

-

3,918,611

(371,748)

3,546,863






Shares redeemed

(1,440,000)

-

-

(1,440,000)






At 31 December 2014

47,474,968

(3,237,770)

(9,944,076)

34,293,122

 

  

The notes on pages 22 to 32 of the half year report and below are an integral part of these condensed financial statements.

 

 

 

 



Condensed Statement of Cash Flows

For the period from 1 July 2014 to 31 December 2014

 


01.07.14

01.07.13

01.07.13


to 31.12.14

to 31.12.13

to 30.06.14


£

£

£

Cash flows from operating activities




Revenue account operating loss before finance costs for the period

(287,865)

(338,650)

(632,510)

(Increase)/decrease  in other receivables

(4,388,691)

104,686

144,233

Increase/(decrease) in other payables

36,129

59,653

(45,285)

Premiums paid

(2,604,318)

(2,625,592)

(5,164,817)

Proceeds from maturity of investments

6,682,523

6,274,255

10,899,311





Net cash (outflow)/inflow from operating activities

(562,222)

3,474,352

5,200,932





Financing activities




Increase/(decrease) in bank loan

641,334

(3,915,675)

(3,915,675)

Interest paid

(83,884)

(100,066)

(142,005)

Shares redeemed

(1,440,000)

-

-

Net cash outflow from financing activities

(882,550)

(4,015,741)

(4,057,680)





Reconciliation of cash flow to movement in net cash




(Decrease)/increase in cash and cash equivalents in the period

(1,444,772)

(541,389)

1,143,252

Cash and cash equivalents at the beginning of the period

2,092,052

1,072,662

1,072,662

Effects of foreign exchange

65,261

(18,173)

(123,862)





Cash and cash equivalents at the end of the period

712,541

513,100

2,092,052

 

 

 

The notes on pages 22 to 32 of the half year report and below are an integral part of these condensed financial statements.

 

 

 

 

 

 



Portfolio of Investments

As at 31 December 2014

 

 

 

Traded Life Interests ("TLI's")

 

Number

of Policies


 

 

Valuation


Total Death Benefit


Portion of

Portfolio


 

A.M. Best

Rating *







£


£


%



Issuer










 

Lincoln National Life Insurance Company

 

13


6,583,906


18,869,051


22.7%


 

      A+

American General Life Insurance Company

 

9


5,820,860


14,141,415


20.1%


 

      A

Transamerica Life Insurance Company

17


5,164,677


14,158,859


17.8%


      A+

Massachusetts Mutual Life Insurance Company

 

4


2,149,058


4,894,747


7.4%


 

      A++

 

MetLife Insurance Company

 

6


1,702,770


4,175,238


5.8%


 

      A+

John Hancock Life Insurance Company (U.S.A.)

 

5


1,326,438


3,848,004


4.5%


 

      A+

 

Pacific Life Insurance Company

 

4


1,201,997


5,163,505


4.1%


 

      A+

New York Life Insurance and Annuity Corporation

 

5


1,144,384


4,168,671


3.9%


 

      A++

Athene Annuity and Life Company

3


760,273


2,735,290


2.6%


      B++

Security Life of Denver Insurance Company

 

1


675,754


3,206,670


2.3%


 

      A

North American Company for Life and Health Insurance

 

2


409,043


1,282,668


1.4%


 

      A+

AXA Equitable Life Insurance Company

3


334,046


929,934


1.1%


      A+

MONY Life Insurance Company of America

 

1


239,353


641,334


0.8%


 

      A

 

ING Life Insurance and Annuity Company

 

2


227,592


448,934


0.8%


 

      A

Lincoln Benefit Life Company

1


211,158


1,282,668


0.7%


      A-

Jackson National Life Insurance Company

1


189,893


654,460


0.7%


      A+

Lincoln Life & Annuity Company of New York

 

1


168,039


1,122,335


0.6%


 

      A+

Columbus Life Insurance Company

1


156,236


641,334


0.5%


      A+

ReliaStar Life Insurance Company

1


130,997


320,667


0.4%


      A

United of Omaha Life Insurance Company

1


130,709


552,470


0.4%


      A+

Standard Insurance Company

1


121,000


320,667


0.4%


      A

Security Mutual Life Insurance Company of New York

 

1


116,533


481,001


0.4%


 

      A-

Banner Life Insurance Company

1


88,367


192,400


0.3%


      A+

General American Life Insurance Company

 

1


60,921


320,667


0.2%


 

      A+

Beneficial Life Insurance Company

1


41,186


128,267


0.1%


      A-











Portfolio Total

86


29,155,190


84,681,256


100.0%



 

 

 

 

 

 

 



Notes to the condensed financial statements

For the period from 1 July 2014 to 31 December 2014

 

1              Principal activity

The Company is a Guernsey registered closed-ended protected cell company established with one cell known as the US Traded Life Interests Fund (the "Fund" or "Cell"). The redeemable preference shares (the "shares") in the Company have been admitted to the Official List of the UK Listing Authority with a premium listing and to trading on the London Stock Exchange's main market for listed securities. The Company's objective in respect of the Fund is to provide investors with an attractive capital return through holding to maturity (or until the end of the life of the Fund), a diversified portfolio of US Traded Life Interests ("TLIs"), notwithstanding the Company may make sales of selected policies from time to time.

 

2      Principal Accounting Policies

 

(a)   Basis of preparation           

               

 Statement of compliance

The condensed financial information for the six months ended 31 December 2014 has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2014, which have been prepared in accordance with International Financial Reporting Standards.

 

The accounting policies applied in the condensed financial statements are consistent with those of the annual financial statements for the year ended 30 June 2014, as described in those financial statements.

 

Basis of measurement                        

The financial statements have been prepared under the historical cost convention as modified by the revaluation of investments, as detailed below under note 2(b). 

 

The financial statements have been prepared on a total company basis and not on a cell- by-cell basis as there is currently only one cell. The only non-cellular assets and liabilities are in respect of the two management shares of no par value issued at £1 each fully paid represented by cash at bank. As they are immaterial they have been excluded from the financial statements.

 

Functional and Presentational Currency

The financial information shown in the financial statements is shown in sterling, being the Company's functional and presentational currency.

 

Critical accounting judgements and key sources of estimation uncertainty

The preparation of Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Such judgements and key sources of estimation uncertainty include the valuation of investments and the going concern assumption which are discussed in notes 2(b) and 2(c) respectively.

 

 

 

 

Adoption of new and revised standards

 

In the current year, the Company has adopted IFRS13 "Fair Value Measurement" but this        

has not had a material impact on the financial statements.

 

 (b) Investments

 

US Traded Life Interest Investments

The Company primarily invests in US Traded Life Interests ("TLIs") which it intends to hold to maturity or until the end of the life of the Fund. The Company has only invested in Whole of Life and Universal Life policies. All TLI investments are classified as fair value through profit and loss on initial recognition.

 

Recognition and basis of measurement

The ongoing payment of premiums on TLIs are recognised on a paid basis and are initially held at cost, being the consideration given.

 

Valuation

The TLIs are valued monthly at the Directors' discretion.  The methodology adopted by the Directors intends to reflect the fair value of the policies.  This methodology uses a discounted cash flow method.

 

The value of a TLI policy is the present value of its net expected future cash flows. The calculation uses the following data and assumptions provided by third party LE underwriters, the Investment Manager (or the Directors, where stated):

·      Death benefit payable under the policy;                                         

·      Mortality using the 2008 Valuation Basic Table (Ultimate) and the most recent life expectancy for each policy;

·      Premiums payable under the policy; and                                                                        

·      An estimate of a market based discount rate derived by the Directors.

 

There is inherent uncertainty within the valuation such that the valuation may be materially different from either the value on maturity or the realisable sale value of these investments.

 

The significant unobservable inputs used in the valuation of the Company's assets,                Life Settlement policies, are the Life Expectancy (LE) and the discount rate.

 

The LE for each insured has been sourced from the major recognised providers of LE assessments that are used in the Life Settlement market or, where these are not available, standard US population mortality tables have been used to derive the LE. The LE for each insured as at 31 December 2014 lies in the range of 2.3 years to 8.2 years.

 

The Company has adopted a discount rate of 12% for each policy.

 

The valuation basis of the portfolio is specified by the Board and the Investment Manager computes the portfolio valuation monthly.  Analysis is provided to the Board, on a monthly basis, of the change in value of the portfolio over this period.

 

The Board receives regular updates from the Investment Manager on market activity and has periodically submitted policies to market, to compare the individual computed policy valuations to indicative market values.

 

(b)    Investments (continued)

The impacts on the portfolio of varying the LE and varying the discount rate are as indicated in the sensitivity matrix included in the Chairman's Statement.

 

Typically, an increase in the LE will reduce the value of a policy and conversely a reduction in the LE will increase the value of a policy.

 

Typically, an increase in the discount rate will reduce the value of a policy and conversely a reduction in the discount rate will increase the value of a policy.

 

De-recognition                                                                                                                                   

The Company de-recognises a financial asset when the contractual rights to cash flows from the financial asset expire. A financial liability is de-recognised when the obligation specified in the contract is discharged, cancelled or expired. TLI investments are de-recognised on the date of death of the insured or on the trade date if a policy is sold.

 

(c)     Going concern

The Board considered carefully the issue of 'going concern', specifically in relation to the availability of funding. On 31 March 2014, the Company signed a new revolving credit facility agreement of up to US$10 million with AIB Group (UK) PLC up to 31 March 2016, which will cover the Company's cash flow requirements at least until 1 October 2015.

 

Total drawn borrowings under the new revolving credit facility agreement with AIB Group (UK) PLC increased from nil as at 30 June 2014 to US$1,000,000 (£641,334) as at 31 December 2014. The asset cover as at 31 December 2014 was 46.7 times (30 June 2014: n/a. At the date of this report borrowings were nil).

 

The Board has considered the position should AIB Group (UK) PLC not renew the agreement beyond 31 March 2016 and should alternative credit facilities not be available. Acknowledging that if combined with a drought in maturities, this might involve the forced sale of policies in an illiquid market, the Board is nevertheless confident that the sales required to cover outstanding borrowings could be completed.  To the extent that the prices achieved did not match those in the valuation, the net asset value of the Company could be adversely affected, but the Company would remain a going concern.

 

A continuation vote will be put to the Shareholders at the 2015 Annual General Meeting. While the Directors cannot be certain what the result of this vote will be, the financial statements are prepared on a going concern basis supported by the Directors' current assessment of the Company's ability to continue in existence for the foreseeable future and shareholder interest in the continuation of the Company. Based on the above, the Directors have reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future, and they continue to adopt the going concern basis in preparing the financial statements.

 

   (d)        Interest income

                Bank deposit interest is accounted for on an accruals basis.

 

   (e)        Expenses

Expenses are accounted for on an accruals basis and all amounts have been allocated to the Statement of Comprehensive Income - revenue account.

 

   (f)         Foreign exchange

Foreign currency monetary assets and liabilities are translated into sterling at the rate of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate ruling at the date of the transaction. Realised and unrealised foreign exchange gains and losses are recognised in the Statement of Comprehensive Income and in the capital reserve - realised, and capital reserve - unrealised, respectively.

 

   (g)        Bank borrowings

Interest bearing bank loans and overdrafts are recorded when the proceeds are received. Interest payments are recognised in the Statement of Comprehensive Income in the period in which they are incurred.

 

 

 

 

 

3              Interest and similar income



01.07.14

01.07.13

01.07.13



to 31.12.14

to 31.12.13

to 30.06.14



£

£

£






Bank deposit interest


162

103

176

Total income


162

103

176

 

4              Investment management and management fees

SL Investment Management Limited, the Investment Manager, was appointed under an agreement with the Company and other parties dated 16 March 2004, as amended and restated on 20 July 2004. The agreement may be terminated by either party giving not less than 12 months' notice or shorter notice as the parties may agree to accept.

 

From 1 April 2012 the fee payable to the Investment Manager is 0.4% per annum of the Company's Gross Assets. 

 

Allianz Global Investors GmbH, UK Branch, the Manager, was appointed under an agreement with the Company dated 16 March 2004 to manage the fixed interest and near cash assets of the Company in accordance with the investment policy and to implement the currency hedging facility from time to time approved by the Directors. Either party giving not less than 12 months' notice may terminate the agreement.

 

The original fee payable to the Manager was 0.4% per annum of the Company's Gross Assets. With effect from 1 July 2013 the fee payable to the Manager was reduced to 0.3% per annum of the Company's Gross Assets. These fees are shown in the Statement of Comprehensive Income. 

 

Prior to 1 July 2013 the fixed fee payable was £20,000 per annum for the provision of Administration and Secretarial Services. From the same date the fixed fee for the provision of Administration and Secretarial Services was increased from £20,000 to £30,000 per annum. These fees are shown under Other Expenses in the table in Note 5.

 

With effect from 1 September 2009 the fixed fee payable under Administration Agreement between the Company and Kleinwort Benson (Channel Islands) Fund Services Limited (formerly Kleinwort Benson (Guernsey) Fund Services Limited) is £50,000 per annum.

 



5              Other expenses



01.07.14

01.07.13

01.07.13



to 31.12.14

to 31.12.13

to 30.06.14



£

£

£






Administration and accountancy fees


25,000

25,547

55,072

Secretarial fees


12,603

20,201

27,598

Broker fees


20,910

20,560

41,624

Directors' fees and expenses


39,250

44,175

83,991

D&O Insurance


3,394

3,798

7,155

Auditors' remuneration


14,651

28,884

40,967

Legal and professional fees*


57,220

10,355

72,567

Printing


8,957

5,027

10,000

Safe custody fees


5,728

-

11,975

Bank fees and charges


1,004

129

1,101

Registrar fees


2,034

7,651

10,314

Cost of obtaining new LEs


13,400

12,329

13,522

Sundry expenses *


2,924

22,329

34,218








207,075

200,985

410,104

  

 

 

*In previous periods sundry expenses included various legal and professional fees in addition to mailing services, tax exempt fees, stock exchange fees and other sundry costs. For this and future periods legal and professional fees have been recategorised accordingly.

 

6              Taxation

The Company is exempt from Guernsey Income Tax under the local Income Tax (Exempt Bodies) (Guernsey) Ordinances and is charged an annual exemption fee of £600 which is included in sundry expenses.

 

The Company adopted UK tax residency from 1 September 2009 onwards. Since that date the Company has been managed in such a way as to meet the conditions for approval as an investment trust under Section 1158 of the Corporation Tax Act 2010. As an investment trust, the Company is subject to corporation tax on its income, but no corporation tax is provided for in these accounts, as the Company has significant unutilised tax losses which are not deemed to be recoverable.

 

In December 2012 the Company received confirmation from HM Revenue & Customs as an approved investment trust for accounting periods commencing on or after 1 July 2012, subject to the Company continuing to meet the eligibility conditions at Section 1158 Corporation Tax Act 2010 and the ongoing requirements in Chapter 3 of Part 2 Investment Trust (Approved Company) Tax Regulations 2011 (Statutory Instrument 2011/2999).

 

In the opinion of the Directors, the Company has conducted its affairs in such a manner that it continues to meet these eligibility conditions.

 

7              Return per share

Revenue deficit per share is based on the net deficit attributable to the shares of £371,749 (December 2013: deficit £438,716, June 2014: deficit £774,514) and on the average number of shares in issue of 72,000,000 (December 2013 and June 2014: 72,000,000). Capital return per share is based on the net capital increase attributable to the shares of £3,918,611 (December 2013: deficit £1,431,768, June 2014: deficit £1,946,705) and on the average number of shares in issue of 72,000,000 (December 2013 and June 2014: 72,000,000).

 



8              Net Asset Value per share

The net asset value per share is based on net assets attributable to the shares of £34,293,122 (December 2013: £33,036,994, June 2014: £32,186,259) and on the 72,000,000 shares in issue at the period end (December 2013 and June 2014: 72,000,000).

 

9              Investments

(a) Investments at fair value through profit or loss




 



01.07.14

01.07.13

01.07.13



to 31.12.14

to 31.12.13

to 30.06.14

Movements in the year:


£

£

£

Opening valuation


29,380,044

36,937,381

36,937,381

Premiums paid


2,604,318

2,625,592

5,164,817

Proceeds from the maturities and sale of investments


(6,682,523)

(6,274,255)

(10,899,311)

Net realised gain on maturities


3,512,829

2,855,405

4,491,743

Movement in unrealised depreciation on revaluation of investments


 

340,522

 

(4,269,000)

 

(6,314,586)

Closing valuation


29,155,190

31,875,123

29,380,044






Comprising:-





Closing book cost


48,802,407

49,817,275

49,367,784

Closing unrealised loss


(19,647,217)

(17,942,152)

(19,987,740)

Closing valuation


29,155,190

31,875,123

29,380,044

 

(b) Net gain/(loss) on investments held at fair value through profit or loss


01.07.14

01.07.13

01.07.13


to 31.12.14

to 31.12.13

to 30.06.14



£

£

£






Net realised gain on maturities


3,512,829

2,855,405

4,491,743

Movement in unrealised depreciation  on revaluation of investments


 

340,522

 

(4,269,000)

 

(6,314,586)



3,853,351

(1,413,595)

(1,822,843)

 

10           Other receivables and maturity proceeds receivable



31.12.14

31.12.13

30.06.14



£

£

£






Sundry debtors


109,460

9,991

61,898

Maturity proceeds receivable


5,130,672

880,997

789,543



5,240,132

890,988

851,441

 

11           Other payables



31.12.14

31.12.13

30.06.14



£

£

£






Accrued expenses


173,407

242,217

137,278








173,407

242,217

137,278

 

12           Loan facility

On 31 March 2014 the Company signed a new revolving credit facility agreement with AIB Group (UK) PLC ("the Lender") for up to USUS$10 million expiring on 31 March 2016. This is designed to allow the Company to continue fulfilling its financial obligations, including the payment of premiums until that date. As at 31 December 2014 the Company's drawings under this new agreement were USUS$1,000,000 (£641,334) (30 June 2014: USUS$nil).

 

Interest on the new revolving credit facility agreement is payable at LIBOR plus 3.25% (30 June 2014: 3.25%). Under the new revolving credit facility agreement the primary covenant obliges the Company to maintain cover (i.e. asset value, subject to certain adjustments, divided by borrowings) above 3 times. The asset cover as at 31 December 2014 was 46.7 times (30 June 2014: n/a).

 

13           Share capital and share premium

The share capital of the Company is two Management shares of no par value and an unlimited number of Redeemable Participating Preference shares (the "shares") of no par value.                         

The two Management shares were issued at £1 each fully paid and are beneficially owned by the Manager.  The Management shares do not carry any rights to dividends and holders of Management shares are only entitled to participate in the non-cellular assets of the Company on a winding-up. The Management shares shall only have the right to vote when there are no Participating shares of any cell in issue.

                                                                                                                                               

40,000,000 Shares were issued in the Fund at £1 per share on 25 March 2004. The issue costs incurred of £831,764 were debited against the share premium account to leave net proceeds of the share issue of £39,168,236.

 

Following a Placing and Open Offer a further 32,000,000 shares were issued on 5 November 2012. The issue costs incurred of £493,268 were debited against the share premium account to leave proceeds of the share issue of £9,746,732.

 

The new provisions in the Company's Articles of Incorporation enable the Directors of the Company to distribute cash to Shareholders through the issue and redemption of B shares. Each time the Board resolves to make such a distribution, the Company is able to announce a bonus issue of B shares on a pro rata basis. Immediately upon being issued, deemed fully paid, the B shares can be redeemed for the amount deemed paid up and cash proceeds then be paid to Shareholders.

 

The holders of shares attributable to the Fund will be entitled to participate only in the income, profits and assets        attributable to that fund. On winding up the holders of shares are entitled to participate only in the assets of the Fund and have no entitlement to participate in the distribution of any assets attributable to any other cell. Holders of shares are entitled to attend and vote at general meetings of the Company. At an Extraordinary General Meeting held on 28 August 2009 the Articles of Incorporation were amended so that the US Traded Life Interests Fund now has an unlimited life, subject to regular continuation votes from 2012 onward.  Shareholders shall be offered the opportunity to vote on the continuation of the Fund at the Annual General Meeting in 2015 and annually thereafter.

 

On 8 August 2014 72,000,000 B shares were issued 1 for 1 pro rata to Shareholders and redeemed for the amount paid up and the cash proceeds, representing a capital distribution of 2p per share, were paid to Shareholders amounting to £1,440,000.

 



14           Net assets attributable to shareholders

















Share Premium

Capital

Reserves



Revenue

Reserves


 

Total

 






2014

2014



2014


2014

 






£

£



£


£

 













 

Balance at 1 July 2014

48,914,968

(7,156,381)



(9,572,328)


32,186,259

 

Net realised gain on maturities

 

-

3,512,829



-


3,512,829

 

Movement in unrealised depreciation on investments

 

-

 

340,522



 

-


 

340,522

 

Net currency losses

-

65,260



-


65,260

 

Revenue loss for the year

-

-



(371,748)


(371,748)

 

Issue of B shares

  (1,440,000)

-



-


(1,440,000)

 

Balance at 31 December

2014


47,474,968

(3,237,770)



(9,944,076)


34,293,122

 




 







 

















Share Premium


Capital

Reserves


Revenue

Reserves


 

Total

 






2013


2013


2013


2013

 






£


£


£


£

 













 

Balance at 1 July 2013

48,914,968


(5,209,676)


(8,797,814)


34,907,478

 

Net realised gain on maturities

 

-


 

2,855,405


-


 

2,855,405

 

Movement in unrealised depreciation on investments

 

-


(4,269,000)


 

-


(4,269,000)

 

Net currency gains

-


(18,173)


-


(18,173)

 

Revenue loss for the period

-


-


(438,716)


(438,716)

 













 

Balance at 31 December 2013

48,914,968


(6,641,444)


(9,236,530)


33,036,994

 












 

















Share Premium

Capital

Reserves



Revenue

Reserves


 

Total

 






2013

2013



2013


2013

 






£

£



£


£

 













 

Balance at 1 July 2013

48,914,968

(5,209,676)



(8,797,814)


34,907,478

 

Net realised gain on maturities

-

4,491,743



-


4,491,743

 

Movement in unrealised depreciation on investments

 

-

(6,314,586)



 

-


(6,314,586)

 

Net currency gains


(123,862)



-


(123,862)

 

Revenue loss for the year

-




(774,514)


(774,514)

 









 

Balance at 30 June

2014


48,914,968

(7,156,381)



(9,572,328)


32,186,259

 




 







 

 

 

15           Related party transactions

Fees earned by the Directors of the Company during the period were £38,918 of which £8,979  was outstanding at the period end (December 2013: £44,175 of which £6,192 was outstanding at the period end; June 2014 £81,195 of which £4,599 was outstanding at the year end). Allowable expenses claimed by the Directors in the course of their duties amounted to £332 for the period ended 31 December 2014 (December 2013: £694, June 2014: £2,796). Fees earned by the Investment Manager, Manager and Administrator are discussed in note 4.

 

16           Financial risk management objectives and policies

The main risks to which the Company is exposed are market and longevity risk, currency risk, interest rate risk, liquidity risk and credit risk.

 

Fair value measurements

The Company classifies financial instruments using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:

 

·      Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

·      Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); or

 

·      Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

 

 

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.

 

The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.  

 

The following table presents the Company's financial assets and liabilities by level within the valuation hierarchy as of 31 December 2014.

 


31 December 2014


30 June 2014


31 December 2013


Net assets


Net assets


Net assets


£

%


£

%


£

%

Level 3 fair value assets

29,155,190

85.00


 

 

29,380,044

 

 

91.32


31,875,123

96,48


29,155,190

85.00


29,380,044

91.32


31,875,123

96.48

 

The investments categorised as level 3 are the TLI policies held in the Company's portfolio. The valuation of the TLI policies is not based on observable market data, but on the valuation model detailed in note 2(b) used by the Investment Manager to determine the fair value of the policies held, and therefore these investments are categorised as level 3 of the IFRS fair value hierarchy.

 

Market Price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to a change in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. The Company is exposed to market price risk arising from its investments in securities.

 

The Investment Manager moderates this risk through a careful selection of securities and other financial instruments within specified limits. The Company's overall market positions are monitored on a daily basis by the Company's Investment Manager and are reviewed on a quarterly basis by the Board of Directors.

 

All security investments present a risk of loss of capital, the maximum risk resulting from instruments is determined by the fair value of the financial instrument. The following represents the Company's market pricing exposure at the end of the period:

 

 

Investments at fair value through profit and loss

 


31 December 2014


30 June 2014


31 December 2013










£

29,155,190


29,380,044


31,875,123

% of net assets

85.00


91.32


96,48

 

 

The following table details the Company's sensitivity to a 10% increase in the market prices while all other variables are held constant. 10% is the sensitivity rate used when reporting price risk internally to management and represents management's assessment of the possible change in market prices. The analysis is performed on the same basis for the prior year.

 

 

Increase in Net assets attributable to holders of Redeemable shares:

 

Investments at fair value through profit and loss






31 December 2014


30 June 2014


31 December 2013















£

2,915,519


2,938,004


3,187,512

 

 

A 10% decrease in the market prices at the year end would have had the equal but opposite effect, on the basis that all other variables remain the same.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR PGUBPPUPAGQQ

a d v e r t i s e m e n t