Alternative Asset Opps PCC Ltd Cost of Insurance (3869Z)
May 26 2016 - 3:47AM
UK Regulatory
TIDMTLI
RNS Number : 3869Z
Alternative Asset Opps PCC Ltd
26 May 2016
Alternative Asset Opportunities PCC Limited (the "Company")
26 May 2016
Cost of Insurance (COI)
The Company is now in a position to provide further information
relating to COI increases.
Portfolio
The Company's portfolio currently comprises 81 US Universal Life
Policies (ULPs), issued on 70 lives, with a face value of $117.6m.
Average age of lives assured is 92 years.
ULPs, subject to limitations, allow the policyholder to vary the
amount and timing of premium payments and the face value of the
policy. The insurance company accumulates cash values by crediting
premium payments and interest accumulated in respect of the policy
to a fund from which deductions are made for expenses and the cost
of providing the insurance. The insurance company declares the
rates at which the interest is to be credited to the policy, with
most insurers guaranteeing a minimum rate of interest.
Many policyholders pay more in the early years than the actual
COI to build up a cushion against subsequent age-related premiums.
The Company has, in general, paid the minimum amount required to
keep the policies in force.
Each policy includes a provision which permits the insurer to
increase premium rates in certain circumstances. These vary by
insurer but usually refer to mortality rates, interest rates,
expenses and tax.
A typical clause is:
"The maximum guaranteed cost of insurance rates shown on the
Policy Summary are based on the Insured's age, sex and rate class
for the Initial Stated Amount and each increase in the Stated
Amount. We may use lower than those shown. We will base any future
changes in these rates only on Our future expectations as to
investment earnings, mortality, expenses and persistency. Nothing
in this policy will be effected by Our actual mortality and
expenses. We will determine the current rates for the Initial
Stated Amount and for each increase to the Stated Amount at the
start of each Policy Year and will guarantee them for that Policy
Year. Any change We make in the current rates will be on a uniform
basis for insured's of the same age, sex duration and rate
class."
The maximum rates in policies owned by the Company are on
average approximately 3.5x the existing premium. In some policies
the contract terms allow these increases to be partially
mitigated.
To date, 13 policies, with a face value of $15.9m, will see COI
increases ranging from 5% to 100% (the latter assuming the latest
expectations regarding Transamerica's intentions come to pass).
The Company's portfolio contains a further 12 policies with a
face value of $14.7m issued by insurance groups known to have
already applied COI increases elsewhere, but where our policies
remain unaffected.
Litigation
The Company previously made reference to recent class-action
litigation taking place in the US in response to actual and
proposed COI increases which are perceived to be excessive and for
which the explanations given to policyholders appear to be
inadequate.
The Company is not currently involved in any litigation and is
unable to comment on the merits or expected outcomes from the
class-actions, but the Board shares the widespread outrage at the
magnitude of some of the recently proposed increases. Industry
observers suggest it will take a minimum of two years for these
actions to be concluded.
Other Courses of Action
Trade bodies have registered their protests with State
Regulators who supervise the operations of the Insurers and the
Company intends to do likewise.
Liquidity
Outgoings for the 13 months to 30 June 2017 (including COI
premium increases) are estimated at $10.6m assuming no mortalities
and no further premium increases beyond those recently intimated.
The Company currently has cash balances of $7.8m with undrawn bank
facilities of $10m. The Board therefore considers the Company's
financial position to be robust.
It is the Board's current intention to retain all maturity
proceeds within the business to fund ongoing operational
requirements.
Outlook
It is difficult to predict what, if any, further COI increases
are in the pipeline but should the Board become aware of any
increases that will have a material impact on the Company,
shareholders will be advised.
The Board, with its team of advisers, will continue to evaluate
all options to optimise the outcome for shareholders.
Enquiries:
Charles Tracy
Chairman Tel: 020 3246 7405
Alastair Moreton
Stockdale Securities Tel: 020 7601 6118
This information is provided by RNS
The company news service from the London Stock Exchange
END
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