TIDMTLI
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 Mont Crevelt House
Audit Committee) Bulwer Avenue
TJ Emmott
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, Banker (UK)
UK Branch
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 Dorey Court, Admiral Park
FCIS)
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 GBP1.2 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 GBP34,293,122 GBP33,036,994 GBP32,186,259
period end
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 01/07/11- 01/07/12- 01/07/13- 01/07/14-
- 30/06/11 30/06/12 30/06/13 30/06/14 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 US$51.2m US$16.9m US$5.7m US$17.4m US$10.5m
matured (US$ million)
------------------------ ------------ ---------- ---------- ---------- ----------
Premiums paid (US$ US$53.6m US$8.4m US$8.2m US$8.4m US$4.2m
million)
------------------------ ------------ ---------- ---------- ---------- ----------
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
----------------------- ----------- -------------------------------------
Average LE
Mortality Assumptions (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 Policies Lives Death % Death Investment % Investment
as at benefit benefit value value
31/12/13 in US$000 US$000
brackets)
---------------------- ---------------------- ---------------------- ----------- --------- ----------- -------------
No Extension 42 38 56,992 43.2% 20,824 45.8%
(47) (42) (69,242) (46.1%) (25,109) (47.6%)
---------------------- ---------------------- ---------------------- ----------- --------- ----------- -------------
Extension to age
115 7 7 10,300 7.8% 3,173 7.0%
(7) (7) (10,300) (6.9%) (2,736) (5.2%)
---------------------- ---------------------- ---------------------- ----------- --------- ----------- -------------
Extension to death
with reduced death
benefit after age
100 2 2 4,000 3.0% 1,476 3.2%
(3) (3) (6,500) (4.3%) (2,934) (5.5%)
---------------------- ---------------------- ---------------------- ----------- --------- ----------- -------------
No Expiry date 35 28 60,747 46.0% 19,987 44.0%
(38) (31) (64,097) (42.7%) (22,025) (41.7%)
---------------------- ---------------------- ---------------------- ----------- --------- ----------- -------------
86 75 132,039 100.00% 45,460 100.00%
(95) (83) (150,139) (52,804)
---------------------- ---------------------- ----------- --------- ----------- -------------
For the 42 policies without an extension option, the average age
of the insured is currently 91.0 years, while the policy expiry
dates are at an average age of 100.3 years, giving an average time
to expiry of 9.3 years. According to the latest LE data, the
average LE for these insureds is 4.7 years, so policy holders would
on average have to live for approximately twice as long as expected
for these policies to expire. Within this range of policies, of
course, there are some which are more likely to expire than others.
This new table below summarises the distribution of the time
intervals between the LE and the expiry date:
Time between Life Policies Lives Death % Death Investment % Investment
Expectancy and expiry Benefit Benefit value value
date (US$'000) (US$'000)
------------------------ --------- ------ ----------- --------- ----------- -------------
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 No. of Total death
(years) lives 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 Parent Company % Total % Investment
by total death benefit Value
death benefit
--------------- ------------------------------------ --------------- -------------
1 Lincoln National Corporation 23.6% 23.2%
--------------- ------------------------------------ --------------- -------------
American International Group,
2 Inc 16.7% 20.0%
--------------- ------------------------------------ --------------- -------------
3 AEGON N.V. 16.7% 17.7%
--------------- ------------------------------------ --------------- -------------
Massachusetts Mutual Life Insurance
4 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 Total death % total death Total % total
Count benefit US$000 benefit Investment Investment
Value US$000 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 No. Total Death Total Valuation % of valuation
(face value) of lives benefit US$000
US$000
---------------- ---------- ------------ ---------------- ---------------
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
GBP GBP GBP GBP GBP GBP GBP GBP GBP
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) (774,514) (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
GBP GBP GBP
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
GBP GBP GBP GBP
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
GBP GBP GBP
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
Total Portion
Number Death of A.M.
Traded Life Interests of Valuation Benefit Portfolio Best
("TLI's") Policies Rating
*
GBP GBP %
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 GBP1
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 (GBP641,334) 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
GBP GBP GBP
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 GBP20,000 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
GBP20,000 to GBP30,000 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 GBP50,000 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
GBP GBP GBP
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 GBP600 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 GBP371,749 (December 2013: deficit
GBP438,716, June 2014: deficit GBP774,514) 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 GBP3,918,611
(December 2013: deficit GBP1,431,768, June 2014: deficit
GBP1,946,705) 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 GBP34,293,122 (December 2013:
GBP33,036,994, June 2014: GBP32,186,259) 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: GBP GBP GBP
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 01.07.14 01.07.13 01.07.13
held at fair value through
profit or loss
to 31.12.14 to 31.12.13 to 30.06.14
GBP GBP GBP
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
GBP GBP GBP
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
GBP GBP GBP
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$1,000,000 (GBP641,334) (30 June 2014: USUS$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 GBP1 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 GBP1 per share on
25 March 2004. The issue costs incurred of GBP831,764 were debited
against the share premium account to leave net proceeds of the
share issue of GBP39,168,236.
Following a Placing and Open Offer a further 32,000,000 shares
were issued on 5 November 2012. The issue costs incurred of
GBP493,268 were debited against the share premium account to leave
proceeds of the share issue of GBP9,746,732.
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 GBP1,440,000.
14 Net assets attributable to shareholders
Share Capital Revenue
Premium Reserves Reserves Total
2014 2014 2014 2014
GBP GBP GBP GBP
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 Capital Revenue
Premium Reserves Reserves Total
2013 2013 2013 2013
GBP GBP GBP GBP
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 Capital Revenue
Premium Reserves Reserves Total
2013 2013 2013 2013
GBP GBP GBP GBP
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 GBP38,918 of which GBP8,979 was outstanding at the period end
(December 2013: GBP44,175 of which GBP6,192 was outstanding at the
period end; June 2014 GBP81,195 of which GBP4,599 was outstanding
at the year end). Allowable expenses claimed by the Directors in
the course of their duties amounted to GBP332 for the period ended
31 December 2014 (December 2013: GBP694, June 2014: GBP2,796). 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 30 June 2014 31 December
2014 2013
Net assets Net assets Net assets
GBP % GBP % GBP %
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 30 June 2014 31 December
2014 2013
GBP 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 31 December 30 June 2014 31 December
at fair value 2014 2013
through profit
and loss
GBP 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
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