TIDMTLI
RNS Number : 3183R
Alternative Asset Opps PCC Ltd
08 March 2016
ALTERNATIVE ASSET OPPORTUNITIES PCC LIMITED
Half-Yearly Announcement of Results
For the period from 1 July 2015 to 31 December 2015
At a meeting of the Board of Directors held on 7 March 2016, the
unaudited half yearly financial statements for the Company for the
period from 1 July 2015 to 31 December 2015 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 2015 to 31 December 2015, but is derived from those accounts.
Printed accounts for the period from 1 July 2015 to 31 December
2015 will be delivered to Shareholders during March 2016.
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 2016. 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 2015 to
31 December 2015.
Tracey Lago
Company Secretary
Telephone number: 020 3246 7405
199 Bishopsgate
London EC2M 3TY
8 March 2016
Financial Highlights
For the period from 1 July 2015 to 31 December 2015
01.07.15 01.07.14 01.07.14
to 31.12.15 to 31.12.14 to 30.06.15
(6 months) (6 months) (12 months)
Shares in issue 72,000,000 72,000,000 72,000,000
Net assets at GBP35,297,279 GBP34,293,122 GBP31,619,631
period end
Net asset value per share
at period end 49.0p 47.6p 43.9p
Ordinary Share price at
period end 42.3p 44.5p 39.5p
Total surplus on ordinary
activities for the financial
period per share 5.13p 4.93p 3.21p
Revenue deficit per share (0.51p) (0.51p) (1.00p)
Sterling to US$ Exchange
Rate at period end 1.4739 1.5592 1.5727
The half yearly financial report has neither been audited nor
reviewed by the Company's auditor. The financial information for
the period ended 30 June 2015 has been extracted from the audited
financial statements for that period.
Dividends
The Directors did not declare a dividend during the period under
review.
Chairman's Statement
For the period from 1 July 2015 to 31 December 2015
Introduction
In my annual statement to Shareholders, published in September
2015, I noted that there had been a 'maturity drought' between
January and August 2015, but fortunately the large maturity
experienced in August was followed by two further maturities before
the end of September 2015, bringing in aggregate proceeds of
US$10.0 million. This enabled the Company to repay its modest
short-term borrowings, leaving a substantial cash balance. The
Board considered at some length whether a further capital
distribution was appropriate, but decided not to make any
distribution in view of the irregular past flow of maturities. This
decision has been shown to be the right one, as no further
maturities were identified until February 2016 as reported on
below.
The net asset value (NAV) per share at the end of the period was
49.0 pence, compared to 43.9 pence at 30 June 2015, representing an
overall increase of 5.1 pence (11.6%) in NAV per share during the
period reflecting the gains on the matured policies and the
strength of the US$ relative to Sterling.
Portfolio developments
During the six month period 1 July 2015 to 31 December 2015,
three policy maturities occurred, with a total face value of
US$10.0 million. This compares with policy maturities with a face
value of US$10.9 million in the 12 months to 30 June 2015, and 62
policy maturities between the Company's launch and 30 June
2015.
Fortunately, those policies which did mature in the period were
larger ones and the maturity proceeds significantly exceeded the
premiums and expenses for the six month period of US$4.1 million.
Realised gains on the book value of maturing policies amounted to
approximately US$6.3 million in the six month period, or 5.7 pence
per share (compared to US$8.2 million, or 7.3 pence per share in
the preceding 12 months).
As at 31 December 2015 there were a total of 82 policies (71
lives) in the portfolio, with a face value of US$121.6 million and
a valuation of US$44.8 million. Premiums continue to be paid on
policies in force, amounting to US$3.9 million during the six month
period (preceding 12 months US$8.4 million).
Since the period end the Company has been notified of one policy
maturity with a face value of US$4 million with the proceeds
expected to be received within this financial year. The policy is
not yet reflected in the accounts and is proceeding through the
verification process. Assuming this maturity is verified it is
expected that this will add approximately 1.4p to the NAV.
Cost of Insurance
Provisions within the terms of some policies held by the Company
permit insurers to apply increases to the applicable premium rates.
Historically, such variations have been rare but some insurers have
recently applied increases as set out in the Investment Managers
Review. So far the effect on valuations is insignificant but the
Board will keep investors informed if this pattern changes.
Valuation of Investments
The NAV is a Directors' valuation, prepared with the assistance
of the Investment Manager, utilising estimates of life expectancy
to arrive at a series of cash flows, based on actuarial principles
discounted to present value using a discount rate (or internal rate
of return, IRR). The key factors in the valuation are therefore:
the policy face value and the premiums payable; the assumed life
expectancy (LE) of the insured; the actuarial mortality table; and
the discount rate.
As noted in the Investment Manager's Review, the Company has
adopted the new 2015 Valuation Basic Table (VBT); this has had only
a small effect on valuations.
The portfolio is split into three parts: policies with routinely
updated LEs, accounting for 79% of the portfolio by face value;
small policies (face value under US$500,000) where the cost of
regular review is deemed uneconomic to value; and policies for
which it is not possible to obtain updated medical records. The
Investment Manager continues to carry out a regular programme of LE
Updates, with 16% of the portfolio scheduled to be updated in Q1
2016. As explained in previous reports, the Board continues to
apply a 12% discount rate.
Gearing and Cash Flow
As advised in my last statement in the Company's annual
financial report it has been the Board's policy to reduce
dependence on gearing. In the half-year period to 31 December 2015,
and since the Company's year-end, the Company utilised US$2.0
million of the AIB revolving credit facility to help meet premium
and expense commitments. The influx of maturity proceeds in the
latter part of the period enabled the repayment of the outstanding
borrowings and cash available as at 31 December 2015 should,
assuming the receipt of the newly notified maturity as above but no
further maturities, enable the Company to meet its commitments
without the need for use of the credit facility until the end of
2016.
Credit and Foreign Currency Risk
There have been no changes to the credit rating of the insurance
companies which issue the policies in the portfolio. At the period
end 100% of the Company's policies by value were issued by
companies with an AM Best rating of 'A-' or better (96.1% with a
rating of 'A' or better).
The Company has operated on an unhedged currency basis since the
change in investment policy in September 2011 and there is no
current intention to initiate any new currency hedges.
During the six months 1 July 2015 to 31 December 2015 the US$
exchange rate moved from 1.5727 to 1.4739 at the period end. The
relative strength of the US dollar during the period has boosted
the NAV per share by 3.0 pence.
Sensitivity Matrix
As in previous periods, the table below aims to give investors
an appreciation of the effects on valuation of differing
assumptions as to both LE and IRR.
-- 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 31 July 2013), or for the
remaining policies an LE based on the 2015 Valuation Basic Table
("VBT"). The average LE is shown for reference. NAV is then shown
at 4 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 all
LEs are based on the current table of life expectancies for the
general population, the 2015 Valuation Basic Table ("VBT"), i.e.
ignoring medical LE assessments.
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Net Asset Value in pence per share as at 31 December 2015:
Mortality Assumptions Average Discount Rate - applied
LE (years) to cash flows
----------------------- ------------ -----------------------------------
10% 12% (current) 16% 20%
----------------------- ------------ ----- -------------- ----- -----
Latest LE 4.4 51.6 49.0 44.7 41.2
----------------------- ------------ ----- -------------- ----- -----
+1 year for all LEs 5.4 39.4 37.0 33.1 30.2
----------------------- ------------ ----- -------------- ----- -----
-1 year for all LEs 3.4 65.5 62.8 58.2 54.4
----------------------- ------------ ----- -------------- ----- -----
Using VBT 4.3 52.3 49.7 45.2 41.6
----------------------- ------------ ----- -------------- ----- -----
Outlook
The recent pattern of maturities has significantly improved the
Company's cash position. With the average age of the insured lives
over 92 the Board will be considering how best to utilise the
available cash, given that the combination of cash and available
bank facilities will now be sufficient to pay premiums and expenses
for the next 24 months, even with no more maturities.
In deciding how to proceed, the Board will be looking to retain
cash in order to reduce reliance on bank facilities, thus reducing
costs, but will also bear mind the possibility of making further
cash distributions or undertaking share buy-backs. Actual cash flow
will be the key factor, and the Board must also allow for the
irregular pattern of maturities in making use of cash flow
forecasts.
It remains the intention of the Board to hold the majority of
policies to maturity, but the possibility of selective policy sales
will continue to be kept under review as the portfolio
develops.
Charles Tracy
Chairman
7 March 2016
INTERIM MANAGEMENT REPORT
For the period from 1 July 2015 to 31 December 2015
Material Events and Transactions
With the exception of the business detailed within the
Chairman's Statement and the Investment Manager's Review, and the
holding of the AGM on 4 November 2015 at which all resolutions were
passed, including the resolution to continue the Company for a
further year, there were no material events or transactions to
report in accordance with Disclosure and Transparency Rule 4.2 in
the period under review.
Principal risks and uncertainties for the next six months
The principal risks and uncertainties facing the Company over
the next six months are broadly unchanged from those described in
the Annual Financial Report for the year ended 30 June 2015. These
are set out in the Strategic Report on pages 21 and 22 of that
Report, together with commentary on the Board's approach to
mitigating the risks and uncertainties. In addition to the
principal risks, the Company faces the risks associated with the
provision of services by third parties and general business risks
including accounting, legal and regulatory matters. The Board
perform a high-level review of the principal risks at every meeting
to ensure the risk assessment is current and relevant adjusting
mitigating factors and procedures as appropriate.
Related Party Transactions
There have been no changes to the related party transactions
described in the Annual Report that could have a material effect on
the financial position or performance of the Company. Amounts
payable to the Manager and the Investment Manager in the six months
ended 31 December 2015 are detailed in Note 4 of the notes to the
unaudited condensed set of financial statements
Responsibility Statement
For the period from 1 July 2015 to 31 December 2015
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
Ian Reynolds Tim Emmott
Director Director
7 March 2016
Manager's Review
For the period from 1 July 2015 to 31 December 2015
Borrowings and investments
The Company's two year revolving credit facility with AIB Group
(UK) PLC entered into on 31 March 2014 was extended for an
additional period of two years and will expire on 31 March 2018. As
at 31 December 2015 drawings under the US$10.0 million facility
were nil (30 June 2015: nil, 31 December 2014: nil). During the
period under review, the Company borrowed and repaid US$2.0 million
under the facility.
The terms of the facility provide flexibility for the Company to
make capital distributions to shareholders, in the event of holding
sufficient surplus cash. As a result, and following receipt of
proceeds from maturities, the Company was able to make two capital
distributions each of 2.0 pence per share to shareholders in the
year to 30 June 2015. No capital distributions have been made in
the period under review and no further capital distributions are
proposed at this time.
US dollar exposure
The Company no longer hedges its US dollar exposure; the Company
is therefore fully exposed to the effect of exchange rates upon its
net US dollar positions.
Allianz Global Investors GmbH, UK Branch
7 March 2016
Investment Manager's Review
For the period from 1 July 2015 to 31 December 2015
Portfolio Overview
During the six month period from 1 July 2015 to 31 December 2015
there were 3 confirmed policy maturities with a total face amount
of US$10.0m. The 3 maturities related to 3 individual lives, 2 of
which were male and 1 female. As at 31 December 2015, 82 policies
remained within the portfolio with exposure to 71 individual
lives.
Cumulatively, as of 31 December 2015, there have been 65 policy
maturities across 56 lives since inception. Proceeds received from
all maturities total US$112.9m. Thirteen policies have been sold
since inception of the Company, generating proceeds of US$11.2m. No
policies were sold during the reporting period.
Full Portfolio Summary
Face Value $121.6m
---------------------------------------- --------------
Reported Valuation $44.8m
---------------------------------------- --------------
Number of Policies 82
---------------------------------------- --------------
Number of Lives 71
---------------------------------------- --------------
Total number of Holding Life Companies 26
---------------------------------------- --------------
Face Weighted Averages:
---------------------------------------- --------------
Male/Female Ratio at purchase 65.8% / 34.2%
---------------------------------------- --------------
Age at purchase 81.4 years
---------------------------------------- --------------
LE at purchase 8.1 years
---------------------------------------- --------------
Current Male/Female Ratio 62.8% / 37.2%
---------------------------------------- --------------
Current Age 92.0 years
---------------------------------------- --------------
Current LE 4.4 years
---------------------------------------- --------------
Credit Quality Distribution by Holding Life Company
There were no AM Best rating changes during the period that
affected the portfolio. As at the reporting date 96.1% of the
Company's policies (by valuation) were issued by life companies
with an AM Best rating of 'A' or better.
AM Best Rating % Total Death Benefit % Total Valuation
--------------------------- ---------------------- ------------------
A++ 9.2% 10.1%
--------------------------- ---------------------- ------------------
A+ 60.5% 58.3%
--------------------------- ---------------------- ------------------
A 24.5% 27.7%
--------------------------- ---------------------- ------------------
A- 5.8% 3.9%
--------------------------- ---------------------- ------------------
Total 100% 100%
--------------------------- ---------------------- ------------------
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Life Group (Parent Company) Distribution (Top 5)
Ranking by Valuation % Parent Company % Total Death Benefit % Total Valuation
----------------------- --------------------------------------------- ---------------------- ------------------
1 American International Group, Inc. 28.1% 22.1%
----------------------- --------------------------------------------- ---------------------- ------------------
2 Lincoln National Corporation 22.3% 22.0%
----------------------- --------------------------------------------- ---------------------- ------------------
3 Aegon N.V. 17.8% 19.6%
----------------------- --------------------------------------------- ---------------------- ------------------
4 Massachusetts Mutual Life Insurance Company 6.3% 7.9%
----------------------- --------------------------------------------- ---------------------- ------------------
5 MetLife, Inc. 5.8% 5.9%
----------------------- --------------------------------------------- ---------------------- ------------------
Distribution of Life Expectancy Estimates
The following table shows the distribution of the policies in
the portfolio by LE band. Policies are grouped by 12 month LE bands
and the table shows the number of lives, the total death benefit
and valuation in each group. The LEs are the valuation LEs used for
the 31 December 2015 valuation. The average LE is 4.4 years.
It is important to note that the LE is an average of the
estimated 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.
This has been demonstrated by the fact that, six months ago, there
were no policies with a LE of less than one year; and yet
maturities totalling US$10.0m of face value were realised during
the period.
LE band No. Total % of Total % of
(years) of death death valuation valuation
lives benefit benefit US$000
US$000
---------- ------- --------- --------- ----------- -----------
0 <=
LE <
1 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
1 <=
LE <
2 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
2 <=
LE <
3 7 14,837 12.2 8,789 19.6
---------- ------- --------- --------- ----------- -----------
3 <=
LE <
4 20 31,402 25.8 13,407 29.9
---------- ------- --------- --------- ----------- -----------
4 <=
LE <
5 25 43,520 35.8 14,533 32.4
---------- ------- --------- --------- ----------- -----------
5 <=
LE <
6 13 21,530 17.7 6,077 13.6
---------- ------- --------- --------- ----------- -----------
6 <=
LE <
7 5 8,850 7.3 1,743 3.9
---------- ------- --------- --------- ----------- -----------
7 <=
LE <
8 1 1,500 1.2 284 0.6
---------- ------- --------- --------- ----------- -----------
LE >=
8 0 0 0.0 0 0.0
---------- ------- --------- --------- ----------- -----------
Total 71 121,639 100.0 44,833 100.0
---------- ------- --------- --------- ----------- -----------
Premium Payments
Premiums remain the largest draw on the Company's cash. As a
result, it is important that premium streams are optimised such
that AAO pays the minimum premium required to meet the cost of
insurance required by the life company. SL Investment Management
continues to review all policy statements to identify any scope for
further optimisation of the premium payment schedules. Without
further maturities the expected cost of premiums for the six months
to 30 June 2016 is US$4.1 million.
Cost of Insurance Increases
During the period up to 31 December 2015, a number of U.S. life
insurance companies announced plans to increase the cost of
insurance (COI) rates on specified classes of in force universal
life policies, with most referencing the prolonged period of low
interest rates as the reason for the move. Provisions within the
contract of a universal life policy allow the insurance company to
charge a monthly deduction amount up to a maximum level but in
practice the insurance company will levy a materially lower amount
in order to attract new business and compete with other insurers.
Insurance companies disclose the rates they actually plan to charge
through the provision of premium illustrations delivered to the
policyholder or policy applicant. These illustrations form the
basis of value determination for both the U.S. consumer considering
buying the policy and a life settlement investor considering
acquiring the policy from an existing policyholder.
Cost of Insurance Increases (continued)
Historically, instances of an insurance company increasing the
cost of insurance on in force policies have been extremely rare.
Consequently, the recent announcements have been cause for concern
amongst U.S. policyholders and life settlement investors. In the
U.S., insurance is regulated at the state level by a state
insurance commission, many of which will be closely scrutinising
the basis for the increases and the impact on policyholders.
Affected policyholders, consumer advocacy groups and life
settlement trade associations have already submitted complaints
with multiple state insurance commissions. Furthermore, a number of
lawsuits have been filed against some of the insurance companies.
At this early stage it is difficult to predict what impact these
ongoing responsive actions will have on those insurance companies
that have already announced increases and those considering doing
so.
As for the Company's policies, the portfolio comprises 82
policies issued by 26 different life insurance companies. Three of
these life companies, representing 26 policies (27% of valuation),
have announced increases to their cost of insurance rates. However
the increases apply only to specific business lines and not all
policy types are affected. In total, seven policies (5% by
valuation) have been affected by the announced increases in cost of
insurance. The average increase in future premiums for these 7
policies was 10%. The average valuation impact on these 7 policies
due to the COI increases was a reduction of approximately 8% and
this equated to a reduction in the portfolio valuation of $161,000
(0.4%).
Communications made by life insurance companies covering 24
policies (30% of valuation) in the portfolio indicate that they
have no current plans to apply increases to premiums.
In summary, 50 policies in the portfolio (57% of valuation) have
been issued by life companies that have either announced COI
increases or have indicated that they have no current plans to
apply COI increases. Seven of these 50 policies have been affected.
That leaves 32 policies (43% of valuation) where the issuing life
companies have so far been silent on the subject of COI
increases.
To provide some sensitivity as to the potential impact of
further premium increases on the portfolio valuation, the table
below shows the December 2015 valuation and indicative valuation
figures using different assumptions:
Assumption Portfolio Valuation Change
------------------------------------------------------- -------------------- -------
Reported valuation, at 31 December 2015 $44.8m
------------------------------------------------------- -------------------- -------
An immediate 10% increase in future premiums for
all the 32 policies in the portfolio where life
companies have been silent on COI $43.6m -2.9%
------------------------------------------------------- -------------------- -------
An immediate 10% increase in future premiums applying
the 7 out of 50 ratio to the 32 policies in the
portfolio where life companies have been silent
on COI $44.7m -0.4%
------------------------------------------------------- -------------------- -------
It is important to note that the impact of actual COI rate
increases on an individual policy could be more or less severe than
these average figures suggest.
One of the seven policies affected witnessed a particularly
large COI increase, as the life company increased the COI rates to
the maximum permitted under the terms of the policy contract.
However, this policy also has a premium guarantee provision that
enables a lower annual premium to be paid during the guarantee
period; in this case 20 years from policy outset. The guaranteed
premium is significantly lower than the new COI and the Company
will therefore benefit from paying a much lower premium up until
the insured reaches age 99, which is when the 20 year guarantee
period expires.
Cost of Insurance Increases (continued)
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However, after this date and assuming the insured is still
living, the issuing life company has the right to recoup the
historical differences between the guaranteed premium and the new
COI rates. As a result, the premium technically payable after the
guarantee period ends will actually be higher than the death
benefit of the policy, such is the extent of the savings made
during the guarantee period. This anomaly means that it is likely
to be advantageous to lapse this policy at age 99, rather than
continue paying an uneconomic premium. Accordingly, this policy is
now valued assuming that it expires when the insured reaches age
99. As at the reporting date, the life insured on this policy is
91.8 years old. The cost of this valuation adjustment was $22,000
(0.1%).
There are no other policies in the portfolio with a guaranteed
premium period which will result in a similar situation to this
unusual case.
Policy Expiry Date Analysis
Written into the contract for some policies is an expiry date
after which no more premiums will be accepted by the life office
and the death benefit will no longer be payable upon death. Where
applicable, this usually coincides with the policy anniversary
closest to the insured's 100th birthday. There are 42 such policies
in the portfolio. The earliest expiry date is May 2020.
There are 6 policies with extension options to age 115, and 1
policy with a 'partial' extension - whereby the policy term is
extended until death, but on a reduced death benefit after age
100.
33 policies in the portfolio have no expiry date.
A summary of the policies in the portfolio as at 31 December
2015 is as follows:
Death Benefit % Death Valuation
Policies Lives US$000 benefit US$000 % Valuation
--------------------- --------- ------ -------------- --------- ---------- ------------
Expiry age 99/100 42 38 54,292 44.6% 21,409 47.8%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extensions to
age 115 6 6 9,900 8.1% 3,195 7.1%
--------------------- --------- ------ -------------- --------- ---------- ------------
Extension to death
with reduced death
benefit after
age 100 1 1 1,000 0.8% 303 0.7%
--------------------- --------- ------ -------------- --------- ---------- ------------
No expiry date 33 26 56,447 46.5% 19,926 44.4%
--------------------- --------- ------ -------------- --------- ---------- ------------
Total 82 71 121,639 100.0% 44,833 100.0%
--------------------- --------- ------ -------------- --------- ---------- ------------
For policies with an expiry date, the key metrics are as
follows:
Average
---------------------------------- -----------
Number of policies 42
---------------------------------- -----------
Number of lives 38
---------------------------------- -----------
Current age (years) 92.0
---------------------------------- -----------
Expiry age (years) 100.3
---------------------------------- -----------
Life Expectancy (years) 4.4
---------------------------------- -----------
Expiry date 07/05/2024
---------------------------------- -----------
Years between LE and expiry date 3.9
---------------------------------- -----------
Probability of expiry 15.1%
---------------------------------- -----------
The table below summarises the distribution of the time
intervals between the LE and the expiry date:
Expiry date exceeds Lives Total % Death Valuation % Valuation
average life expectancy Death Benefit (US$'000)
by - Policies Benefit
(US$'000)
-------------------------- ----------- ------ ----------- --------- ----------- ------------
0 <= Years < 1 1 1 750 0.6 300 0.7
-------------------------- ----------- ------ ----------- --------- ----------- ------------
1 <= Years < 2 4 4 4,514 3.7 988 2.2
-------------------------- ----------- ------ ----------- --------- ----------- ------------
2 <= Years < 3 7 6 12,665 10.4 5,318 11.9
-------------------------- ----------- ------ ----------- --------- ----------- ------------
3 <= Years < 4 7 7 15,932 13.1 5,707 12.7
-------------------------- ----------- ------ ----------- --------- ----------- ------------
4 <= Years < 5 13 12 8,531 7.0 3,944 8.8
-------------------------- ----------- ------ ----------- --------- ----------- ------------
>= 5 Years 15 14 21,800 17.9 8,347 18.6
-------------------------- ----------- ------ ----------- --------- ----------- ------------
No Expiry * 34 27 57,447 47.3 20,229 45.1
-------------------------- ----------- ------ ----------- --------- ----------- ------------
TOTAL 82 71 121,639 100.0 44,833 100.0
* includes 1 policy where death benefit
reduces at age 100
------------------------------------------------------------ --------- ----------- ------------
Period Review and Outlook
This reporting period witnessed a higher volume of maturities
(US$10.0m) compared with the previous 6 months (US$0.4m). The
average face value of the 3 policy maturities during the period was
$3.3m, which is notably higher than the US$1.5m average face value
for the portfolio as a whole.
There remains considerable variation in the size of individual
face amounts remaining in the portfolio. Therefore short term
performance will be driven not just by the frequency of maturities,
but also the size of the policy maturities. The table below
illustrates the distribution of the 71 lives in the portfolio by
face value as at 31 December 2015.
Policy bands No. Total Death Total Valuation % of valuation
(DB: Death Benefit) of lives Benefit US$000
US$000
---------------------- ---------- ------------------ ---------------- ---------------
$0m <= DB < $0.5m 9 2,865 1,019 2.3
---------------------- ---------- ------------------ ---------------- ---------------
$0.5m <= DB <
$1m 17 10,244 3,450 7.7
---------------------- ---------- ------------------ ---------------- ---------------
$1m <= DB < $2.5m 29 42,138 14,243 31.7
---------------------- ---------- ------------------ ---------------- ---------------
$2.5m <= DB <
$5m 8 25,651 10,168 22.7
---------------------- ---------- ------------------ ---------------- ---------------
$5m <= DB < $6.0m 8 40,741 15,953 35.6
---------------------- ---------- ------------------ ---------------- ---------------
Total 71 121,639 44,833 100.0
---------------------- ---------- ------------------ ---------------- ---------------
A significant proportion of the total death benefit remains
linked to a relatively small proportion of lives. 16 lives (23% of
total lives) account for 55% of the death benefit total face value
and 58% of the reported valuation.
Life Expectancy Updates
With life expectancy assumptions critical to the pricing and
valuation of policies, LEs remain a key focus of the life
settlement industry. None of the major LE underwriters made any
significant adjustments to their life expectancy assessments during
the period.
At the reporting date, 63% of total portfolio face value is
valued with reference to LEs obtained from medical underwriters
within the previous 24 months. No new LE assessments were received
during the period. However the Company's rolling programme of LE
updates continues, with new LEs representing $19.5m in face value
(16% of the total portfolio) due to be received in Q1 2016. The
remaining 21% of the portfolio is valued using LEs derived from the
2015 Valuation Basic Table (VBT), which is the new version of the
population mortality table.
Following a long period of industry consultation and refinement,
the VBT 2015 mortality table is now complete and has been adopted
by the US Life Insurance industry, following the approval of the
National Association of Insurance Commissioners (NAIC) executive.
In general terms, the mortality rates are lower than those in the
VBT 2008, resulting in longer life expectancies across the average
population. However the one-way trend of lengthening LEs did not
apply to older lives. For older ages such as the lives covered by
the portfolio, the VBT 2015 (versus VBT 2008) resulted in slightly
longer LEs for males and slightly shorter LEs for females, on
average.
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As a result, the impact of adopting the 2015 VBT did not have a
significant impact on the Company's valuation. Because some of the
largest policies in the portfolio are female, the overall effect of
adopting the 2015 VBT was actually a 0.4% increase in the overall
portfolio valuation..
Outlook
New investment capital continues to enter the life settlement
market. This is being driven by investor demand for asset classes
with low correlation to the traditional capital markets. This has
always been one of the key attractions of life settlements, but is
particularly pertinent given the current high volatility in global
equity markets.
Sustained demand for life settlement policies in the secondary
and tertiary markets is supporting market prices, which are
expected to remain at current levels for the foreseeable future.
Larger investors will continue to look to the tertiary market in an
attempt to source blocks of policies from existing portfolio
holders. A number of large tertiary transactions have been reported
over the past 6 months.
The average life insured age for policies seen in the secondary
market is approximately 82 years. Therefore with an average life
insured age of 92 years, the Company holds a portfolio with
materially different characteristics to the policies generally
available in the market. The total death benefit of the policies
held in the portfolio is $121.6m, versus a valuation of $44.8m.
SL Investment Management Limited
7 March 2016
Portfolio of Investments
As at 31 December 2015
Total Portion
Number Death of A.M. Best
Traded Life Interests of Policies Valuation Benefit Portfolio Rating
("TLI's") *
GBP GBP %
Issuer
American General Life
Insurance Company 9 6,724,224 14,960,308 22.2% A
Lincoln National Life
Insurance Company 12 6,416,994 17,247,821 21.2% A+
Transamerica Life Insurance
Company 16 5,965,928 14,707,373 19.6% A+
C.M. Life Insurance Company 3 2,190,481 4,669,335 7.2% A++
MetLife Insurance Company
USA 6 1,737,944 4,417,016 5.7% A+
Pacific Life Insurance
Company 4 1,317,514 5,462,510 4.3% A+
Security Life of Denver
Insurance Company 1 922,801 3,392,360 3.0% A
Athene Annuity and Life
Company 3 798,057 2,893,683 2.6% A-
New York Life Insurance
and Annuity Corporation 4 672,075 2,374,652 2.2% A++
John Hancock Life Insurance
Company (U.S.A.) 4 621,897 2,035,416 2.0% A+
AXA Equitable Life Insurance
Company 3 381,196 983,784 1.3% A+
North American Company
for Life and Health Insurance 2 336,129 1,356,944 1.1% A+
Lincoln Life & Annuity
Company of New York 1 266,052 1,187,326 0.9% A+
MONY Life Insurance Company
of America 1 264,707 678,472 0.9% A
Voya Retirement Insurance
and Annuity Company 2 251,632 474,930 0.8% A
Lincoln Benefit Life
Company 1 227,054 1,356,944 0.7% A-
Jackson National Life
Insurance Company 1 210,602 692,358 0.7% A+
Massachusetts Mutual
Life Insurance Company 1 203,500 508,854 0.7% A++
United of Omaha Life
Insurance Company 1 165,600 584,462 0.5% A+
Columbus Life Insurance
Company 1 158,928 678,472 0.5% A+
Standard Insurance Company 1 140,469 339,236 0.5% A u
Security Mutual Life
Insurance Company of
New York 1 124,255 508,854 0.4% A-
ReliaStar Life Insurance
Company 1 121,328 339,236 0.4% A
Banner Life Insurance
Company 1 91,142 203,542 0.3% A+
General American Life
Insurance Company 1 63,854 339,236 0.2% A+
Beneficial Life Insurance
Company 1 43,433 135,694 0.1% A-
Portfolio Total 82 30,417,796 82,528,818 100.0%
============== ============ =========== ===========
Condensed Statement of Comprehensive Income
For the period from 1 July 2015 to 31 December 2015
Notes 01.07.15 to 31.12.15 01.07.14 to 31.12.14 01.07.14 to 30.06.15
Revenue Capital Total Revenue Capital Total Revenue Capital Total
GBP GBP GBP GBP GBP GBP GBP GBP GBP
Operating income
Net gains on
investments 9 - 3,835,667 3,835,667 - 3,853,351 3,853,351 - 2,819,001 2,819,001
Other foreign
exchange gains 14 - 209,224 209,224 - 65,260 65,260 - 211,996 211,996
Interest and
similar
income 3 234 - 234 162 - 162 491 - 491
------------ ------------ ------------ ------------ ------------ ------------ ---------- ---------- ----------
234 4,044,891 4,045,125 162 3,918,611 3,918,773 491 3,030,997 3,031,488
Operating expenses
Management fee 4 (49,774) - (49,774) (46,941) - (46,941) (95,481) - (95,481)
Investment
manager's
fee 4 (66,834) - (66,834) (26,186) - (26,186) (127,500) - (127,500)
Custodian fee (8,354) - (8,354) (7,824) - (7,824) (15,914) - (15,914)
Other expenses 5 (178,707) - (178,707) (207,075) - (207,075) (354,508) - (354,508)
Total operating
expenses before
finance costs (303,669) - (303,669) (288,026) - (288,026) (593,403) - (593,403)
Operating
profit/(loss)
before finance
costs (303,435) 4,044,891 3,741,456 (287,864) 3,918,611 3,630,747 (592,912) 3,030,997 2,438,085
Finance costs
Finance charges
including bank
interest (63,810) - (63,810) (83,884) - (83,884) (124,713) - (124,713)
Net
surplus/(deficit) 7 (367,245) 4,044,891 3,677,646 (371,748) 3,918,611 3,546,863 (717,625) 3,030,997 2,313,372
============ ============ ============ ============ ============ ============ ========== ========== ==========
Surplus/(deficit)
per share 7 (0.51p) 5.62p 5.11p (0.51p) 5.44p 4.93p (1.00p) 4.21p 3.21p
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 below form an integral part of these condensed
financial statements.
Condensed Statement of Financial Position
As at 31 December 2015
Notes 31.12.15 31.12.14 30.06.15
GBP GBP GBP
Non-current assets
Financial assets at fair value
through profit or loss 9 30,417,796 29,155,190 30,570,116
Current assets
Cash and cash equivalents 4,916,415 712,541 1,122,172
Other receivables 10 119,557 109,460 99,928
Maturity proceeds receivable - 5,130,672 -
5,035,972 5,952,673 1,222,100
------------- ------------- -------------
Total assets 35,453,768 35,107,863 31,792,216
============= ============= =============
Current liabilities
Bank loan 12 - 641,334 -
Other payables 11 156,489 173,407 172,585
156,489 814,741 172,585
------------- ------------- -------------
Total liabilities 156,489 814,741 172,585
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March 08, 2016 02:00 ET (07:00 GMT)
------------- ------------- -------------
Net assets attributable to
shareholders 14 35,297,279 34,293,122 31,619,631
Total equity and liabilities
(including amounts due to
shareholders) 35,453,768 35,107,863 31,792,216
============= ============= =============
Net asset value per share 8 49.0p 47.6p 43.9p
These condensed financial statements were approved by the Board
of Directors on 7 March 2016.
Signed on behalf of the Board.
Ian Reynolds Tim Emmott
Director Director
7 March 2016
The notes below form an integral part of these condensed
financial statements.
Condensed Statement of Changes in Redeemable Participating
Preference Shareholders' Funds
For the period from 1 July 2015 to 31 December 2015
Share Capital Revenue
Premium Reserve Reserve Total
GBP GBP GBP GBP
At 1 July 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
------------ ------------ ------------- ------------
Deficit for the period - (887,614) (345,877) (1,233,491)
Shares redeemed (1,440,000) - - (1,440,000)
At 30 June 2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
------------ ------------ ------------- ------------
Surplus/(deficit) for the
period - 4,044,893 (367,245) 3,677,648
At 31 December 2015 46,034,968 (80,491) (10,657,198) 35,297,279
------------ ------------ ------------- ------------
The notes below form an integral part of these condensed
financial statements.
Condensed Statement of Cash Flows
For the period from 1 July 2015 to 31 December 2015
01.07.15 01.07.14 01.07.14
to 31.12.15 to 31.12.14 to 30.06.15
GBP GBP GBP
Cash flows from operating activities
Revenue account operating loss before
finance costs for the period (303,435) (287,865) (592,912)
(Increase)/decrease in other receivables (19,629) (4,388,691) 751,513
(Decrease)/increase in other payables (16,097) 36,129 35,307
Premiums paid (2,585,012) (2,604,318) (5,325,557)
Proceeds from maturity of investments 6,573,002 6,682,523 6,954,486
Net cash inflow/(outflow) from operating
activities 3,648,829 (562,222) 1,822,837
------------ ------------ ------------
Financing activities
Receipts of borrowings - - 1,253,103
Increase/(decrease) in bank loan - 641,334 (1,253,103)
Interest paid (63,810) (83,884) (124,713)
Shares redeemed - (1,440,000) (2,880,000)
------------ ------------ ------------
Net cash outflow from financing activities (63,810) (882,550) (3,004,713)
------------ ------------ ------------
Reconciliation of cash flow to movement
in net cash
(Decrease)/increase in cash and cash
equivalents in the period 3,585,019 (1,444,772) (1,181,876)
Cash and cash equivalents at the beginning
of the period 1,122,172 2,092,052 2,092,052
Effects of foreign exchange 209,224 65,261 211,996
Cash and cash equivalents at the end
of the period 4,916,415 712,541 1,122,172
------------ ------------ ------------
The notes below form an integral part of these condensed
financial statements.
Notes to the condensed financial statements
For the period from 1 July 2015 to 31 December 2015
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 Main
Market for Listed Securities of the Financial Conduct Authority
with a premium listing and to trading on the London Stock Exchange.
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 2015 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 2015, 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 2015, 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.
(a) Basis of preparation (continued)
Adoption of new and revised standards
In the current year, no new standards have been adopted by the
Company.
(b) Investments
US Traded Life Interest Investments
The Company primarily invests in US Traded Life Interests
("TLIs") which it aims 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 payments 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 2015 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.
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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 Company has adopted a discount rate of 12% for each policy
as explained in previous reports.
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.
(b) Investments (continued)
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.
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 on pages 4 and 5.
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 two year revolving credit facility
agreement of up to US$10 million with AIB Group (UK) PLC
subsequently, the facility term was extended by a further two years
and will expire on 31 March 2018. Even on the assumption of no
policy maturities, the facility will cover the Company's cash flow
requirements until at least July 2017.
Total drawn borrowings under the new revolving credit facility
agreement with AIB Group (UK) PLC at 31 December 2015 were nil (31
December 2014: US$1,000,000, 30 June 2015: nil).
The Board acknowledges that in the event of a drought in
maturities being combined with no further funding beyond that which
is currently available, the forced sale of policies in an illiquid
market may be required. 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 2016
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
01.07.15 01.07.14 01.07.14
to 31.12.15 to 31.12.14 to 30.06.15
GBP GBP GBP
Bank deposit
interest 234 162 491
Total income 234 162 491
============ ============ ============
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. Additional fees, as
disclosed in Note 5, are paid to the Investment Manager to obtain
LE Updates periodically.
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.
From 1 July 2013 the fee payable to the Manager is 0.3% per
annum of the Company's Gross Assets and a fixed fee of GBP30,000
per annum for the provision of Administration and Secretarial
Services. These fees are shown in the Statement of Comprehensive
Income on page 15 and under Other Expenses in the table in Note 5
respectively.
With effect from 1 September 2009 the fixed fee payable under
Administration Agreement between the Company and JTC Fund Solutions
(Guernsey) Limited (Formerly Kleinwort Benson (Channel Islands)
Fund Services Limited) is GBP50,000 per annum.
5 Other expenses
01.07.15 01.07.14 01.07.14
to 31.12.15 to 31.12.14 to 30.06.15
GBP GBP GBP
Administration fees 25,000 25,000 50,000
Secretarial fees 22,603 12,603 25,000
Broker fees 21,058 20,910 41,872
Directors' fees, national
insurance and expenses 39,124 39,250 76,188
D&O Insurance 3,530 3,394 6,733
Auditors' remuneration 13,079 14,651 27,540
Legal and professional
fees 25,296 57,220 56,801
Printing 2,906 8,957 4,388
Safe custody fees 6,641 5,728 12,196
Bank fees and charges 1,077 1,004 1,786
Registrar fees 5,175 2,034 13,034
Cost of obtaining new
LEs 3,237 13,400 23,925
Sundry expenses * 9,981 2,924 15,045
178,707 207,075 354,508
============ ============ ============
* Sundry expenses include mailing services, tax exempt fees,
stock exchange fees and other
sundry costs.
6 Taxation
The Company is exempt from Guernsey taxation on income derived
outside Guernsey and bank interest earned in Guernsey under the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989, for which it
pays an annual fee of GBP1,200, which is disclosed 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
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Revenue deficit per share is based on the net deficit
attributable to the shares of GBP367,245 (December 2014: deficit
GBP371,749, June 2015: deficit GBP717,625) and on the average
number of shares in issue of 72,000,000 (December 2014 and June
2015: 72,000,000). Capital return per share is based on the net
capital increase attributable to the shares of GBP4,044,891
(December 2014: surplus GBP3,918,611, June 2015: surplus
GBP3,030,997) and on the average number of shares in issue of
72,000,000 (December 2014 and June 2015: 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 GBP35,297,279 (December 2014:
GBP34,293,122, June 2015 GBP31,619,631) and on the 72,000,000
shares in issue at the period end (December 2014 and June 2015:
72,000,000).
9 Investments
(a) Investments at fair value
through profit or loss
01.07.15 01.07.14 01.07.14
to 31.12.15 to 31.12.14 to 30.06.15
Movements in the year: GBP GBP GBP
Opening valuation 30,570,116 29,380,044 29,380,044
Premiums paid 2,585,015 2,604,318 5,325,557
Proceeds from the maturities
and sale of investments (6,573,002) (6,682,523) (6,954,486)
Net realised gain on maturities 2,585,340 3,512,829 3,623,110
Movement in unrealised
appreciation/(depreciation)
on revaluation of investments 1,250,327 340,522 (804,109)
Closing valuation 30,417,796 29,155,190 30,570,116
============= ============= =============
Comprising:-
Closing book cost 49,959,318 48,802,407 51,361,964
Closing unrealised loss (19,541,522) (19,647,217) (20,791,848)
Closing valuation 30,417,796 29,155,190 30,570,116
============= ============= =============
(b) Net gain/(loss) on investments 01.07.15 01.07.14 01.07.14
held at fair value through
profit or loss
to 31.12.15 to 31.12.14 to 30.06.15
GBP GBP GBP
Net realised gain on maturities 2,585,340 3,512,829 3,623,110
Movement in unrealised appreciation/(depreciation)
on revaluation of investments 1,250,327 340,522 (804,109)
3,835,667 3,853,351 2,819,001
------------ ------------ ------------
10 Other receivables and maturity proceeds receivable
31.12.15 31.12.14 30.06.15
GBP GBP GBP
Sundry debtors 119,557 109,460 99,928
Maturity proceeds receivable - 5,130,672 -
119,557 5,240,132 99,928
========= ========== =========
11 Other payables
31.12.15 31.12.14 30.06.15
GBP GBP GBP
Accrued expenses 156,489 173,407 172,585
156,489 173,407 172,585
========= ========= =========
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
US$10 million, the terms of which were amended in August 2015 to
extend the facility expiry to 31 March 2018. This is designed to
allow the Company to continue fulfilling its financial obligations,
including the payment of premiums until that date. As at 31
December 2015 the Company's drawings under this new agreement were
US$nil (GBPnil) (31 December 2014: US$1,000,000 (GBP641,334); 30
June 2015: US$nil (GBPnil).
Interest on the revolving credit facility agreement is payable
at LIBOR plus 3.00% (31 December 2014 and 30 June 2015: 3.25%).
Under the 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. Since
there was a nil balance drawn down as at 31 December 2015 and 30
June 2015 the asset cover was not applicable, however at 31
December 2014 the asset cover was 46.7 times.
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.
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 the 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 are offered the opportunity to vote on the
continuation of the Fund at each Annual General Meeting,
On two occasions in the year to 30 June 2015, 72,000,000 B
shares were issued 1 for 1 pro rata to Shareholders and redeemed
for the amount paid up. The cash proceeds on each occasion
represented a capital distribution of 2p per share, and were paid
to Shareholders, amounting to GBP2,880,000 in aggregate. No further
B shares have been issued in the period under review.
14 Net assets attributable to shareholders
Share Premium Capital Revenue
Reserves Reserves Total
2015 2015 2015 2015
GBP GBP GBP GBP
Balance at 1 July
2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
Net realised gain
on maturities - 2,585,342 - 2,585,342
Movement in unrealised
depreciation on
investments - 1,250,327 - 1,250,327
Net currency gains - 209,224 - 209,224
Revenue loss for
the period - - (367,245) (367,245)
Issue of B shares - - - -
-------------- ------------ ------------- -----------
Balance at 31 December
2015 46,034,968 (80,491) (10,657,198) 35,297,279
============== ============ ============= ===========
Share Premium Capital Revenue
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 gains - 65,260 - 65,260
Revenue loss for
the period - - (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 Revenue
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Reserves Reserves Total
2015 2015 2015 2015
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 - 3,623,110 - 3,623,110
Movement in unrealised
depreciation on
investments - (804,109) - (804,109)
Net currency gains - 211,996 - 211,996
Revenue loss for
the year - - (717,625) (717,625)
Capital distributions (2,880,000) - - (2,880,000)
------------
Balance at 30
June 2015 46,034,968 (4,125,384) (10,289,953) 31,619,631
============== ============ ============= ============
15 Related party transactions
Fees earned by the Directors of the Company during the period
were GBP39,124 of which GBP8,600 was outstanding at the period end
(December 2014: GBP38,918 of which GBP8,979 was outstanding at the
period end; June 2015: GBP76,188 of which GBP17,500 was outstanding
at the year end). Allowable expenses claimed by the Directors in
the course of their duties amounted to GBP796 for the period ended
31 December 2015 (December 2014: GBP332, June 2015: GBP4,549). 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 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 2015.
31 December 30 June 2015 31 December
2015 2014
Net assets Net assets Net assets
GBP % GBP % GBP %
Level
3 fair
value
assets 30,417,796 86.18 30,570,116 96.68 29,155,190 85.00
----------- ------ ------------- ------ ----------- ------
30,417,796 86.18 30,570,116 96.68 29,155,190 85.00
=========== ====== ============= ====== =========== ======
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 2015 31 December
2015 2014
GBP 30,417,796 30,570,116 29,155,190
% of net assets 86.18 96.68 85.00
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 2015 31 December
at fair value 2015 2014
through profit
and loss
GBP 3,041,780 3,057,012 2,915,519
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.
Investor Information
For the period from 1 July 2015 to 31 December 2015
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 has
been authorised by the Guernsey Financial Services Commission as an
authorised closed-ended investment scheme 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 resident
in the UK for tax purposes
The Company has applied for and been accepted as an approved
investment trust under sections 1158 and 1159 of the Corporation
Taxes Act 2010 and Part 2 Chapter 1 of Statutory Instrument
2011/2999. This approval relates to accounting periods commencing
on or after 1 December 2012. The Directors are of the opinion,
having taken advice, that the Company has continued to conduct its
affairs so as to be able to retain such approval.
As an investment trust pursuant to section 1158 of the
Corporation Taxes Act 2010, the Financial Conduct Authority (FCA)
rules in relation to non-mainstream pooled investment products do
not apply to the Company. Accordingly, its shares can be
recommended by IFAs to ordinary retail investors in accordance with
the FCA's rules in relation to non-mainstream investment
products.
The Company's redeemable participating preference shares (the
"shares") were admitted to the Main Market for Listed Securities
Official List of the Financial Conduct Authority and commenced
trading on the London Stock Exchange on 25 March 2004.
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