The Company seeks to generate long-term returns for investors by investing in the life settlement market, through each of the separate Share Classes. The Company aims to manage its investment in portfolios of life settlement products so that the realised value of the policy maturities exceeds the aggregate cost of acquiring the policies, ongoing premiums, management fees and other operational costs.
Investments and underlying assets
As at 31 December 2019 each Share Class was invested in underlying assets as follows:
- Ordinary A Share Class (“LSAA”) invests in life insurance policies acquired from special or “distressed” situations, with exposure to both HIV (average age mid to late 50s) and elderly insureds (average age mid to late 80s). It is a widely diversified portfolio by gender and the number of lives with circa 4,400 underlying policies, and exposure to whole and fractional policies.
- Ordinary B Share Class (“LSAB”) invests in life insurance policies exposed only to elderly insureds (average age mid to late 80s) with exposure to whole and fractional policies.
- Ordinary D and E Share Classes (“LSAD” and “LSAE”) – both these Share Classes invest in separate portfolios comprising predominantly fractional policies with exposure to both HIV or elderly insureds, where the LSAA and/or LSAB Share Classes are already fractional owners.
Following the merging of all underlying assets held by LSA into a single trust in March 2020, and the merger of the D and E Share Classes into the A Share Class in May 2020, and the merger of the B Class Shares into A Class Shares in May 2021, LSA now has one Share Class – A, invested in the portfolios described above.
Source of Policies
In respect of each Share Class, such Policies will be or have been obtained from a variety of sources, primarily in the United States.
The Company has announced that it intends to retain a larger proportion of cash receipts from policy maturities in order to be in a position to fund potential investment opportunities through the acquisition and consolidation of the remaining fractions or participations of certain of the US trusts and conservatorships in which the Company was already indirectly invested. These opportunities are expected to arise over the forthcoming years as a result of the ageing (and therefore reducing size) of the underlying portfolios in which the Company was invested, and as a result of the Company’s investment manager’s proactive steps to protect and maximise the value of the assets. Accordingly, as surplus cash accumulates from policy maturities the Board will carefully balance the amount that should be distributed to Shareholders and that which should be retained to fund potential future investment opportunities.
The Company may also raise further capital in the future to acquire further Policies that meet the Investment Objective and Investment Policy of the relevant Share Class (or those of a Share Class to be established in future). Such Policies will subsequently be granted to the relevant Trust.
Any transaction involving more than 10% of the Gross Asset Value of the Company, directly or indirectly, will require the prior approval of the Board in writing.
Hedging and use of derivatives
The Company and/or the Trusts may also hold derivative or other financial instruments designed for efficient portfolio management or to hedge interest or inflation risks. The Trusts may invest in liquidity management products as deemed fit by the Trustee or the Investment Manager, as well as mortality hedging products as deemed fit by the Investment Manager, including, but not limited to, mortality related Insurance Linked Securities (“ILS”).
The Company has no stated dividend target. The Company aims to distribute a substantial portion of its funds derived from its operations in respect of a Share Class as dividends to Shareholders of that share class. There can be no assurance that the Company will be able to achieve this aim.
The Company will only pay dividends on the Ordinary shares to the extent that it has sufficient financial resources available for the purpose.
In accordance with regulation 19 of the Investment Trust (Approved Company) (Tax) Regulations 2011, the Company will not (except to the extent permitted by those regulations) retain more than 15% of its income (as calculated for UK tax purposes) in respect of any accounting period.
The Company as a small registered Alternative Investment Fund (“AIF”) does not intend to borrow due to the costs and regulatory implications that this would entail. However, the Company reserves the right to borrow in the future in appropriate circumstances and at the discretion of the Board (or, subject to the terms of the applicable Investment Management Agreement, the Investment Manager if such borrowing is at Trust level), provided that any such borrowing entered into in respect of, or attributable to, a Share Class shall be limited to a maximum of 10% of the Net Asset Value of such Share Class (at the time the borrowing is incurred)
In addition, the Board (or the Investment Manager, subject to any limits imposed by the Board) has discretion to make short-term loans out of the assets attributable to one Share Class to another Share Class where the Board or the Investment Manager (as the case may be) considers it necessary in order to fully or partially remedy a cash-flow shortfall in respect of that other Share Class.
The Company utilises policy advances to provide an acceleration of the cash flow to the Company. A policy advance refers to excess cash withdrawn from cash reserves generated at the level of the life insurance contracts. Policy advances will be deducted from any proceeds when the maturities are collected. The Board is of the opinion that these policy advances do not constitute borrowing for the purposes of the Alternative Investment Fund Managers Directive (“AIFMD”).
Pending reinvestment or distribution of cash receipts, cash received by the Company and the Trusts may be held on deposit, in cash, cash equivalents, near cash instruments, money market instruments and money market funds and cash funds in line with the risk appetite specified by the Board.
The Trusts’ Investment Manager must ensure that the Company’s and each Trust’s liabilities can be met as they fall due.