TIDMLSAA TIDMLSAB TIDMLSAD TIDMLSAE
RNS Number : 6346X
Life Settlement Assets PLC
30 April 2019
LIFE SETTLEMENT ASSETS PLC
LEI: 2138003OL2VBXWG1BZ27
(the "Company" or "LSA")
LSA, a closed-ended investment company which manages portfolios
of whole and fractional interests in life settlement policies
issued by life insurance companies operating predominantly in the
United States, is pleased to announce its financial results for the
period of incorporation on 16 August 2017 to 31 December 2018. The
annual financial report is being made available to be viewed on the
company's website at
https://www.lsaplc.com/investor-relations/reports-company-literature/
and will be submitted to and available for inspection at
http://www.morningstar.co.uk/uk/nsm. The full text of the Company's
annual financial report is provided below.
The Company was formed for the purposes of continuing the
activities of Acheron Portfolio Corporation (Luxembourg) S.A (the
"Predecessor Company"). The Company acquired the entire beneficial
ownership in each of the four Trusts through which the Predecessor
Company's portfolios of life settlement policies were held. The
Predecessor Company delisted from the Luxembourg Stock Exchange on
6 March 2018.
Financial Highlights
Share Class LSAA LSAB LSAD LSAE
Shares in
Issue 45,446,946 14,596,098 9,292,561 1,733,269
Net assets USD 91,649,093 USD 16,150,211 USD 11,590,732 USD 8,246,887
attributable
to shareholders
NAV per share USD 2.02 USD 1.11 USD 1.25 USD 4.76
Closing share USD 1.45 USD 0.60 USD 0.60 USD 1.70
price
Discount to
NAV 28.1% 45.8% 51.9% 64.3%
Total Maturities USD 20,825,540 USD 5,242,275 USD 3,719,375 USD 2,989,092
Net income USD 2,447,082 USD (1,765,020) USD 568,902 USD 760,092
from portfolio
Profit / (Loss) USD (3,811,032) USD (2,455,324) USD (70,178) USD 249,278
before tax
Jean Medernach, Chairman of LSA, said:
"In our first year as a listed company on the London Stock
Exchange it is pleasing to note the share price of Share Class A
and B increased by 26% and more than 100% respectively compared to
the 2017 year end share prices of the Predecessor Company on the
Luxembourg Stock Exchange, narrowing the discount to NAV
significantly with increased trading volumes.
"The HIV segment of our portfolio performed above expectations
by 15% in monetary terms while the non-HIV portfolio performed
below expectations as a result of one or two policies with large
face values not maturing during the period. However, since the
period end, the Company has been notified of three policy
maturities which, when received, will have a significant positive
impact on the Company`s cash balances. This will enable it to
consider various ways of distributing these proceeds to
investors.
"Going forward, the Board will examine opportunities to acquire
larger quantities of fractional policies than in previous years to
reduce further the concentration risk. The Board is confident that
this action, together with the conservative valuation methodology
applied by the Company (and its predecessor) to its acquisition and
retention of policies, creates a balanced portfolio which will
stand the Company in a stronger position in the year ahead."
For further information contact
Acheron Capital Limited (Investment Manager)
Jean-Michel Paul
020 7258 5990
Shore Capital (Financial Adviser and Broker)
Robert Finlay / Rose Ramsden
020 7601 6115
George Bayer / Kerry Higgins
Maitland Administration Services Limited
Company Secretary
Tel: 01245 209780
TB Cardew (Financial PR)
Shan Shan Willenbrock
020 7930 0777
LIFE SETTLEMENT ASSETS PLC
Financial results for the period of incorporation on 16 August
2017 to 31 December 2018
STRATEGIC REPORT
INTRODUCTION
Life Settlement Assets PLC ("LSA" or the "Company") is a
closed-ended investment trust company which manages portfolios of
whole and partial interests in life settlement policies issued by
life insurance companies operating predominantly in the United
States.
Life Settlement Assets PLC aims to generate long-term returns
for investors by investing in the life settlement market. We seek
to achieve this through each of our separate Share Classes.
HISTORY
The Company's shares were admitted to trading on the Specialist
Fund Segment of the Main Market of the London Stock Exchange on 26
March 2018. The Company was formed for the purposes of continuing
the activities of the Predecessor Company. The Company acquired the
entire beneficial ownership in each of the four Trusts through
which the Predecessor Company's portfolios of life settlement
policies were held. The Predecessor Company delisted from the
Luxembourg Stock Exchange on 6 March 2018.
STRATEGIC REPORT / AT A GLANCE
The Strategic Report has been prepared to help Shareholders
assess how the Company works and how it has performed. The
Strategic Report has been prepared in accordance with the
requirements of Section 414A to 414D of the Companies Act 2006 (the
"Act"). The Strategic Report also discloses the Company's risks and
uncertainties as identified by the Board, the key performance
indicators used by the Board to measure the Company's performance,
the strategies used to implement the Company's objectives, the
Company's environmental, social and ethical policy and the
Company's anticipated future developments.
Principal Activity
The principal activity of the Company is to manage portfolios of
whole and fractional interests in life settlement policies issued
by life insurance companies operating predominantly in the United
States. The life settlement market enables individuals to sell
their life insurance policies to investors at a higher cash value
than they would otherwise receive from insurance companies (if they
were cancelled or surrendered at the date of sale). The Company
aims to manage 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.
The Investments
The Company's investment objective is to generate long-term
returns for investors by investing in the life settlement market.
We seek to achieve this through each of our separate Share
Classes:
-- 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 widely diversified by gender and the number of lives with circa 4,700 underlying policies. LSAA has
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). Class B has exposure to whole and fractional policies.
-- Ordinary D & 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 are already fractional owners.
Comparative Benchmark
The Company does not follow a specific sector or geographic
benchmark however comparisons may be made from time to time with
relevant market indices.
Performance
The life settlement market has a low correlation with
traditional equity and fixed income markets. This, coupled with
current low interest rates, can make this an attractive asset
class. The performance of the Company against its key performance
indicators is described below.
Ongoing Charges
The Company's total annual costs (investment management fees and
other expenses) are 5.3% of net assets for the period to 31
December 2018.
Dividend/Distributions
The Company has not paid a dividend or made distributions to
Shareholders during the reporting period. Distributions were made
to the Shareholders of the Predecessor Company on 2 March 2018.
Since the period end, plans are being formulated for distributions
to Shareholders, which are described in the Chairman's
Statement.
STRATEGIC REPORT / COMPANY PERFORMANCE
Performance analysis by Share Class is provided in the tables
below.
LSAA at 31 December 2018
Shares in Issue 45,446,946
------------------------
Net assets attributable to USD 91,649,093
Shareholders
------------------------
NAV per share USD 2.02
------------------------
Closing share price USD 1.45
------------------------
Discount to NAV 28.1%
------------------------
Total maturities USD 20,825,540
------------------------
Split of maturities HIV USD 14,007,664
-------- --------------
non-HIV USD 6,817,876
-------- --------------
Net income from portfolio USD 2,447,082
------------------------
Loss before tax USD (3,811,032)
------------------------
LSAB at 31 December 2018
Shares in Issue 14,596,098
-----------------------
Net assets attributable to USD 16,150,211
Shareholders
-----------------------
NAV per share USD 1.11
-----------------------
Closing share price USD 0.60
-----------------------
Discount to NAV 45.8%
-----------------------
Total maturities USD 5,242,275
-----------------------
Split of maturities HIV n/a
-------- -------------
non-HIV USD 5,242,275
-------- -------------
Net income from portfolio USD (1,765,020)
-----------------------
Loss before tax USD (2,455,324)
-----------------------
LSAD at 31 December 2018
Shares in Issue 9,292,561
-----------------------
Net assets attributable to USD 11,590,732
Shareholders
-----------------------
NAV per share USD 1.25
-----------------------
Closing share price USD 0.60
-----------------------
Discount to NAV 51.9%
-----------------------
Total maturities USD 3,719,375
-----------------------
Split of maturities HIV USD 466,348
-------- -------------
non-HIV USD 3,253,027
-------- -------------
Net income from portfolio USD 568,902
-----------------------
Loss before tax USD (70,178)
-----------------------
LSAE at 31 December 2018
Shares in Issue 1,733,269
-----------------------
Net assets attributable to USD 8,246,887
Shareholders
-----------------------
NAV per share USD 4.76
-----------------------
Closing share price USD 1.70
-----------------------
Discount to NAV 64.3%
-----------------------
Total maturities USD 2,989,092
-----------------------
Split of maturities HIV USD 226,051
-------- -------------
non-HIV USD 2,763,041
-------- -------------
Net income from portfolio USD 760,092
-----------------------
Profit before tax USD 249,278
-----------------------
STRATEGIC REPORT / KEY PERFORMANCE INDICATORS (KPIs)
The Board monitors success in implementing the Company's
strategy against a range of key performance indicators (KPIs),
which are viewed as significant measures of success over the longer
term. These key indicators are those provided in the performance
tables above. Although performance relative to the KPIs is
monitored over quarterly periods, it is success over the long-term
that is viewed as more important. This is particularly important
given the inherent volatility of maturities and short-term
investment returns.
The Board has chosen the following KPIs:
Share Price - a key measure for shareholders to show the most
likely realisable value of this investment if it was sold. Changes
in the share price are closely monitored by the Board.
NAV per share - as this is the primary indicator of the
underlying value attributable to each share.
Premium / (Discount) to NAV - as this measure can be used to
monitor the difference between the underlying net asset value and
share price.
Total maturities (USD) - the value of the total maturities in
USD provides an indicator of the underlying cash flow that the
Company receives from its main source of income - policy
maturities. There are factors which could impact the outcome of
this performance measure including: average life expectancy and the
age of the underlying policy holders.
Please note that the Actual to Expected ("A/E") ratio, which is
closely linked to the total maturities KPI, is a key method by
which the Board seeks to anticipate the level of maturities. The
A/E ratio measures the declared maturities compared to the
projected maturities based on the actuarial models. A ratio close
to 100% indicates maturities correspond exactly to the model. A
percentage greater than 100% means the maturities are more than
anticipated by the models and less than 100% the opposite is the
case.
Profit (Loss) before tax - this is a key measure of financial
performance used to assess the fortunes of the Company over each
financial period.
Please Note: The Company regularly uses performance measures to
present its financial performance. These measures may not be
comparable to similar measures used by other companies, nor do they
correspond to IFRS standards or other accounting principles.
STRATEGIC REPORT / CHAIRMAN'S STATEMENT
I am pleased to present my first statement to investors
following the Company's admission to trading on the Specialist
Funds Segment of the London Stock Exchange on 26 March 2018. In
this statement I have highlighted the key developments over the
period and plans that your Board has for the period ahead.
Investment Performance
Against a background of challenging market conditions 2018
proved to be a solid year for your Company. The NAVs of three Share
Classes changed little and the NAV of class B saw a more pronounced
decline of 13%, hence the share price of Classes A and B remained
relatively flat in 2018 since the initial listing on the London
Stock Exchange whereas Class D and E had almost no trading volumes.
However, the share prices of Class A and Class B increased by 26%
and over 100%, respectively compared to the 2017 year end share
prices of the Predecessor Company on the Luxembourg stock exchange.
The discount to NAV narrowed significantly and the trading volumes
on the stock exchange increased, underlining the benefit of listing
on the London Stock Exchange and in line with our expectations.
Looking in more detail across our portfolios it is noticeable that
whilst the HIV portfolio performed in line with expectations, the
portfolio of non-HIV policies, in particular that relating to what
are termed "the elderly segment", was disappointing reflecting the
concentration risk inherent in the exposure to a few policies with
large face values. Until this small number of specific policies
mature it will be necessary for your Board to maintain higher
levels of cash reserves than might otherwise be the case. Since the
year-end however, the Company has been notified of three policy
maturities which, when received, will have a significant positive
impact on the Company`s cash balances and will enable it to
consider various ways of distributing these proceeds to
investors.
Before dealing with each Share Class in closer detail I should
like to draw attention to the Company`s valuation methodology and
certain changes that have occurred in the industry over the last
year. In our industry, the correct prediction of probable mortality
rates is essential to effective cash flow management and the
long-term profitability of the Company. On the advice of its
Investment manager, Acheron Capital, LSA (and its Luxembourg
Predecessor Company) has adopted an actuarial based model to
predict mortality and value life settlement policies. This model is
regularly calibrated to account for the portfolio experience. On an
annual basis a separate valuation is done by Lewis & Ellis
("L&E") to validate externally the predicted mortality and
portfolio value in the investment manager's model. This was further
tested by Mazars at the time of the Company's listing on the London
Stock Exchange. Every independent test has validated the
methodology used by Acheron Capital as an accurate and reliable way
of predicting future mortality rates. Furthermore, it is
interesting to note that industry providers of mortality tables,
based primarily on probabilistically based medical models, another
method of predicting mortality rates have proved consistently
overoptimistic. As a result, this method was recently revised. This
has brought their mortality predictions more closely into line with
our own methodology. This subject is dealt with in greater depth in
the report produced by Acheron Capital.
Our Share Classes
* Please note that the comparative NAV figures below for 2017
relate to the Predecessor Company, which was also the deemed
acquisition price.
LSAA's net asset value ("NAV") per share decreased to USD 2.02
(FY2017: USD 2.10*) during the period. This can be mainly
attributed to the impact of the non-HIV portfolio performing below
expectations and, the somewhat binary effect of one or two policies
with large face values not maturing during the period. While there
can be no absolute certainty it is probable that given the maturity
profile of this segment, there will be a higher level of maturities
in the foreseeable future.
LSAB reduced to USD 1.11 (FY2017: USD 1.27*). As the portfolio
is relatively small, there is a degree of concentration risk in
LSAB which means a low level of maturities in one year can be
followed by a period of increased maturities thereby enhancing the
future income stream.
LSAD and LSAE are made up of fractional policies and have a
relatively high concentration on a few lives. Fractional policies
are single life insurance policies initially purchased by multiple
investors, each of whom acquire a percentage interest. They have a
higher expected level of return and tend to be acquired at a deep
discount to the fair value of the policies. LSAD NAV per share
remains flat at USD 1.25 (FY2017: USD 1.25*). LSAE NAV per share
rose to USD 4.76 (FY2017: USD 4.61*).
Dividends and Distributions
Since total income was below expectations, your Board has
decided that it would be inappropriate to propose any distribution
for the year under review. However, in light of the very sizeable
maturities notified since the year end the Board is now in a
position to consider the most efficient way to return value to
shareholders, once the premiums from the policies have been
collected and the requisite shareholder approvals have been
obtained.
Board
There have not been any changes to the Board since admission to
trading and, I would like to thank the Board and the advisors for
their counsel and engagement over the time when the new Company was
being established in the UK regulatory environment.
Outlook
The Company is exposed to a small number of policies with large
face values, which, because of their size and maturity profile can
have a significant but unpredictable impact on cash flows and
income. The Board is examining opportunities to acquire larger
quantities of fractional policies at a discount and transforming
them into wholly owned policies, which will also act to mitigate
this concentration risk. The Board is also mindful that every
maturity reduces the size of each Share Class and that it may be
appropriate to consider consolidating the Share Classes in the
future. Setting aside these specific issues aside the Board remains
confident that the valuation methodology applied by the Company
(and its predecessor) to its acquisition and retention of policies
provides a stable and conservative portfolio which will stand the
Company in a strong position in the year ahead.
Jean Medernach
Chairman
30 April 2019
STRATEGIC REPORT / TRUSTS' INVESTMENT MANAGER'S REPORT 2018
The Life Settlement Market
2018 has proven to be the most active year for the US life
settlements industry in recent years. The total face value of
annual settlements was projected at USD 3.4bn at the end of 2018,
up from USD 2.8bn in 2017. The 2016 Conning report predicted 1 to
2% growth per annum, instead the market grew by approximately 21%
compared to 2017.
The life settlement industry was marked by significant
developments in the medical underwriting market in 2018. The two
main life expectancy data providers, ITM TwentyFirst
("TwentyFirst") and AVS Underwriting ("AVS") (together "Life
Expectancy Providers"), announced major adjustments in mortality
assumptions and underwriting methodologies. These revisions are
likely to result in the Actual to Expected ratio (A/E) from the two
Life Expectancy Providers to be much higher than before, possibly
close to 100% going forward. These changes could significantly
impact market valuation and additionally, it is also unclear at
this stage if this will translate in significant mark downs, or a
reduction in the discount rate used to value policies. Most likely,
a combination of the two will be observed. With longer life
expectancy, some policies will become worthless. Discount rates
should vary with mortality assumptions; a higher A/E reflects a
lower risk and would therefore warrant a lower discount rate.
We have carefully reviewed the aforementioned developments and
do not foresee any direct material impact on our portfolio as
adjusted mortality tables, instead of the opinions of the Life
Expectancy Providers, are predominantly used as the basis of our
mortality projections. Across all of our Share Classes, by end
2018, no TwentyFirst life expectancy opinion is used, only eight
adjusted life expectancy opinions from AVS and four adjusted life
expectancy opinions from Fasano are used. The discount rates used
has remained constant as at this time we cannot predict how the
market will react to these underwriting adjustments.
Our Portfolio
The current portfolio is subdivided into portfolios exposed to
either HIV policy holders or non-HIV policy holders. The respective
sizes of these segments are USD 195m for life settlements or
non-HIV policy holders and USD 397m for HIV. The face-weighted
average age for the non-HIV segment is about 91 years. This
translates into a life expectancy for a normal population of four
years for men and five years for women.
HIV life expectancy is a more difficult variable to assess. The
current face-weighted average age of the HIV population is about 59
years old; however actual mortality is similar to a population of
about 15 to 20 years older. Therefore, assuming the HIV policies
have the life expectancy of the general male population aged 77,
the average life expectancy for HIV policy holders would be 16
years. The current total premium paid on this portfolio is about
USD 23m. For the next year, we will retain USD 20.5m as a basis for
premium projections.
During 2018, investments were made in three small portfolios of
fractional policies in which the Company is already a fractional
owner for a total face cost of USD 1.2m. Fractional policies are
single life insurance policies initially purchased by multiple
investors, each of whom acquired a fractional interest. These
acquisitions are critical to ensure the premiums on fractional
policies that we are exposed to are continued to be paid and do not
lapse. These policies are mainly held in the Acheron Portfolio
Trust (LSAA) which is significantly exposed to such fractional
policies.
The following table provides information on the Companies'
policies by Share Class and by exposure to HIV and non-HIV positive
insureds, as at 31 December 2018.
HIV and Non-HIV Exposed Policies (all values in USD)
LSAA HIV Non-HIV Total
Number of policies 4,362 211 4,573
Total face value 383,257,821 100,936,850 484,194,671
Valuation 41,208,000 23,886,000 65,094,000
Percentage of
face value 10.8% 23.7% 13.4%
LSAB HIV Non-HIV Total
Number of policies 0 109 109
Total face value n/a 49,048,273 49,048,273
Valuation n/a 10,645,000 10,645,000
Percentage of
face value n/a 21.7% 21.7%
LSAD HIV Non-HIV Total
Number of policies 371 94 465
Total face value 16,308,803 23,930,280 40,239,083
Valuation 2,232,000 7,092,000 9,324,000
Percentage of
face value 13.7% 29.6% 23.2%
LSAE HIV Non-HIV Total
Number of policies 164 68 232
Total face value 6,652,344 13,837,753 20,490,097
Valuation 1,029,000 3,722,000 4,751,000
Percentage of
face value 15.5% 26.9% 23.2%
The U.S. actuary L&E provided valuations for all portfolios
for the period ended 31 December 2018. The actuaries performed a
nine-year A/E study based on historical data available and made
some improvements to the mortality assumptions. Figures from 2010
and 2011 were removed as the A/E ratios were significantly higher
to ensure a more conservative set of estimates. As a result, both
HIV and non-HIV segments reached long-term A/E ratio of circa 100%.
In comparison, the actuary's expectation of A/E for most portfolios
in the market which utilised data from TwentyFirst and AVS to
define their expected mortality, is in the 60-75% range.
The valuations used were derived by adopting an actuarial
approach. The mortality models were calibrated so that the actual
to expected over the last 10 years were at, or close to, 100%. This
compares favourably with other life settlement entities which are
commonly believed to have actual to expected in the high 60% on
average. The primary reason for adopting this approach and not to
use the prevailing probabilistic models centred on externally
provided medical underwriting of life expectancy on individual
policies, is that the actual outcome of these projections has been,
overall, poor, leading to significant overvaluation. Furthermore,
it would incur a significant cost for a portfolio with a large
number of policies. Finally, it may simply not be practically
possible, as the insured may refuse to give the necessary medical
information.
Maturities
The year saw declared maturities and A/E in the different Share
Classes as follow:
Maturities (USD) Class A Class B Class D Class E
HIV 6,817,876 466,348 226,051
Non-HIV 14,007,664 5,242,275 3,253,027 2,763,041
Total 20,825,540 5,242,275 3,719,375 2,989,092
A/E Class A Class B Class D Class E All classes
HIV 112% 148% 159% 115%
Non-HIV 85% 86% 70% 79% 83%
Total 93% 86% 75% 82% 88%
In monetary terms, the HIV segment performed above expectations
by 15% in the year under review. For non-HIV segment, the third
largest exposure matured in November 2018, contributing USD 14.9m
across all Share Classes. This is in line with our internal
projection of one large face maturity for this year. Other elderly
maturities fell short of expectations, leading to overall A/E of
under 100%.
The reduction in the size of our portfolio means our performance
will be more reliant on large face value policies and we may
experience volatility. For LSAA, two policies out of 213 represent
about 5% of the total face value of the portfolio; 10 policies
represent about 10% of the total face value of the portfolio. The
probability of no mortality in the top two policies FY2019 is circa
50%, underlying the binary - and volatile nature - of the cash flow
forecast for 2019-2020.
Going forward
We were notified of three maturities on one life in March 2019,
contributing USD 20.1m across all Share Classes. This policy was
the largest face value policy across all portfolios. In the coming
year, the transactions of the tertiary market could be boosted by
the Tax Cuts and Job Act ("TCJA"). TCJA makes the basis calculation
for both selling and surrendering the same policy, resulting in the
abolition of a tax incentive to surrender rather than to sell a
policy. This measure will therefore broaden the supply of life
settlements since insureds will have a less onerous path to
sell.
We will continue to follow the recent research on mortality in
general and on long-term HIV patients in particular. Our
observations on HIV mortality in the portfolio substantiate our
view that HIV sufferers age much more rapidly than the general
population from a medical perspective, and that this disease has
cumulative characteristics. This results in long-term patients
having a worse medical status than patients of the same age that
only recently contracted the disease.
Over the next twelve months, the most significant factor that
will affect the financial outcome of the company will be the
mortality of the policies it is exposed to. This will mechanically
affect the cash flow, not only due to the maturities that will or
will not be collected, but also in terms of premiums that will have
to be paid or not. Other factors, such as unexpected premium change
or discount rate, would have little effect on cash flow, and,
within a reasonable range, little effect on valuation.
Acheron Capital
30 April 2019
STRATEGIC REPORT / OVERVIEW OF STRATEGY AND INVESTMENT
POLICY
Investment Objective
The Company's investment objective is to generate long-term
returns for investors by investing in the life settlement market.
The Company has not established target rates of return with respect
to its investments.
Investment Policy
The Company will seek to achieve the Company's Investment
Objective in respect of each Share Class as follows:
A Ordinary Share Class (LSAA)
The assets attributable to the A Ordinary Share Class are
predominantly invested in life insurance policies acquired from
special or "distressed" situations, with exposure to both HIV and
elderly insureds.
The Company acquired the entire beneficial interest in the
Acheron Portfolio Trust from the Predecessor Company shortly after
Admission.
B Ordinary Share Class (LSAB)
The assets attributable to the B Ordinary Share Class are
predominantly invested in life insurance policies exposed only to
elderly insureds.
The Company met this Investment Policy by acquiring the entire
beneficial interest in the Lorenzo Tonti 2006 Portfolio Trust from
the Predecessor Company shortly after Admission.
D Ordinary Share Class and E Ordinary Share Class (LSAD and
LSAE)
The assets attributable to the D and E Ordinary Share Classes
are invested predominantly in Fractional Policies with exposure to
both HIV and elderly insureds, where the A and/or B Share Classes
are already fractional owners.
The Company met these Investment Policies by acquiring the
entire beneficial interest in:
a) the Avernus Portfolio Trust, in respect of the D Ordinary Share Class; and
b) the Styx Portfolio Trust, in respect of the E Ordinary Share
Class, from the Predecessor Company shortly after Admission.
Source of Policies
In respect of each Share Class, such Policies will be or has
been obtained from a variety of sources, primarily in the United
States.
Further acquisitions
The Company does not intend to substitute assets held by the
Trusts as the Policies mature. The Trusts are self-liquidating in
nature. The Company may however, from time to time: (a) acquire
Policies or cause the Trusts to acquire Policies that meet the
Investment Policy of the relevant Share Class, in particular but
not only Fractional Policies; and (b) cause the Trusts to dispose
of Policies.
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.
Investment Restrictions
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").
Dividend Policy
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 and in accordance with the Companies Act 2006 (as
amended).
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.
Borrowing
As at the date of this Report, 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.
Policy Loans
The Company does utilise policy loans to provide an acceleration
of the cash flow to the Company. A policy loan refers to excess
cash withdrawn from cash reserves generated at the level of the
life insurance contracts. Policy loans will be deducted from any
proceeds when the maturities are collected. These policy loans are
also described in Note 3.5 of these accounts. The Board is of the
opinion that these policy loans do not constitute borrowing for the
purposes of the Alternative Investment Fund Managers Directive
("AIFMD").
Cash management
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 has to ensure that the Company's
and each Trust's liabilities can be met as they fall due.
Corporate and Operational Structure
The Board retains responsibility for key elements of the
Company's strategy, including the following:
-- the Company's investment policy which determines the diversity of the Company's portfolio. The Board sets limits
and restrictions with the aim of reducing risk and maximising returns;
-- the appointment, amendment or removal of the Company's third-party service providers; and
-- ensuring an effective system of oversight over the Company's risk management and corporate governance.
In order to effectively undertake its duties, the Board may seek
expert legal advice. It can also call upon the advice of the
Company Secretary.
The Board act in a way that they consider to be in good faith
and is most likely to promote the success of the Company for the
benefit of its Shareholders as a whole, and in doing so have regard
(amongst other matters) to:
-- the likely consequences of any decision in the long-term;
-- the impact of the Company's operations on the community and the environment;
-- the desirability of the Company maintaining a reputation for high standards of business conduct; and
-- the need to act fairly to avoid conflicts between the interests of the Directors and those of the Company.
The Company has outsourced various operations to various
third-party service providers as detailed below:
-- Investment Management: As it is an internally-managed investment trust, the Company has not appointed an
investment manager to provide it with investment managerial services. However, each of the Trusts have appointed
the Investment Manager, Acheron Capital Limited as their investment manager under the Investment Management
Agreements with effect from the date of Admission. The Investment Manager is authorised and regulated by the FCA
(under reference number 443685). Further details of Investment Management Agreements are set out in Part 6 of the
Prospectus.
-- The Trustee: The Trustee of each of the Trusts is Dr Robert Edelstein who is also a Director of the Company.
-- The Registrar: Link Market Services Limited has been appointed as the Company's Registrar.
-- Administrator: The Company has appointed Compagnie Européenne de Révision Sàrl as its
administrator. The Administrator has been retained by the Company to calculate its Net Asset Values and to
provide certain other services.
-- Company Secretarial: Maitland Administration Services Limited has been appointed as Company Secretary to provide
company secretarial services to the Company.
-- Tracking and Servicing Agents: The Trusts have appointed a Tracking and Servicing Agent to assess on a regular
basis if consenting Individuals have passed away. If Consenting Individuals have passed away the Tracking and
Servicing Agent obtains respective death certificates and ensure that they are delivered to the insurance company
that issued the relevant Policy so that applicable death benefits can be claimed. Each Trust has entered into a
servicing agreement with the Tracking and Servicing Agent detailing the services the Tracking and Servicing Agent
will provide. As at the date of this Report, Litai Assets LLC, Fort Lauderdale and the Asset Servicing Group,
Oklahoma City, have both been appointed by the Trusts to service life settlement policy interests owned by the
Trusts.
-- Actuaries: The Company retains actuaries to estimate the life expectancy of individuals insured under particular
Policies or portfolios of Policies. Actuaries provide life expectancy or valuation estimates based on a more
general set of assumptions and experience.
STRATEGIC REPORT / PRINCIPAL RISKS
The Company is exposed to a number of potential risks and
uncertainties. These risks could have a material impact on
financial performance and position and could cause actual results
to differ materially from expected and historical results.
The Company faces a number of risks in the normal course of its
activities and as a result the management of the risks the Company
faces is essential. The Board maintains the overall responsibility
for risk management but has delegated to the Audit Committee the
task of regular and robust assessments of the Company's risks and
controls. The Audit Committee has accordingly established a robust
process to identify and monitor the risks faced by the Company. The
process involves the maintenance of a risk register, which
identifies the risks facing the Company and assesses each risk on a
scale, classifying the probability of the risk and the potential
impact that an occurrence of the risk could have on the Company. A
number of day-to-day risk management functions of the Trusts are
undertaken by the Trusts' Investment Manager, who regularly reports
to the Audit Committee.
Third Party Service Providers: The Company has no employees and
the Directors have all been appointed on a non-executive basis.
Whilst the Company has taken all reasonable steps to establish and
maintain adequate procedures, systems and controls to enable it to
comply with its obligations, the Company is relies upon the
performance of third-party service providers for its executive
function. In particular, the Trust's Investment Manager, Custodian,
Administrator, Registrar and Company Secretary.
The termination of service provision by any service provider, or
failure by any service provider to carry out its obligations to the
Company, or to carry out its obligations to the Company in
accordance with the terms of its appointment, could have a material
adverse effect on the Company's operations and its ability to meet
its investment objective.
Mitigation
Day-to-day performance of third-party service providers is
discussed by the Board and each of the service providers is subject
to regular performance and compliance monitoring. The regularity of
the reviews relate to the specific function being undertaken.
The appointment of each service provider is governed by
agreements which contain the ability to terminate each of these
counterparties with limited notice should they continually or
materially breach any of their obligations to the Company.
Reliance on key individuals: The Company relies on key
individuals to manage the day-to-day affairs of the Company. There
can be no assurance as to the continued service of these key
individuals. The departure of key individuals without adequate
replacement may have a material adverse effect on the Company's
prospects and results. Accordingly, the ability of the Company to
achieve its investment objective depends heavily on the experience
of the Investment Manager's team, and more generally on the ability
of the Investment Manager to attract and retain suitable staff.
Mitigation
The interests of the Trust's Investment Manager are closely
aligned with the performance of the Company through the management
and performance fee structures in place and direct investment by
certain key individuals of the Investment Manager. Furthermore,
investment decisions are made by a team of professionals,
mitigating the impact loss of any single key professional within
the Investment Manager's organisation. The performance of the
Investment Manager in its duties to the Company is subject to
ongoing review by the Board.
Fluctuations in the market price of the Company's shares: The
market price of the Company's shares may not reflect the Net Asset
Value of each Share Class and may fluctuate widely in response to
different factors. There can be no assurance that the Company's
shares will be repurchased by the Company even if they trade
materially below their Net Asset Value. Similarly, the shares may
trade at a premium to Net Asset Value whereby the shares can trade
on the open market at a price that is higher than the value of the
underlying assets. There can be no assurance, express or implied,
that Shareholders will receive back the amount of their investment
in the Company's shares.
Mitigation
The Board closely monitors the level of discount or premium at
which the Company's shares trade on the open market. The Company
may purchase the shares in the market with the intention of
enhancing the Net Asset Value per ordinary share. However, there
can be no assurance that any repurchases will take place or that
any repurchases will have the effect of narrowing any discount to
Net Asset Value at which the shares may trade. When the Company's
shares trade at a premium the Company may issue shares to reduce
the premium at which shares trade.
Achievement of the Investment Objective
There can be no assurance that the Company will be successful in
implementing the investment objective.
Mitigation
Performance of the Company against its investment objectives is
closely monitored on an ongoing basis by the Board and is reviewed
in detail at each Board meeting. The Board receives regular
reporting from the Trusts' Investment Manager in order to assist
with ensuring that the Company meets its investment objective.
Tax: Any changes in the Company's tax status or in taxation
legislation could affect the value of investments held by the
Company, affect the Company's ability to provide returns to
Shareholders and affect the tax treatment for Shareholders of their
investments in the Company.
The results of the Company would also likely be adversely
affected if the Company were not eligible to claim benefits under
the current income tax treaty between the United Kingdom and the
United States. In conformity with the income tax treaty,
withholding tax on matured policies is not due if at least 6% of
the average capital stock of the main class of Shares is traded
annually on a recognised stock exchange. Changes in taxation may
also adversely affect the results of the Company.
Mitigation
The Company intends at all times to conduct its affairs so as to
enable it to qualify as an investment trust for the purposes of
Section 1158 of the Corporation Tax Act 2010. Both the Board and
the Investment Manager are aware of the requirements which are to
be fulfilled in any accounting period for the Company to maintain
its investment trust status. The conditions required to satisfy the
investment trust criteria shall be monitored by the compliance
function of the Investment Manager and performance of the same
shall be reported to the Board on a quarterly basis.
The Board monitors the trading of the main class of Shares
regularly to assess the 6% requirement. This helps ensure that
action could be taken to encourage more trading and reduce the
likelihood of incurring a tax charge.
Breach of applicable legislative obligations: The Company and
its third-party service providers are subject to various
legislative and regulatory regimes. Any breach of applicable
legislative and/or regulatory obligations could have a negative
impact on the Company and impact returns to Shareholders.
Mitigation
The Company engages only with third party service providers
which hold the appropriate regulatory approvals for the function
they are to perform and can demonstrate that they can adhere to the
regulatory standards required of them. Each appointment is governed
by agreements which contain the ability for the Company to
terminate the arrangements with each of these counterparties with
limited notice should such counterparty continually or materially
breach any of their legislative obligations, or their obligations
to the Company more broadly. Additionally, each of the
counterparties is subject to regular performance and compliance
monitoring by the Investment Manager, as appropriate to their
function, to ensure that they are acting in accordance with
applicable regulations and are aware of any upcoming regulatory
changes which may affect the Company.
Other risks specific to the Company:
As described above, the Board and Audit Committee have an
ongoing process of monitoring and reviewing risks and internal
controls. The principal risks and mitigations are highlighted
above. There are also other important risks that the Company
monitors and these are provided below for completeness.
-- Mortality risk: Changes in mortality rates may adversely affect the performance of the Policies held by the
Company in respect of a Share Class.
-- Premium management risk: Unanticipated volatility in mortality rates makes liquidity management of premium
reserves difficult, as the Company (or the Trusts) need to be able to meet premium and costs at all times.
Failure to pay premium may result in the relevant Policy lapsing and the Company being unable to receive insured
sums as a result.
-- Premium assumptions risk: Changes in the amount of premiums charged by the insurance company that has issued a
Policy may increase the costs borne by the Company and adversely affect its performance.
-- Counterparty risk: If an insurance company defaults that has issued a Policy in which the Company invests, the
Company many not receive one or more payments owing to it.
-- Volatility risk: The portfolio of each Share Class may be more volatile than expected as a consequence of certain
policies representing a larger proportion of the portfolio than other policies.
-- Litigation risk: The assignment of life insurance policies can be a contentious matters and the sector has
historically been subject to high levels of litigation.
-- Modelling risk: The Investment Manager uses modelling in determining the investments to make; however, if the
assumptions made by the Investment Manager in building these models are or were materially incorrect, there could
be a substantial adverse effect on the Net Asset Value of the Ordinary Shares participating in the relevant
Policies and the Company's performance and that of the Ordinary Shares may fall short of expectations.
-- Discount rate risk: The discount rate used for reporting or valuation purposes may be on a portfolio basis or on
a bottom up Policy by Policy or Policy type by Policy type basis, which can create material value differences.
Further, there is no well-established market discount rate, which makes the use of specific discount rates for
actuarial purposes subjective.
-- Advance age mortality risk: There is a lack of data to reliably determine general or disease specific mortality
at advanced ages, as well as the date beyond which a Policy no longer has value. This makes the use of
statistically unproven assumptions necessary. As a consequence, should such assumptions prove to be incorrect,
the Company's performance and that of the Ordinary Shares may fall short of expectations.
For a detailed description of the Company's financial risks,
please refer to note 4 of the financial statements.
STRATEGIC REPORT / VIABILITY STATEMENT
The Directors have assessed the prospects of the Company over a
longer period than the 12 months referred to in the 'Going Concern'
guidelines.
The Board conducted this review focusing on a period of three
years. This period was selected as it is aligned with the Company's
strategic planning. In making this assessment the Board also
considered the Company's principal risks.
Investment trusts in the UK operate in a well-established and
robust regulatory environment and the Directors have assumed
that:
-- Investors will continue to want to invest in closed-end investment trusts because the fixed capitalisation
structure is suited to pursuing the current investment strategy;
-- The Company's remit of investing in life settlement assets predominantly in the U.S. will continue to be
attractive to investors.
The Company's primary source of income is from policy
maturities. As the timing of these maturities is not entirely
predictable the Board sometimes will need to take advantage of
policy loans. The Company can utilise policy loans in order for
premiums to be maintained active. A policy loan refers in this case
to excess cash withdrawn from cash reserves generated at the level
of the life insurance contracts. Policy loans are deducted from any
proceeds when the maturities are collected.
In the unlikely event that maturities and policy loans are
insufficient to meet ongoing cash and policy premium obligations,
the Directors have the authority to make short-term borrowing
arrangements with financial institutions. These borrowing options
are explained in more detail in the Strategic Report.
As with all investment vehicles, there is a risk that the
performance of individual investments will vary and that capital
may be lost, but this is not regarded as a threat to the viability
of the Company. Operationally, the Company retains title to all
assets including the life settlement assets and cash.
The closed-end nature of the Company means that, unlike an
open-ended fund, it does not need to liquidate positions when
Shareholders wish to sell their shares, the expenses of the Company
are predictable and modest in comparison with the assets and there
are no capital commitments currently foreseen which would alter
that position. Taking these factors into account, the Directors
confirm that they have a reasonable expectation that the Company
will continue to operate and meet its expenses as they fall due
over the next three years.
The Company's portfolio consists primarily of U.S. investments,
accordingly, the Company believes that the "Brexit" process will
not materially affect the prospects for the Company, but the Board
will continue to keep developments under review.
Donations
The Company made no political or charitable donations during the
year under review.
Environment, human rights, employee, social and community
issues
The Company is required by law to provide details of
environmental matters (including the impact of the Company on the
environment), employee, human rights, social and community issues
(including information about any policies it has in relation to
these matters and the effectiveness of those policies). The Company
does not have any employees and the Board is composed of
independent non-executive Directors. As an investment trust, the
Company has minimal impact on the environment. The Company aims to
minimise any detrimental effect that its actions may have by
adhering to applicable social legislation, and as a result does not
maintain specific policies in relation to these matters.
The Company has no internal operations and therefore no
greenhouse gas emissions to report nor does it have responsibility
for any other emissions producing sources, including those within
its underlying investment portfolio.
In carrying out its investment activities and in relationships
with suppliers, the Company aims to conduct itself responsibly,
ethically and fairly.
Modern Slavery Act
The Company is not within the scope of the Modern Slavery Act
2015 because it has insufficient turnover and is therefore not
obliged to make a human trafficking statement.
Approval
The Strategic Report was approved by the Board of Directors on
30 April 2019 and signed on its behalf by:
Jean Medernach
30 April 2019
GOVERNANCE / BOARD OF DIRECTORS
Jean Medernach, Chairman
Jean Medernach is an independent auditor licensed in Luxembourg
and a former US certified public accountant. Mr Medernach has more
than 15 years of experience in public accounting in Luxembourg,
Asia and the US as well as 12 years as a finance and investment
director of a Luxembourg investment company. Mr Medernach is a
Luxembourg national.
Michael Baines
Michael Baines is a graduate of the University of Oxford and The
Royal Military Academy Sandhurst and has previously held high-level
positions such as the Head of Risk Management and Deputy Chairman
of Robert Fleming Securities and Managing Director at Atlas
Capital. Mr Baines is currently Chairman of Church House Investment
Management. He is also Chairman of the Advisory Board of the
BlackRock Armed Forces Common Investment Fund.
Robert Edelstein
Dr Edelstein joined the faculty of the University of California
at Berkeley in 1985 after being a Professor of Finance at the
Wharton School, University of Pennsylvania, and is active in the
fields of real estate economics, finance, and property taxation;
energy and environmental economics; public finance; and urban
financial problems. He has been President and has served on the
Board of Directors of the American Real Estate and Urban Economics
Association. He is a member of the Board of the Asian Real Estate
Society. Dr Edelstein received an A.B., A.M., and Ph.D. in
Economics from Harvard University. Robert Edelstein is a United
States National.
Franck Mathé
Franck Mathé is a senior portfolio manager at EFFICAP in Paris.
He holds a Doctor of Mathematics degree and a Master's degree in
Finance from HEC (Hautes études commerciales) Paris. With more than
15 years' experience in the sector, he is director of a number of
other investment funds.
Yves Mertz
Yves Mertz has been a member of the Luxembourg Chartered
Accountants Institute and the Luxembourg Independent Auditors
Institute since 1984. Prior to joining Compagnie Européenne de
Révision, he was founder and partner of Mazars Luxembourg where he
acquired extensive experience in the life insurance and reinsurance
sectors. He holds a Master degree in finance and EDP processing
from the Faculté Universitaire de Mons, Belgium. Mr Mertz is a
Belgium national.
Guner Turkmen
Guner Turkmen has extensive experience in trading, risk and
asset management and asset allocation. In 2000 he founded Cougar
Asset Management, an independent hedge fund manager. In 2006 he
co-founded Union Capital Group and was in charge of asset
management through 2011. At the end of 2007, he founded Lake Geneva
Investment Partners S.A. Mr Turkmen is a Turkish national.
GOVERNANCE / REPORT OF THE DIRECTORS
The Directors present the annual report and financial statements
of the Company for the period to 31 December 2018. The financial
statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and in accordance with the
requirements of the Companies Act 2006.
Legal Form
The Company was incorporated on 16 August 2017 in England and
Wales with company number 10918785 under the Companies Act 2006 as
a private company limited by share. It is a closed-ended investment
company and is an investment trust for the purposes of section 1158
of the Corporation Tax Act 2010. The Company was re-registered as a
public company limited by shares and an investment company under
section 833 of the Companies Act 2006 on 24 January 2018.
Regulatory Status
The Company is not a collective investment scheme and therefore
is not regulated as such by the FCA. However, it is subject to the
FCA's Disclosure Guidance and Transparency Rules, Market Abuse
Regulation ("MAR"), and Prospectus Rules.
The Company is registered by the FCA as a "small registered UK
AIFM" pursuant to regulation 10(2) of the AIFM Rules on the basis
that it is a small internally managed AIF.
The Directors intend, at all times, to conduct the affairs of
the Company so as to enable it to qualify as an investment trust
for the purposes of section 1158 of the Corporation Tax Act
2010.
The Company's shares are listed on the Specialist Fund Segment
of the London Stock Exchange.
In the opinion of the Directors, the Company has conducted its
affairs during the period under review, and subsequently, so as to
qualify as an investment trust for the purposes of section 1158 of
the Corporation Tax Act 2010 (as amended). The Company has applied
to, and obtained approval from, HMRC as an investment trust company
subject to continuing to meet the eligibility requirements.
Directors
The names and biographical details of the Board members who
served on the Board as at the period-end can be found below.
Directors' retirements are subject to the Company's Articles of
Association (the "Articles"). The Articles provide that the
directors may appoint a person who is willing to act as a director,
any director so appointed is required to retire at the next AGM
after his or her appointment and is eligible for reappointment.
Mr Toller was appointed as the Company's first Director on the
incorporation of the Company on 16 August 2017. Mr Baines, Mr
Edelstein, Mr Mathé, Mr Medernach, Mr Turkmen and Mr Mertz were
subsequently appointed as Directors on 24 January 2018 and Mr
Toller resigned at the same time.
All Directors will therefore retire at the forthcoming AGM and,
being eligible, will offer themselves for election.
None of the Directors has a service contract with the Company or
is entitled to compensation for loss of office on the takeover of
the Company.
The powers of the Directors are set out in the Corporate
Governance Statement.
Going Concern
The financial statements of the Company have been prepared on a
going concern basis. The forecast projections and actual
performance are reviewed on a regular basis throughout the period.
The Directors believe that this is an appropriate basis and that
the Company has adequate resources to continue in operational
existence for the foreseeable future and is financially sound. The
Company is able to meet all of its liabilities from its assets and
the ongoing charges, including annual premiums which are
approximately 23% of assets.
Corporate Governance
A Statement on Corporate Governance is provided below.
Management agreements
The Company has not appointed an investment manager to provide
it with investment managerial services. However, each of the Trusts
has appointed Acheron Capital Limited as their investment manager
under the Investment Management Agreements signed from the date of
admission to trading on the London Stock Exchange. A Services
Agreement has been entered into between the Company and the
Investment Manager whereby the Investment Manager has agreed to
assist the Board in the management of the day-to-day activities of
the Company. The Company will reimburse the Investment Manager for
certain expenses related to carrying out the day-to-day activities
of the Company. The Investment Manager will be remunerated under
the agreements with the Trusts but will not be paid fees in
connection to the Services Agreement. Further details of the
agreement with Acheron Capital are provided in Note
The Trustee of each of the Trusts is Dr Robert Edelstein who is
also a Director of the Company.
The Company has appointed Compagnie Européenne de Révision Sàrl
as it administrator. They have been retained by the Company to
calculate its Net Asset Value and to provide certain other
services.
The Company has appointed Lewis & Ellis Inc. as its
valuation agent.
It is the Directors' opinion that the continuing appointment of
these key suppliers is in the best interests of the Company and its
Shareholders. The Directors are satisfied that these suppliers have
the required skill and expertise to continue to manage the
Company's assets successfully.
Dividends
The Company has not paid a dividend during the period, the
Chairman's Statement provides some commentary on the plans for
future distributions to Shareholders.
Substantial shareholdings
The Directors have been informed of the following notifiable
interests in the voting shares of the Company at 31 December
2018:
Notification From Number of shares % of voting rights
6,600,000 (Ordinary
D shares and 1,500,000
EFFIL II S.A. (Ordinary E shares) 11%
8,166,854 (indirect
Metage Capital Limited holding) 11.49%
The Company has not been notified of any changes to the above
holdings between 31 December 2018 and the date of this report.
Annual General Meeting
The Company will be holding its first AGM on Thursday 13 June
2019 full details of the meeting, the resolutions to be proposed
and how to vote are set out in the Notice of Meeting below. A
summary of some of the resolutions being proposed is set out
below.
Ordinary Business at the Annual General Meeting
Remuneration Policy
Resolution 2 allows Shareholders to have a binding vote on the
Company's remuneration policy. The policy remains unchanged from
that detailed in the Prospectus dated 30 January 2018. The
Company's Articles of Association limit the maximum fees for
Directors at GBP200,000.
Election of Directors
The notice of the meeting includes resolutions to elect each of
the Company's Directors at this the first Annual General Meeting
since their appointment. Biographies of each Directors are provided
above. The Board believes that they bring valuable skill,
experience and expertise to the Company and recommends that
Shareholders vote in favour of the resolutions relating to their
election.
Re-appointment of Auditors
Resolution 10 proposes the re-appointment of Grant Thornton UK
LLP as the Company's External Auditor for the forthcoming year and
the authority proposed under Resolution 11 will authorise the
Directors to determine the Auditor's remuneration.
Special Business at the Annual General Meeting
Allotment of shares
The authority proposed under Resolution 12 will authorise the
Directors to allot shares or grant rights to subscribe for shares
in the Company generally, in accordance with section 551 of the
Companies Act 2006 (the "Act"), up to an aggregate nominal amount
of 10% of each Ordinary Share Class, as of the date of this Notice
(excluding treasury shares) .
Disapplication of pre-emption rights
Resolution 13 will give Directors the general authority to allot
Ordinary Shares for cash without first offering the securities to
existing Shareholders in certain circumstances. The resolution
proposes that the disapplication of such pre-emption rights be
sanctioned in respect of the allotment of equity securities with an
aggregate 10% of the issued share capital of each Ordinary Share
Class as at the date of this report. No allotment of shares from
treasury may be made at a price below the prevailing estimated net
asset value.
Authority for the Company to purchase its own shares
Resolution 14 authorises the Company to purchase up to 14.99% of
the Company's shares for each Share Class in issue at the date of
the Annual General Meeting. Purchases will be made on the open
market for cash at prices in accordance with the terms laid out in
the Resolution. Shares will be purchased only in circumstances
where the Board believes that it is in the best interests of the
each class Shareholders generally. Furthermore, purchases will only
be made if the Board believes that they would result in an increase
in NAV per share and earnings per share. The Board currently
intends to cancel those shares.
The authority for each of the above resolutions under special
business will expire on the date falling 15 months after the
passing of this resolution or, if earlier, at the conclusion of the
Annual General Meeting to be held in 2020.
Class meetings
The Company will also hold class meetings to approve the items
of Special Business (resolutions 12, 13 and 14) to be considered at
the AGM.
Recommendation
The Board considers that the Resolutions to be proposed at the
AGM are in the best interests of Shareholders as a whole and the
Company and, accordingly, recommends that Shareholders vote in
favour of each Resolution, as the Directors intend to do in respect
of their own shareholdings.
Company information
The following information is disclosed in accordance with the
Companies Act 2006:
-- The Group's capital structure and voting rights are summarised below.
-- Details of the substantial shareholders in the Company are listed below.
-- The rules concerning the appointment and replacement of Directors are contained in the Company's Articles of
Association.
-- The Articles of Association can be amended by the passing of a Special Resolution of the members in a General
Meeting.
-- Amendment of the Articles of Association and the giving of powers to issue or buy back the Company's shares
require the relevant Resolution to be passed by Shareholders.
-- There are no restrictions concerning the transfer of securities in the Company; no restrictions on voting rights;
no special rights with regard to control attached to securities; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the Company is party to that might affect
its control following a successful takeover bid.
-- Consideration of likely future developments is detailed in the Strategic Report.
Auditor
The Auditor, Grant Thornton UK LLP, has indicated its
willingness to continue in office and Resolutions 10 and 11
proposing its re-appointment and authorising the Directors to
determine its remuneration for the ensuing year will be submitted
at the AGM.
The Directors who were in office on the date of approval of
these financial statements have confirmed, as far as they are each
aware, that there is no relevant audit information of which the
Auditor is unaware. Each of the Directors has confirmed that they
have taken all the steps that they ought to have taken as Directors
in order to make themselves aware of any relevant audit information
and to establish that it has been communicated to the Auditor.
On behalf of the Board
Jean Medernach
30 April 2019
GOVERNANCE / STATEMENT ON CORPORATE GOVERNANCE
The Company is committed to maintaining high standards of
corporate governance and the Directors are accountable to
Shareholders for the governance of the Group's affairs. A
high-level description of the Company's corporate governance
structure is provided below.
The Company is not obliged to and does not currently intend to
comply with the UK Corporate Governance Code issued by the
Financial Reporting Council or the corporate governance code issued
by the Association of Investment Companies.
Responsibilities of the Board
The Board is responsible for the effective stewardship of the
Company's affairs and determines the strategic direction of the
Company. The Board meets at least four times a year and reviews the
Company's investment policy, performance and financial position.
There is an agreed procedure for Directors, in the furtherance of
their duties, to take independent professional advice at the
Company's expense.
The Chairman is responsible for leading the Board and ensuring
that it continues to deal effectively with all aspects of its role.
In particular, he ensures that the Acheron Capital and the
Administrator provide the Directors, in a timely manner, with
management, regulatory and financial information that is clear,
accurate and relevant. Representatives of the third-party service
providers attend each Board meeting, enabling the Directors to seek
clarification on specific issues or to probe further on matters of
concern.
The Board comprises six Directors all of whom are non-executive
and independent of the Investment Manager. In the light of the
small size of the Board, it has been decided not to appoint a
formal Nominations Committee and appointments of any new directors
are considered by the Board as a whole.
Powers of the Directors
The powers of the Directors are set out in the Articles of
Association which are publicly available from Companies House.
Except as otherwise provided by regulation and legislation, the
Directors may exercise all of the ordinary powers usually conferred
on directors to manage the affairs of a company and to delegate
such of those powers to committees, agents or individuals as they
consider appropriate. The Directors may authorise the Company to
borrow; to pay fees, expenses, salaries and make other payments to
directors, executives and employees; and to provide pensions or
other benefits for directors, executives and employees; but have
not exercised these powers except for the payment of fees to
non-executive directors.
Board attendance
Attendance at the Board and Audit Committee meetings held during
the reporting period is shown below.
No. of meetings Board meetings Audit committee meetings
Jean Medernach 6/6 2/2
Michael Baines 6/6 2/2
Robert Edelstein 6/6 n/a
Franck Mathé 6/6 n/a
Yves Metz 6/6 2/2
Guner Turkman 6/6 n/a
Performance Evaluations
The performance of the Company is considered in detail at each
Board meeting.
The Board will undertake in 2019 a self-evaluation of its
performance, that of its committees and individual Directors,
including the Chairman. The review will be led by the Chairman, who
assisted by the Company Secretary shall determine the scope and
format for the review. There are no significant matters to bring to
the attention of Shareholders at this time. The Board confirms that
the composition of the Board, at the time of this report, reflects
a suitable mix of skills and experience, and that the Board as a
whole, the individual Directors and its committees are functioning
effectively.
Internal Controls
The Board has overall responsibility for the establishment of
the Company's systems of internal control and for reviewing their
effectiveness. Internal control systems are designed to meet the
particular requirements of the Company and to manage rather than
eliminate the risks of failure to achieve its objectives. The
systems by their very nature provide reasonable but not absolute
assurance against material misstatement or loss. The Board has
reviewed the effectiveness of the Company's internal control
systems including the financial, operational and compliance
controls and risk management processes for the period.
The key procedures which have been established with a view to
providing effective internal control are as follows:
-- Throughout the year under review, there has been an ongoing process for identifying, evaluating and managing the
significant risks faced by the Company, which accords with the guidance in the FRC's Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting. The process involves reports from the Company
Secretary and Investment Manager on risk control and compliance, in conjunction with the Investment Manager's
regular report which covers investment performance. In addition, the Company Secretary or Investment Manager
report on the internal control environment at the Company's third party service providers. Internal control
statements from third party service providers are also made available to the Audit Committee.
-- The duties relating to investment management, accounting and custody of assets are segregated; the procedures of
the individual parties are designed to complement one another.
-- The Board is responsible for setting the overall investment policy and monitors the activities of the Investment
Manager at its regular meetings. The responsibilities of the Investment Manager are included in the Investment
Management Agreement between the Company and Acheron Capital. Acheron is authorised and regulated by the
Financial Conduct Authority.
-- Administration, accounting duties are performed by Compagnie Euopéenne de Révision Sàrl
-- Company secretarial duties are performed by Maitland Administration Services Limited.
-- Authorisation and exposure limits are set by the Board.
-- The Company clearly defines the duties and responsibilities of its agents through their contracts. The
appointment of agents and advisers is conducted by the Board after consideration of the quality of parties
involved; the Board monitors their on-going performance and contractual arrangements. The Board reviews financial
information produced by the Investment Manager and the Company Secretary on a regular basis.
The risk management process and systems of internal control are
designed to manage rather than eliminate the risk of failure to
achieve the Company's objectives. It should be recognised that such
systems can only provide reasonable, rather than absolute,
assurance against material misstatement or loss. No significant
failings or weaknesses have been identified.
Accountability and Relationship with Investment Manager
The Statement of Directors' Responsibilities in respect of the
accounts is set out below. The responsibilities of the independent
auditor are set out below. The Directors' Report states that the
Company is a going concern and provides confirmation of the
Directors consideration on viability.
The Board has delegated contractually to external third parties
day to day accounting, company secretarial and administration
duties, and registration services. Each of these contracts was
entered into after consideration by the Board of the quality and
cost of the services offered. The Board receives regular formal
reports from Acheron Capital and ad hoc information as
required.
Conflicts of Interest
The Board has put in place a framework for Directors to report
conflicts of interest or potential conflicts of interest, which it
believes works effectively. Directors are aware that they have a
continuing obligation to notify the Company Secretary of all
existing, new and potential situations or interests which do or
could conflict with the interests of the Company. All disclosed
situations and interests are reviewed by the Board at its meetings
and, where appropriate, authorised. It is the Board's intention to
continue to review all notified situations on a regular basis.
The following potential conflicts of interest exist between the
duties of the Directors to the Company and their private interests
and/or other duties:
-- Mr Mertz is an executive director of the Administrator, which receives fees from the Company under the
Administration Agreement.
-- Dr Edelstein is the Trustee of each of the Trusts and receives fees in such capacity; and
-- Mr Mathé is an employee of Efficap II, which is the general partner of a fund having a significant
investment in the D shares and E shares of the Company.
GOVERNANCE / AUDIT COMMITTEE REPORT
The Audit Committee is chaired by Michael Baines. The other
members of the Committee are Jean Medernach and Yves Metz. All of
the Committee members have recent and relevant financial experience
and all the members of the Committee have competence relevant to
the sector in which the Company is operating.
Role of the Committee
The Audit Committee ('the Committee') is responsible for
monitoring the process of production and ensuring the integrity of
the Group's financial statements. The other primary
responsibilities of the Committee are:
-- to consider the financial statements of the Company and make recommendations to the Board;
-- to monitor adherence to best practice in financial reporting and corporate governance;
-- to review the effectiveness of the internal control and risk management environment of the Company;
-- to receive compliance reports from the Investment Manager and other service providers;
-- to consider the accounting policies of the Group;
-- to consider the valuation process of the life settlement assets;
-- to make recommendations to the Board in relation to the re-appointment of the Auditor;
-- to make recommendations to the Board in relation to the Auditors' remuneration and terms of engagement; and
-- -- to review and monitor the Auditor's independence and objectivity and the effectiveness of the audit
process.
Matters considered in the year
The Committee met twice during the financial year to consider
the financial statements and to review the internal control
systems. The principal matters considered by the Committee were the
valuation of the Company's assets, proof of ownership of its
investments and cash, and the maintenance of its approval as an
investment trust.
The Manager and Administrator have reported to the Committee to
confirm continuing compliance with their individual regulatory
requirements and for maintaining the Company's investment trust
status.
The Committee liaised with Acheron Capital Limited, throughout
the year, and received reports on their legal compliance. A Risk
Assessment and Review of Internal Controls document maintained by
the Board was considered in detail and amended as necessary.
Internal Audit
The Group does not have an internal audit function, as most of
its day-to-day operations are delegated to third parties, all of
whom have their own internal control procedures. The Committee
discussed whether it would be appropriate to establish an internal
audit function, and agreed that the existing system of monitoring
and reporting by third parties remains appropriate and sufficient.
The need for an internal audit function is reviewed annually.
External Audit
The Audit Committee monitors and reviews the effectiveness of
the external third-party service providers, audit process for the
publication of the Annual Report and makes recommendations to the
Board on the re-appointment, remuneration and terms of engagement
of the Auditors.
Prior to each Annual Report being published, the Committee
considers the appropriateness of the scope of the audit plan, the
terms under which the audit is to be conducted, as well as the
matter of remuneration, with a view to ensuring the best interests
of the Company are promoted.
Audit fees are computed on the basis of the time spent on
Company affairs by the Audit partners and staff and on the levels
of skill and responsibility of those involved.
Grant Thornton UK LLP has been Auditor to the Company since
launch. As part of its review of the continuing appointment of the
Auditor, the Committee considers the length of tenure of the audit
firm, its fees and independence, along with any matters raised
during each audit. The Committee has discussed with Grant Thornton
UK LLP its objectivity, independence and experience in the
investment trust sector.
Grant Thornton UK LLP has indicated its willingness to continue
in office as Auditor of the Group. Following its review, the
Committee considers that, individually and collectively, the
Auditor is appropriately experienced to fulfil the role required,
and have recommended its re-appointment to the Board. A resolution
for its re-appointment will be proposed at the forthcoming Annual
General Meeting.
The Committee has considered the independence and objectivity of
the Auditor and it is satisfied in these respects that Grant
Thornton UK LLP has fulfilled its obligations to the Group and its
Shareholders. During the year, Grant Thornton UK LLP provided
reporting accountant services relating to the listing of the
Company on the London Stock Exchange. The fee for this service was
GBP80,000. The auditor also provided a section 92 report in
relation to the re-registration of the Company from a limited to a
public limited company. The fee for this service was GBP4,500.
Neither service affected the work by the auditor on the Company's
financial statements.
The Committee has advised that, based on its assessment of their
performance and independence, Grant Thornton UK LLP has fulfilled
its obligations to the Company and its Shareholders.
I intend to be present at the Annual General Meeting to address
any questions from Shareholders relating to the financial
statements.
Michael Baines
Audit Committee Chairman
30 April 2019
GOVERNANCE / DIRECTORS' REMUNERATION REPORT
The Board presents the Directors' remuneration report for the
period 16 August 2017 to 31 December 2018. Ordinary resolutions for
the approval of this report and the Directors' Remuneration Policy
will be put to Shareholders at the forthcoming AGM.
As the Company has no employees and all of the Directors are
non-executive, the Board has not established a separate
Remuneration Committee. Directors' remuneration is determined by
the Board as a whole, at its discretion within an aggregate ceiling
of GBP200,000 per annum. Each Director abstains from voting on
their own individual remuneration.
Statement from the Chairman
This Report sets out the Company's remuneration policy which
Shareholders will be asked to approve at the forthcoming AGM on 13
June 2019. A separate resolution to adopt the Remuneration report
is advisory only and not binding on the Company. The votes cast at
the 2019 AGM on the advisory resolutions will be disclosed in the
remuneration report for the year to 31 December 2019.
Subject to shareholder approval the remuneration policy, set out
in the following policy table below, will be binding and effective
from the date of the 2019 AGM. It is intended to apply for three
years.
Policy Table
Fixed fee element Remuneration consists of a fixed fee each
year and the Directors of the Company are
entitled to such rates of annual fees as the
Board at its discretion determines.
Discretionary In accordance with the Company's Articles
element of Association, if a Director is requested
to perform extra or special services, they
will be entitled to receive such additional
remuneration as the Board considers appropriate.
Taxable benefits In accordance with the Company's Articles
of Association the Directors are also entitled
to be reimbursed for out-of-pocket expenses
and any other reasonable expenses incurred
in the proper performance of their duties.
Such expenses are treated as a benefit in
kind and are subject to tax and national insurance.
Purpose and link Directors' fees are set to:
to strategy * be sufficient to attract and retain individuals of a
high calibre with suitable knowledge and experience
to promote the long-term success of the Company;
* reflect the time spent by the directors on the
Company's affairs;
* reflect the responsibilities borne by the directors;
and
* recognise the more onerous roles of the Chairman of
the Board and the Chairman of the Audit Committee
through the payment of higher fees.
Operation Fees payable to the Directors will be reviewed
annually. A number of factors will be considered
to ensure that the fees are set at an appropriate
level. These will include:
* the average rate of inflation during the period since
the last fee increase;
* the level of Directors' remuneration for other
investment trusts of a similar size; and
* the complexity of the Directors' responsibilities.
Maximum Total remuneration paid to the non- executive
Directors is subject to an annual aggregate
limit of GBP200,000 in accordance with the
Company's Articles of Association. Any changes
to this limit will require Shareholder approval
by ordinary resolution.
There are no performance related elements to the Directors'
fees.
Directors do not receive bonus payments or pension contributions
from the Company or any option to acquire shares. There is no
entitlement to exit payments or compensation on loss of office.
None of the Directors has a service contract with the Company and
their terms of appointment are set out in a letter provided when
they join the Board. These letters are available for inspection at
the Company's registered office.
Consideration of Shareholders' Views
Shareholder approval for the remuneration report will be sought
at the 2019 AGM and shareholders will also have the opportunity to
express their views and raise any queries on the policy at this
meeting.
Directors' emoluments
The Directors who served during the period received the
following emoluments in the form of fees:
Period ended 31 December 2018
Director Basic Fees Non -recurring Total
USD Fees* USD
USD
Jean Medernach 57,190 28,595 85,785
Michael Baines 38,070 6,604 44,674
Robert Edelstein 10,000 - 10,000
Frank Mathé 10,000 - 10,000
Yves Mertz 15,000 - 15,000
Guner Turkmen 10,000 - 10,000
Total --------- ---------- --------
140,260 35,199 175,459
====== ====== ======
* The non-recurring fees totalling USD 35,199 related to
additional work undertaken for the listing on the London Stock
Exchange.
As the Company has no employees the table above sets out the
total remuneration costs and benefits paid by the Company.
In addition to the fees stated above amounts totalling USD
125,000 of which (USD 50,000 is non-recurring) was paid as a
trustee fee to Robert Edelstein.
In total USD 69,968 was reimbursed to Directors during the
period for their expenses travelling to attend Board and Audit
Committee meetings in London. There are no other directors'
expenses to report.
The annual fees for each Director for the twelve months
commencing 1 January 2019 are expected to be:
-- Jean Medernach, Chairman - EUR50,000 and USD 5,000
-- Michael Baines, Chairman of the Audit Committee - GBP30,000
-- Yves Mertz - USD 15,000
-- all other Directors - USD 10,000.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Relative importance of spend on remuneration
The following table shows the proportion of the Company's income
spent on remuneration during the period 16 August 2017 to 31
December 2018.
USD
Management fees paid 2,101,172
Directors' remuneration
paid 175,459
Loss on ordinary activities
after tax (6,087,256)
Total Shareholder Return
The Company does not have a specific benchmark against which
performance is measured. The graph below compares the Company's NAV
and share price on a total return basis with the total return on an
equivalent investment in the HFRI Fund Weighted Composite Index
during the period. This index reflecting the performance of an
investment in Hedge Funds has been selected as the most
relevant.
Directors' interests in shares
There are no requirements for the Directors to own shares in the
Company.
The Directors interests and those of their connected persons in
the shares of the Company are set out in the table below. All of
the holdings are beneficial and all of the Directors held office
during the period under review.
Director 26 March 2018* 31 December 2018
Jean Medernach 50,000 Ordinary A 50,000 Ordinary A
shares shares
Michael Baines - -
Robert Edelstein - -
Frank Mathé - -
Yves Mertz - -
Guner Turkmen - -
* date of admission to trading.
No other changes to these holdings had been notified up to the
date of this report.
The Directors' Remuneration Report was approved by the Board on
30 April 2019.
For and on behalf of the Board
Jean Medernach
Chairman
30 April 2019
GOVERNANCE / STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under the law the directors are
required to prepare Group financial statements in accordance with
International Financial Reporting Standards ('IFRSs') as adopted by
the European Union ("EU") and Article 4 of the EU IAS Regulation
and have also chosen to prepare the company financial statements
under IFRSs as adopted by the EU.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they true and fair of the
state of affairs of the Group and Company and of the profit or loss
of the Group and Company for that period.
In preparing the Group and Company's financial statements, the
Directors are required to:
-- select suitable accounting policies in accordance with International Accounting Standard ('IAS') 8: 'Accounting
Policies, Changes in Accounting Estimates and Errors' and then apply them consistently;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with specific requirements in IFRSs is insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the Group and the
Company's financial position and financial performance;
-- state that the Group and the Company have complied with IFRSs, as adopted by the EU subject to any material
departures disclosed and explained in the financial statements;
-- make judgments and estimates that are reasonable and prudent; and
-- make an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Company's financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, a Directors' Report,
Directors' Remuneration Report and Statement on Corporate
Governance that comply with that law and those regulations, and for
ensuring that the Annual Report includes information required by
the Disclosure and Transparency Rules of the FCA.
The Directors are responsible for the integrity of the
information relating to the Company on its website. Legislation in
the UK governing the preparation and dissemination of financial
statements differs from legislation in other jurisdictions.
The Directors confirm that, to the best of their knowledge and
belief:
-- the financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of
the assets, liabilities, financial position and loss of the Group and Company; and
-- the Annual Report includes a fair review of the development, performance and positon of the Group and Company,
together with a description of the principal risks and uncertainties faced.
The Directors also confirm that the Annual Report is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Group and Company's position,
performance, business model and strategy.
For and on behalf of the Board
Jean Medernach
Chairman
30 April 2019
Independent auditor's report to the members of Life Settlement
Assets Plc.
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Life Settlement
Assets Plc (the 'parent company') and its subsidiary (the
'group') for the year ended 31 December 2018 which comprise
Consolidated Statement of Comprehensive Income, Consolidated
and Individual Company Statement of Financial Position,
Consolidated and Individual Company Statement of Changes
in Equity, Consolidated and Individual Company Cash Flow
Statement and notes to the financial statements, including
a summary of significant accounting policies. The financial
reporting framework that has been applied in their preparation
is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and,
as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies
Act 2006
In our opinion:
* the financial statements give a true and fair view of
the state of the group's and of the parent company's
affairs as at 31 December 2018 and of the group's
loss for the year then ended;
* the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
* the parent company financial statements have been
properly prepared in accordance with IFRSs as adopted
by the European Union and as applied in accordance
with the provisions of the Companies Act 2006;
* the financial statements have been prepared in
accordance with the requirements of the Companies Act
2006; and, as regards the group financial statements,
Article 4 of the IAS Regulation.
As explained in note 1 to the group financial statements,
the group in addition to complying with its legal obligation
to apply IFRSs as adopted by the European Union, has also
applied IFRSs as issued by the International Accounting
Standards Board (IASB).
In our opinion the group financial statements give a true
and fair view of the consolidated financial position of
the group as at 31 December 2018 and of its consolidated
financial performance and its consolidated cash flows
for the year then ended in accordance with IFRSs as issued
by the IASB.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
'Auditor's responsibilities for the audit of the financial
statements' section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the group's or the parent company's ability to continue
to adopt the going concern basis of accounting for a period of at
least twelve months from the date when the financial statements are
authorised for issue.
Overview of our audit approach
* Overall materiality: $1,325,000 which represents 1%
of the company's total assets;
* Key audit matters were identified as valuation,
existence and ownership of life settlement
investments, and completeness and occurrence of
income.
* Our audit approach was a risk based substantive audit
focussed on life settlement portfolio at the year end
and income recognised during the year.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had
the greatest effect on the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key Audit Matter - Group and How the matter was addressed
parent in the audit - Group and parent
======================================= ===================================================================
Valuation, existence and ownership Our audit work included, but
of life settlement investments was not restricted to:
The group is a close-ended * assessing the design and implementation of controls
investment company which manages in relation to the valuation, existence and ownership
a portfolio of whole and partial of the life settlement assets and operating
interests in life settlement effectiveness for the existence and ownership
policies issued by life insurance thereof;
companies operating predominantly
in the United States. The
company's investment objective * considering the experience and expertise of
is to generate long-term returns management's external expert, and the nature, content
for investors by investing and conclusions of their valuation report for the
in the life settlement market. life settlement asset portfolio;
The investment is combined
by classes of shares which
are Class A, Class B and Class engaging our own internal actuarial
D and E. specialists in order to challenge
management's assumptions. Our
The fair value of the investments internal actuarial specialists
involves a significant degree performed an independent fair
of judgement and estimation. value projection of the investments
It is based on assumptions and compared it to the projections
such as mortality rates in determined by management and
particular, discount rates sought to understand any significant
and projected premiums, all difference arising;
of which can vary over time, * reconciling the portfolio details between the general
and may significantly impact ledger and the custodian to test for ownership and
the fair value of the portfolio. existence; and
Also, there is a risk that
investments recorded might * confirming the ownership and existence of portfolio
not, exist or might not be details with the primary custodian and a sample of
owned by the Company. portfolio details with the underlying insurer.
We therefore identified valuation,
existence and ownership of
life settlement portfolio The company's accounting policy
as a significant risk, which on valuation of life settlement
was one of the most significant portfolio is shown in note
assessed risks of material 13 to the financial statements
misstatement. and related disclosures are
included in note 13.
Key observations
Our testing did not identify
any material misstatements
in the valuation of the Company's
investment portfolio as at
the year-end nor were any issues
noted with regards to the existence
or the Company's ownership
of the underlying investments
at the year end.
Completeness and occurrence Our audit work included, but
of income was not restricted to:
The life settlement market * assessing whether the Company's accounting policies
enables people to sell their for income recognition are in accordance with the
life insurance policies to requirements of United Kingdom Generally Accepted
investors at a higher cash Accounting Practice Statement of recommended Practice
value than they would otherwise (SORP) issued by Association of Investment Companies
receive from insurance companies. (AIC) and testing their consistent application on
Income from investments is income recognition during the year;
a significant, material item
in the income statement.
* substantive testing over the occurrence of investment
Income is made up of large income by selecting a sample of maturities of life
volume of transactions which settlement portfolio and checking the associated
can also give rise to income income to third party sources;
being recognised in the wrong
period. Under International
Standard on Auditing (UK) * cut off testing to assess whether transactions have
240 'The auditor's responsibilities been recorded in the correct accounting period while
relating to fraud in an audit considering the Company's income recognition policy;
of financial statements',
there is a presumed risk of
fraud in income recognition. * assessing the design and implementation of controls
in relation to income recognition.
We therefore identified completeness
and occurrence of income as
a significant risk, which The group's accounting policy
was one of the most significant on completeness and occurrence
assessed risks of material of income is shown in note
misstatement. 5 to the financial statements
and related disclosures are
included in note 5.
Key observations
Our testing did not identify
any material misstatements
in the amount of income recognised
during the year.
Our application of materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality in determining the nature, timing
and extent of our audit work and in evaluating the results of that
work.
Materiality was determined as follows:
Materiality Group Parent
measure
===================== ================================= =================================
Financial statements $1,325,000 which is $1,324,000 which is
as a whole 1% of total assets. 1% of total assets.
This benchmark is considered This benchmark is considered
the most appropriate the most appropriate
because net assets, because net assets,
which primarily comprise which primarily comprise
the Group's investment the Company's investment
portfolio, are considered portfolio, are considered
to be the key driver to be the key driver
of the Group's total of the Company's total
return performance return performance
and form a part of and form a part of
the net asset value the net asset value
calculation. calculation.
===================== ================================= =================================
Performance 75% of financial statement 75% of financial statement
materiality materiality. materiality.
used to drive
the extent of
our testing
===================== ================================= =================================
Specific materiality We determined a lower We determined a lower
level of specific materiality level of specific materiality
for certain areas such for certain areas such
as, management fees, as, management fees,
directors' remuneration directors' remuneration
and related party transactions. and related party transactions.
===================== ================================= =================================
Communication GBP993,486 and misstatements GBP993,486 and misstatements
of misstatements below that threshold below that threshold
to the audit that, in our view, that, in our view,
committee warrant reporting on warrant reporting on
qualitative grounds. qualitative grounds.
===================== ================================= =================================
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a
thorough understanding of the group's business, its environment and
risk profile and in particular included:
-- Obtaining an understanding and evaluating, relevant internal
controls at both the Group and third-party service providers. This
included an evaluation of the design and operating effectiveness of
certain internal controls implemented by the Group and relevant
third-party service providers;
-- Performing substantive audit procedures on specific
transactions, which included journal entries and individual
material balances and disclosures, the extent of which was based on
various factors such as our overall assessment of the control
environment and our evaluation of the design and implementation of
controls that address significant risk.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinions on other matters prescribed by the Companies
Act 2006 are unmodified
In our opinion, based on the work undertaken in the course
of the audit:
* the information given in the strategic report and the
directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the strategic report and the directors' report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report under the Companies
Act 2006
In the light of the knowledge and understanding of the group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements and the part of the
directors' remuneration report to be audited are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit
Responsibilities of directors for the financial statements
As explained more fully in the directors' responsibilities
statement set out on pages 37 to 38, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
We are responsible for obtaining reasonable assurance that the
financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error. Owing to the
inherent limitations of an audit, there is an unavoidable risk that
material misstatements of the financial statements may not be
detected, even though the audit is properly planned and performed
in accordance with the ISAs (UK). Our audit approach is a
risk-based approach and is explained more fully in the 'An overview
of the scope of our audit' section of our audit report.
As part of our work, we obtained an understanding of the legal
and regulatory frameworks that are applied to the Group and have a
direct impact on the preparation of the financial statements. We
determined that the most significant ones are:
-- Financial Conduct Authority (the disclosure guidance and transparency rules sourcebook)
-- Corporation Tax Act 2010
-- Companies Act 2006
We understood how the Company's is complying with those
frameworks by holding discussions with Company's board of
directors' and amongst others. We inquired as to any known
instances of non-compliance or suspected non-compliance with laws
and regulations. We assessed the susceptibility of the Group's
financial statements to material misstatement, including how fraud
might occur by holding discussions with Senior Management and Audit
Committee. A further description of our responsibilities for the
audit of the financial statements is located on the Financial
Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
Other matters which we are required to address
We were appointed by the Audit Committee on 1 September 2018.
Our total uninterrupted period of engagement is 1 year.
The non-audit services prohibited by the FRC's Ethical Standard
were not provided to the group or the parent company and we remain
independent of the group and the parent company in conducting our
audit.
Our audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the company and the company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Andrew Heffron
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
30 April 2019
Life Settlement Assets Plc
Consolidated Statement of Comprehensive Income
for the period ended 31 December 2018
______________________________________________
Notes Revenue Capital Total
USD USD USD
Income
Income from life settlement portfolios 5 566,303 - 566,303
Gains from life settlement portfolios 6 - 1,338,642 1,338,642
Other income 7 133,656 - 133,656
Net foreign exchange loss (27,545) - (27,545)
___________ ___________ ___________
Total income 672,414 1,338,642 2,011,056
Operating expenses
Investment management fees 8 (2,101,172) 75,349 (2,025,823)
Other expenses 9 (4,776,141) - (4,776,141)
___________ ___________ ___________
(Loss)/profit before finance costs
and taxation (6,204,899) 1,413,991 (4,790,908)
Finance costs
Interest payable 10 (1,296,348) - (1,296,348)
___________ ___________ ___________
(Loss)/profit before taxation (7,501,247) 1,413,991 (6,087,256)
Taxation 11 - - -
___________ ___________ ___________
(Loss)/profit for the period (7,501,247) 1,413,991 (6,087,256)
========= ========= =========
Basic and diluted earnings per class
A share 12 (0.125) 0.042 (0.084)
Basic and diluted earnings per class
B share 12 (0.045) (0.123) (0.168)
Basic and diluted earnings per class
D share 12 (0.073) 0.065 (0.008)
Basic and diluted earnings per class
E share 12 (0.270) 0.414 0.144
All revenue and capital items in the above statement derive from
continuing operations of the Group.
The Group does not have any income or expense that is not
included in the loss for the year and therefore the loss for the
year is also the total comprehensive income for the year.
The total column of this statement is the Statement of Total
Comprehensive Income of the Group. The supplementary revenue and
capital columns are prepared in accordance with the Statement of
Recommended Practice ("SORP") issued by the Association of
Investment Companies ("AIC") in November 2014 and updated in
February 2018 with consequential amendments.
The notes on form part of these financial statements.
Life Settlement Assets Plc
Consolidated and Company Statement of Financial Position
as at 31 December 2018
Group Company
USD USD
Non-current assets
Financial assets at fair value
through profit or loss
- Life settlement investments 13,14 89,813,000 89,813,000
- Shares in subsidiary - 25,232,533
___________ ___________
89,813,000 115,045,533
Current assets
Maturities receivable 15 17,796,938 17,796,938
Trade and other receivables 940,022 940,022
Premiums paid in advance 16 13,327,613 13,327,613
Cash and cash equivalents 17 10,587,215 10,587,215
___________ ___________
42,651,788 42,651,788
__________ __________
Total Assets 132,464,788 157,697,321
Current liabilities
Other payables 18 (2,015,022) (2,015,022)
Provision for performance fees 19 (2,812,843) (2,812,843)
Liabilities to subsidiary 20 - (25,232,533)
_________ __________
Total liabilities (4,827,865) (30,060,398)
__________ __________
Net Assets 127,636,923 127,636,923
========= =========
Represented by
Capital and reserves
Share capital 21 710,689 710,689
Share premium 21 133,013,490 133,013,490
Capital reserve 1,413,991 1,413,991
Revenue reserve (7,501,247) (7,501,247)
__________ __________
Total equity attributable to ordinary 4.2 127,636,923 127,636,923
shareholders of the Company ========= =========
Net Asset Value per share basic
and diluted
Class A shares 23 2,0166
Class B shares 23 1,1065
Class D shares 23 1,2473
Class E shares 23 4,7580
Life Settlement Assets Plc
Consolidated and Company Statement of Financial Position
(continued)
as at 31 December 2018
As permitted by Section 408 of the Companies Act 2006, the
Company has not presented its own Statement of Comprehensive
Income. The amount of the Company's return for the financial year
dealt with in the financial statements of the Group is a loss after
tax of USD 6,087,256.
These financial statements were approved by the Board of
Directors on 30 April 2019 and signed on its behalf by:
....................................
Jean Medernach, Chairman
Registered in England and Wales with Company Registration
number: 10918785
The notes on form part of these financial statements.
Consolidated and Company Statement of Changes in Equity
for the period ended 31 December 2018
________________________________________________________
Share capital Share premium Capital Revenue Total
reserve reserve
USD USD USD USD USD
Group
- - - - -
Balance as at 16 August
2017:
Shares issued on incorporation 66,988 - - - 66,988
Additional Shares issued
on 26 March 2018 710,689 133,013,490 - - 133,724,179
Redemption of redeemable
shares (66,988) - - - (66,988)
Profit (loss) for the period - - 1,413,991 (7,501,247) (6,087,256)
________ _________ ________ _________ __________
Balance as at 31 December
2018 710,689 133,013,490 1,413,991 (7,501,247) 127,636,923
======== ========== ======== ========= ==========
Of which:
Realised (Loss) (1,247,892)
Unrealised Profit 2,661,883
Company
Balance as at 16 August
2017 - - - - -
Shares issued on incorporation 66,988 - - - 66,988
Additional Shares issued
on 26 March 2018 710,689 133,013,490 - - 133,724,179
Redemption of redeemable
shares (66,988) - - - (66,988)
Profit (loss) for the period - - 1,413,991 (7,501,247) (6,087,256)
________ _________ ________ _________ __________
Balance as at 31 December
2018 710,689 133,013,490 1,413,991 (7,501,247) 127,636,923
======= ========== ======== ========= ==========
Of which:
* Realised (Loss) (1,247,892)
* Unrealised Profit 2,661,883
The revenue and realised capital reserves are distributable
reserves.
The notes on form part of these financial statements.
Life Settlement Assets Plc
Consolidated and Company Cash Flow Statement
for the period ended 31 December 2018
____________________________________________________
Notes Group Company
USD USD
Cash flow used in operating activities
Loss for the period (6,087,256) (6,087,256)
Non-cash adjustment
* movement on portfolios 8,700,388 8,700,388
* value adjustment on shares in subsidiary - (5,109)
Changes in operating assets and
liabilities
Changes in maturities receivables (3,927,405) (3,927,405)
Changes in trade and other receivables (362,868) (362,868)
Changes in premiums paid in advance 560,830 560,830
Changes in other payables (5,624,495) (5,624,495)
Changes in liabilities to subsidiary - 5,109
_________ _________
Net cash flows used in operating
activities (6,740,806) (6,740,806)
Cash flow used in investing activities
Investment in life settlement portfolios (1,272,035) (1,272,035)
Cash acquired from Predecessor
Company 2.1 18,833,528 18,833,528
_________ _________
Net cash flows from investing activities 17,561,493 17,561,493
Cash flow from financing activities
Proceeds from issue of shares 2.1 - -
Movements in "policy loans" (233,472) (233,472)
_________ _________
Net cash flows used in financing
activities (233,472) (233,472)
_________ _________
Net changes in cash and cash equivalent 10,587,215 10,587,215
_________ _________
Cash balance at the end of the
period 10,587,215 10,587,215
========= =========
Interest paid is USD 1,296,348; dividend and interest received
is USD 581,260.
The notes on form part of these financial statements.
Life Settlement Assets Plc
Consolidated and Company Notes to the Financial Statements
for the period ended 31 December 2018
Note 1 General information
Life Settlement Assets ("Life Settlement Assets" or the
"Company") is a public company limited by shares and an investment
company under section 833 of the Companies Act 2006. It was
incorporated in England and Wales on 16 August 2017 with a
registration number of 10918785. The registered office of the
Company is 115 Park Street, 4th Floor, London W1K 7AP.
The principal activity of Life Settlement Assets and its
subsidiaries (together "the Group") is to manage investments in
whole and partial interests in life settlement policies issued by
life insurance companies operating predominantly in the United
States.
In May 2018, the Company received confirmation from HM Revenue
& Customs of its approval as an investment trust for tax
accounting periods commencing on or after 26 March 2018, subject to
the Company continuing to meet the eligibility conditions contained
in section 1158 of the Corporation Tax Act 2010 and the ongoing
requirements in Chapter 3 of Part 2 of the Investment Trust
(Approved Company) (Tax) Regulations 2011(Statutory Instrument
2011/2999).
The Company currently has four classes of Ordinary Shares in
issue, namely A, B, D and E, each of which principally participates
in a separate portfolio of life settlement assets and associated
liabilities, which were acquired from Acheron Portfolio Corporation
(Luxembourg) SA ("APC" or the "Predecessor Company") on 26 March
2018.
On that date, the Company entered into an Acquisition agreement
with the Predecessor Company. Following the agreement, all assets
and liabilities of APC have been transferred to the Company as an
in specie subscription for ordinary shares. More specifically:
- 100% of the interest in the Acheron Portfolio Trust has been
attributed to the ordinary A shares;
- 100% of the interest in the Lorenzo Tonti 2006 Portfolio Trust
has been attributed to the ordinary B shares;
- 100% of the interest in the Avernus Portfolio Trust has been
attributed to the ordinary D shares;
- 100% of the interest in the Styx Portfolio Trust has been
attributed to the ordinary E shares;
- Any cash and other net assets have been recorded in the books
of the Company as being attributable to the class of ordinary
shares which corresponds to the existing class of shares in APC to
which such cash and other net assets are attributable.
Net assets acquired from the Predecessor Company have been
valued for the purpose of Section 593 of the Companies Act by
Mazars LLP as at 31 December 2017, based on the net asset values as
at that date less any distributions to shareholders of the
Predecessor Company prior to the date of acquisition. These
financial statements include all transactions performed on the life
insurance policies as from 1 January 2018, being the valuation
point at which the assets were acquired.
Statement of compliance with IFRS
The consolidated and individual company financial statements
have been prepared in accordance with International Financial
Reporting Standards (IFRS) as issued by the International
Accounting Standards Boards (IASB) as adopted by the European
Union. They have also been prepared in accordance with the SORP for
investment companies issued by the AIC in November 2014 and updated
in February 2018, with consequential amendments, except to the
extent that it conflicts with IFRS.
IFRS 9 "Financial Instruments" is effective for accounting
periods beginning on or after 1 January 2018. The Group has applied
IFRS 9 as from the start of its operations.
As this is the first accounting period of the Company, there are
no comparative figures in these financial statements.
Note 2 IFRS accounting policies
2.1 Basis of preparation
The financial statements have been prepared using the accounting
policies specified below and in accordance with IFRS that are in
effect at the end of the reporting period or which have been
adopted early. The financial statements have been prepared on a
going concern basis under the historical convention except for the
measurement at fair value of investments held at fair value through
profit or loss. The going concern statement can be found in the
Directors' Report. The Company's activities, together with the
material risk factors likely to affect its future development and
performance, as well as the Board of Directors' "Viability
Statement" are set out in the Strategic Report. The Company's
wholly owned subsidiary was put into liquidation on 18 December
2017 but this process has not yet completed. As the subsidiary does
not carry out any life settlement activities, the liquidation does
not affect the going concern of the Company and should have no
significant impact on the NAV or the capital and reserves of the
Company.
The financial statements report on the activity for the period
from inception on 16 August 2017 until 31 December 2018.
For the purpose of the cash flow statement, the acquisition by
the Company of Net Assets from the Predecessor Company under the
Acquisition agreement mentioned in Note 1 for a total amount of USD
133,724,179 and the allotment of 71,068,874 shares to the
Predecessor Company is a non-cash transaction that is not shown in
the cash flow statement except for the net cash contribution of USD
18,833,528.
The significant accounting policies that have been applied in
the preparation of these consolidated financial statements are
summarised below.
2.2 Changes in accounting policy and disclosures
Standards and amendments to existing standards that are not yet
effective and have not been early adopted by the Group
The following new standards and amendments have been published
but are not effective for the Group's accounting period beginning
on 16 August 2017. The Directors do not expect the adoption of the
following new standards, amended standards or interpretations to
have a significant impact on the financial statements of the Group
in future periods.
IFRS 16 "Leases" defines a lease as a contract, or part of a
contract, that conveys the right to use an asset (the underlying
asset) for a period of time in exchange for consideration. IFRS 16
requires lessees to recognise nearly all leases on the balance
sheet which will reflect their right to use an asset for a period
of time and the associated liability for payments. IFRS 16 will be
effective for reporting periods beginning on or after 1 January
2019. It is expected that IFRS 16 will have no impact on the
Company's financial statements.
IFRS 17 "Insurance contracts" applies to insurance contracts,
including reinsurance contracts issued by an entity; reinsurance
contracts held by an entity; and investment contracts with
discretionary participation features issued by an entity that
issues insurance contracts. IFRS 17 will be effective for reporting
periods beginning on or after 1 January 2022. It is expected that
IFRS 17 will have no impact on the Company's financial
statements.
Note 3 Significant accounting policies
3.1 Basis of consolidation
The consolidated financial statements of the Group include those
of the parent Company and of its wholly owned subsidiary, Lorenzo
Tonti Ltd, whose registered office is at 18 Westland Square, Pearse
Street, Dublin 2, Ireland, are drawn up to 31 December 2018.
Subsidiaries are entities over which the Group has control. The
Group controls an entity when it has power over an entity, is
exposed to, or has rights to, variable returns from its involvement
with the entity, and has the ability to affect these returns
through its power over the entity.
All transactions and balances between the Group companies,
including realised and unrealised gains and losses on transactions
are eliminated. Amounts reported in the financial statements of the
subsidiary have been adjusted where necessary to ensure consistency
with the accounting policies adopted by the Group.
There was no non-controlling interest (minority interest) at
year end.
3.2 Foreign currency translation
The consolidated financial statements are presented in United
States Dollars (USD), which is also the functional currency of the
Company and the Group.
All companies included in the consolidated accounts have their
financial statements prepared in USD.
Foreign currency transactions are translated into the functional
currency of the Group, using the exchange rates prevailing at the
date of the transaction (spot exchange rates). Foreign exchange
gains and losses resulting from the settlement of such transactions
are recognised in profit or loss.
3.3 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting used by the Group's management. The Group's
management, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the Board of Directors that makes strategic
decisions.
Segment information
The Group's management makes the strategic resource allocations
on behalf of the Group. The Group's management has identified that
the insurance portfolios or portfolio rights acquired can all be
classified as life settlement activities and all of which are
located in the United States of America. As such, there is a single
operating segment.
The asset allocation decisions are based on a single, integrated
investment strategy, and the Group's performance is evaluated on an
overall basis. The investment objective of the Group is medium-term
capital growth. An analysis of the investment portfolio is given in
Note 14 of the consolidated financial statements.
The internal reporting provided to the Management team for the
Group's assets, liabilities and performance is prepared on a
consistent basis with the measurement and recognition principles of
IFRS.
All of the Group's income is generated on the life settlement
portfolios in the USA. The life settlement portfolios are
classified as non-current assets.
3.4 Life settlement portfolios
Being the final and exclusive beneficiary of the Acheron
Portfolio Trust, the Lorenzo Tonti 2006 Trust, the Avernus
Portfolio Trust and the Styx Portfolio Trust, the Group reflects
all the transactions performed on these life insurance portfolios
in its own financial statements. Investments in transactions to
support the acquisition of life settlement assets by the Trusts are
considered as having been undertaken by the Group for its own
account.
Insurance policies which are acquired are recognised initially
at fair value (the transaction price). If a life insurance policy
matures, is surrendered or is sold, the related purchase price is
recognised as a cost of sale. Cash borrowed on life insurance
policies is deducted from the value of the relevant policy.
The value of insurance contracts is usually recovered upon the
death of the insured policyholder. However, the Company may from
time-to-time decide to dispose of an individual life insurance
contract.
Insurance portfolios are measured at fair value with changes in
fair value allocated to capital.
3.5 Policy loans
Certain type of life settlement policies ('whole life')
accumulate over time a cash surrender value reflecting fixed
premiums paid in excess of the cost of insurance ('COI'). The
Trusts can access this excess cash reserves on its policies in the
form of 'loans on each individual policy from the insurance
company. The Trusts can pay back these "policy loans" in whole or
in part at any time before the death of the insured. The interest
paid on the 'loan accrues on the cash account of the policy. After
the death of the insured, the outstanding loan balance will be
deducted from any proceeds when the maturity is collected. If the
Trusts decide to lapse the policy, any remaining cash in the policy
in excess of the 'loan is paid to the Trust as the owner of the
policy. In practice, the 'loans work as an accelerated death
benefit on the policy and its impact is fully accounted for in the
policy valuation.
The Company has included the policy loans within the investments
in life settlement portfolios.
Please refer to note 14 for the gross amounts of policy loans
and life settlement policies.
Financial assets and liabilities are offset and the net amounts
presented in the financial statements when there is a legally
enforceable right to set off the recognised amounts and there is an
intention to settle on a net basis or to realise the asset and
settle the liability simultaneously.
3.6 Financial instruments
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
financial instrument. Financial assets are derecognised when the
contractual rights to the cash flows from the financial asset
expire, or when the financial asset and all substantial risks and
rewards are transferred.
A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
Financial assets and financial liabilities are measured
initially at fair value plus transaction costs, except for
financial assets and financial liabilities carried at fair value
through profit or loss, which are measured initially at fair
value.
Financial assets and financial liabilities are measured
subsequently as described below.
Financial assets
For the purpose of subsequent measurement, financial assets are
classified into the following categories upon initial
recognition:
- Financial assets at amortised cost;
- Financial assets held at fair value through profit or
loss.
All financial assets, except for those held at fair value
through profit or loss, are subject to review for impairment at
least at each reporting date.
Financial assets at amortised cost
Financial assets at amortised cost include receivables and
cash.
Where credit risk in relation to short term receivables has
increased significantly since initial recognition, an impairment
provision is recognised at an amount of the expected credit
loss.
Financial assets held at fair value through profit or loss
The life settlement investments and the investments in
subsidiary are classified as financial assets held at fair value
through profit or loss.
Assets in this category are measured at fair value, with gains
or losses recognised in profit or loss.
Financial liabilities
The Group's financial liabilities are only constituted by trade
and other payables.
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
3.7 Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on
call with banks and other short-term, highly liquid investments
with original maturities of three months or fewer.
3.8 Taxation
The current income tax charge is calculated on the basis of the
local tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Group companies operate and
generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It
establishes provisions, where appropriate, on the basis of the
amounts expected to be paid to the tax authorities.
Deferred income tax, if any, is recognised, using the liability
method, on temporary differences arising between the tax bases of
the Group's assets and liabilities and their carrying amounts in
the consolidated financial statements. Deferred income tax is
determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to
apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Due to the Company's status as an investment trust, and its
intention to continue to meet the conditions required to maintain
approval under Section 1158 of the Corporation Act Tax 2010, the
Company has not accounted for any deferred tax on its losses.
In relation to the subsidiary being in liquidation, the Company
has not accounted for any deferred tax on its losses.
3.9 Equity and reserves
Share capital represents the nominal value of the Shares that
have been issued.
Share premium includes any premiums received on the issue of
shares, or by other means.
Capital reserve represents realised and unrealised capital gains
and losses on the disposal and revaluation of investments.
Revenue reserve represents retained (losses) from the revenue
derived from holding investment assets less the costs associated
with running the Company.
All transactions with owners of the Group are recorded
separately within equity.
3.10 Provisions, contingent liabilities and contingent
assets
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount of the obligation can be reliably
estimated.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects the current market assessment of the time value
of money and the risks specific to the obligation. The increase in
the provision due to the passage of time is recognised as an
interest expense.
3.11 Income and expense recognition
3.11.1 Capital and revenue
The Capital column comprises the fair value of the consideration
received in relation to maturities or to the surrender or sale (if
any) of life settlement policies. Maturities are recognised when
the Company is formally aware of the maturity of a life insurance
policy. Net gains from life settlement portfolios derives from the
maturity or the sale of insurance policies less their acquisition
value and the change in the valuation of the fair market value of
the remaining policies. Acquisition costs of matured policies as
well as premiums incurred are deducted for determining net
gains/(losses) from life settlement policies.
The Revenue column comprises dividends and interest income
generated on invested cash in the life settlement policies as well
as other operational income (reversal of excess accrued expenses by
the Predecessor Company).
3.11.2 Premiums
Premiums are expensed when paid. However, only the portion of
the premiums that relates to the insurance coverage period up to 31
December of each financial period is recognised as an expense. The
remaining amount is shown as premiums paid in advance on the
balance sheet.
3.11.3 Interest income
Interest income is recognised on a proportional basis using the
effective interest method.
3.12 Significant estimates
The preparation of these financial statements in conformity with
IFRS requires the use of certain critical accounting estimates.
Critical accounting estimates are reflective of significant
judgements and uncertainties and potentially yield materially
different results under different assumptions or conditions.
The areas where assumptions and estimates are significant to the
financial statements and involve a higher degree of judgement or
complexity relate mainly to the valuation of the investment
portfolios.
The life settlement (LS) and HIV portfolio values are modelled
by management and valued annually by qualified external
professional actuaries in the United States, Lewis & Ellis. The
key assumptions used by the actuary for factors such as mortality,
projected premiums and discount rates are further explained in Note
14.1. The results from a sensitivity analysis around these factors
are shown in Note 14.3. Risk factors related to actuarial
assumptions are further described in Note 4.1.
Using these values, Acheron Capital Ltd (the Investment manager
of the trusts in which the policies of Class A, B, D and E shares
are kept) resets its internal model at beginning of each year, if
necessary. It then produces regular monthly valuations using its
internal model.
3.13 Expenses
All operating expenses and the management fee are accounted for
on an accruals basis and are allocated wholly to revenue. The
performance fee paid to the investment manager is allocated wholly
to capital.
Note 4 Financial risk management
4.1 Financial risk factors
The Group's overall risk management program focuses on the
unpredictability of financial markets and seeks to minimise the
potential adverse effects on the Group's financial performance.
Risk management is carried out by the Board of Directors. Note 14.3
also provides details of the sensitivity analysis to significant
risk factors undertaken by L&E.
Foreign Exchange Risk
Assets, income and most transactions are denominated in USD.
Only part of the Company's current expenses is denominated in USD
and other parts are denominated in Euros and Pound Sterling, and
are paid as incurred. Consequently, the Group believes that it does
not have a significant foreign exchange risk and therefore no
sensitivity analysis is required.
Interest Rate Risk
Apart from cash and cash equivalents, the assets of the Group
are mainly composed of portfolios of life settlement policies. Life
settlement policies are uncorrelated with traditional capital
markets. Changes in the level of interest rates (other than
extraordinary moves) are not a major factor in the valuation of
such assets. Mortality projections and premium payment projections
are the major factors that affect the valuation of the Group's
assets.
The Group has no significant interest-bearing assets, The Group
pays interest on so called "policy loans" (Note 3.5). The interest
rate is either fixed or variable depending on each policy contract.
A change of one percent in the interest rate has no significant
impact on the Group financial situation. Therefore the Group's
income and operating cash flows are not substantially dependent on
changes in market interest rates and no sensitivity analysis is
required.
Market Risk
The Group invests in life settlement policies, generally
acquired in the secondary market. Markets for these investments are
not active markets, and transactions happen more often when there
is a forced seller. The Board is of the opinion that, although a
secondary market exists, the market risk is not relevant because
the valuation of the portfolio is based on an actuarial model and
not on market values.
Credit Risk
The primary credit risk faced by the Group relates to solvency
of the insurance companies that underwrite the insurance policies,
which are the main assets of the Group. It should be noted that in
addition to the creditworthiness of the insurance company issuing
the life insurance policy, most of the policies also benefit from
legal guarantees at a state level in the event that the insurance
company that issued the policy becomes insolvent.
Credit risk is also mitigated by owning life insurance policies
issued by a wide range of insurance companies and through not
having an excessive exposure to any one company.
Available cash is deposited with reputable banks.
The Company's maximum exposure to credit risk at the Balance
Sheet date was as follows:
USD
Life settlement portfolio 89,813,000
Accrued income and other debtors 32,064,573
Cash and cash equivalents 10,587,215
Total 132,464,788
=========
The maximum credit exposure represents the carrying amount. No
financial assets carried at amortised cost are past due or
impaired.
Liquidity risk
Prudent liquidity risk management requires the Group to maintain
sufficient cash for the Group's operational requirements such as
operating expenses and on-going premium payments.
Life settlement policies are long term investments maturing on
the death of the insured person. Therefore, investments in life
settlement policies will not generate immediate income and are
highly illiquid by nature.
A proportion of the Group's investments are in fractional life
insurance policies. Fractional life insurance policies are where a
number of different investors own interests in a single underlying
life insurance policy.
There is a risk that other investors in a given life insurance
policy may decide not to continue to pay the premiums associated
with their interest and may allow their investment to lapse. In
this situation the Group must retain sufficient additional
liquidity to buy out the lapsing investors' fractional interests
and to bear the associated increase in premium payments in order to
ensure that the underlying life insurance policy does not
lapse.
Management monitors cash and cash equivalents on an ongoing
basis. This is carried out in accordance with the practice and
limits set by the Board of Directors.
Risks associated with actuarial assumptions
Mortality tables are used in the valuation processes of the
Group in order to simulate the cash flow expected from the
policies. Past mortality experience may not be an absolute accurate
indicator of future mortality rates. Individuals with specific life
expectancies may experience a lower mortality rate in the future
than experienced by persons with the same traits in the past.
Changes in the mortality tables may have an adverse effect on the
Group's operations and the net asset value of the Shares.
Individuals may live longer than expected by the Group when the
respective policies were purchased. In this case, the value of the
policy decreases. The Group will be required to pay additional life
insurance premium payments on the policy until its maturity. This
may result in delayed cash flow to the Group, which may have an
adverse effect on the return per share.
The Group has often acquired policies by auction without having
obtained all available information concerning such policies. The
valuation leading to these acquisitions is thus, based on
assumptions that may, in fact, be incorrect or may never be
validated.
The valuation methods used by different actuaries may vary. The
methods used by an actuary may thus produce different results for
the same insured person from those used by other actuaries.
Advances in medical science and disease treatment, particularly
those related to HIV and AIDS, may increase the life expectancy of
individuals or viators. Although an actuary will attempt to account
for such advances, one or more unexpected breakthroughs in medical
treatment, or a cure for a previously incurable illness, could
further increase the life expectancy of the insured.
In some cases, the Group will depend on life expectancy estimate
of doctors, disease specific medical mortality models or actuaries.
From time to time, the Group may seek the opinion of any such
persons or rely on such a model to determine life expectancies. The
valuation is thus dependent on these estimations or mortality
profiles accurately modelling life expectancies.
The valuation of the policies is inherently difficult due to a
number of assumptions that have to be made in this process. Any
change in one of these assumptions may result in substantially
different values. Whilst the Investment Manager and the Valuation
Agent attempt to provide reasonable valuations for the policies
held by the Trusts, there is no guarantee that these valuations
will correspond to the realisable value of the policies.
A more detailed description of the key risks is included in the
Strategic Report.
4.2 Capital risk management
The Group's objectives in managing capital are to safeguard the
Group's ability to continue as a going concern and to maintain an
optimal capital structure in order to minimise the Group's cost of
capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to Shareholders, return
capital to Shareholders or issue new Shares.
The Group's capital at 31 December 2018 comprises:
USD
Share capital 710,689
Share premium 133,013,490
Capital reserve 1,413,991
Retained earnings and other
reserves (7,501,247)
__________
127,636,923
==========
4.3 Fair value estimation
The fair value of life settlement portfolios (which are not
traded in an active market) is determined by using valuation
techniques. The Group uses a variety of methods and makes
assumptions that are based on the market conditions that exist at
each balance sheet date. Valuation policies are further explained
in Note 14.
Note 5 Income from life settlement portfolios
USD
Dividend 341,093
Interest 225,210
_______
566,303
(==========)
Note 6 Gains from life settlement portfolios
USD
Realised gains:
Maturities 33,370,704
Acquisition cost of maturities (11,362,271)
Sub total 22,008,433
Incurred premiums (23,331,674)
Unrealised gains:
Fair value adjustments 2,661,883
________
1,338,642
=======
When a maturity is declared, a realised capital income or loss
is recognised on the investment in the policy, calculated by
deducting from the value of the maturity the initial acquisition
cost and the previously unrealised fair value adjustments.
The amount of premiums incurred during the period is reflected
as a deduction of income from life settlement portfolios. The
amount of premiums paid in advance amounted to USD 13,327,613 as at
31 December 2018.
Note 7 Other income
Other income comprises:
USD
Other operating income 118,700
Interest income 14,956
(_________)
133,656
(=========)
Other operating income mainly refers to reversal of accrued
expenses made by the Predecessor Company and where incurred
expenses by the Company were lower.
Note 8 Management fees and performance fees
USD
Acheron Capital management
fees 2,101,172
Performance fees (75,349)
--------------
2,025,823
========
Under an agreement dated 26 March 2018, the Investment Manager
is entitled to a management fee payable by the Trusts at an annual
rate of no more than 1.5% of the Net Asset Value for classes A, B
and D, and 2% for class E. Management fees paid during the period
amounted to USD 2,101,172.
The Performance fee in respect of the Trusts shall be an amount
equal to 25% of the sum of the distributions made to the holders of
the Shares in the Company corresponding to the Trusts, in excess of
the Performance Hurdle (assessed at the time of each
distribution).
The "Performance Hurdle" is met when (from time to time) the
aggregate distributions (in excess of the Catch-Up Amount) made to
the holders of the corresponding Ordinary Shares compounded at 3%
per annum for classes A and B, and 5% for classes D and E (from the
date of each distribution) equal the aggregate investment made by
the Ordinary Shares in the Company (from time to time) compounded
at 3% and 5% respectively.
The "Catch-Up Amount" is an amount equal to the distributions
that would have been required to be made to the Predecessor
Company's shareholders of the corresponding share class in order
for the Accrued Performance Distributions (less, where applicable,
any clawback of such Accrued Performance Distributions) to be paid
(determined as at 31 December 2018), reduced by an amount equal to
any distributions paid to the Predecessor Company's shareholders of
the relevant share class prior to the Acquisition.
The accrued performance fees (Note 19) include an amount of USD
2,888,192 assumed from the Predecessor Company. That amount has
been reduced by USD 75,349 in relation to the performance of the
portfolio for the period ended 31 December 2018.
Note 9 Other expenses
USD
Policies servicing fees (including
trustees fees) 2,499,370
Audit fees payable to the Company's
auditor 114,212
Other non-audit services paid to
the Company's auditor 107,233
Legal and financial advisors fees 1,281,323
Administration management 124,970
Accounting fees and NAV calculation 253,835
Actuarial fees 63,026
Directors' fees 175,459
Directors liability insurance 64,507
Travelling expenses 68,939
Rent building 4,848
Other expenses 58,116
Effects of VAT, reversal of provisions
and foreign exchange differences (39,697)
(____________)
4,776,141
(============)
Details of the Directors' fees are disclosed in the Directors'
Remuneration Report. An amount of USD 57,442 remains payable at 31
December 2018.
Note 10 Interest expenses
Interest expenses amount to USD 1,296,348 and includes interest
on "policy loans" of USD 1,258,070 (Notes 14 and 22).
Note 11 Taxation
USD
Loss before taxation (6,087,256)
Theoretical tax at UK Corporation Tax rate
of 19% (1,156,578)
Effects of:
Non-taxable capital gain (254,342)
Non-taxable income (107,598)
Excess management expenses and tax losses
carried forward 1,518,518
--------------
Actual tax charge -
========
As at 31 December 2018, the Company has tax losses and excess
management expenses of USD 7,992,201 that are available to offset
future taxable profits. A deferred tax asset has not been
recognised in respect of those losses as due to the Company's
status as an investment trust it is not expected to generate
taxable income in the future against which such losses can be
utilized.
Provided the Company maintains its status as an investment
trust, then any capital gains will remain exempt from Corporation
Tax.
Withholding tax on matured policies
In accordance with the taxation treaty between the United States
of America and the United Kingdom, withholding tax on matured
policies is not due if at least 6% of the average capital stock of
the main class of Shares is traded during the previous year (or in
the Company's case during the first year) on a recognised stock
exchange. The Board believes that in the period ended 31 December
the Company fulfilled this requirement.
Note 12 Net consolidated loss per share
As stated in Note 21, the share capital of the Company comprises
71,068,874 shares represented by 45,446,946 A Shares, 14,596,098 B
Shares, 9,292,561 D Shares, and 1,733,269 E Shares. All Shares are
fully paid. Neither unpaid shares nor any kind of option are
outstanding, so the basic (loss)/profit per share is also the
diluted (loss)/profit per share.
As the different classes of Shares have specific rights in
relation to their investments, the net consolidated (loss)/profit
per share is given for each Share Class:
2018 Class A Class B Class Class
USD USD D E
USD USD
Earnings per share:
Revenue return (5,700,127) (658,646) (673,923) (468,551)
Capital return 1,889,095 (1,796,678) 603,745 717,829
Total Return (3,811,032) (2,455,324) (70,178) 249,278
Weighted average number of
shares the year 45,446,946 14,596,098 9,292,561 1,733,269
Income return per share (0.125) (0.045) (0.073) (0.270)
Capital return per share 0.041 (0.123) 0.065 0.414
Basic and diluted total earnings
per share (0.084) (0.168) (0.008) 0.144
Note 13 Financial instruments measured at fair value
The life settlement portfolios have been classified as financial
assets held at fair value through profit or loss as their
performance is evaluated on a fair value basis.
The fair value hierarchy set out in IFRS 13 groups financial
assets and liabilities into three levels based on the significant
inputs used in measuring the fair value of the financial assets and
liabilities.
The fair value hierarchy has the following levels:
- 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 assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from prices);
and
- level 3: inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
The life settlement portfolios of USD 89,813,000 are classified
as level 3. At the period end, these portfolios were valued by the
external actuaries using an actuarial model as discussed in note
14.
Note 14 Financial assets held at fair value through profit or
loss: Life Settlement Portfolios
Movements of the year are as follows: USD
Opening valuation (acquired from the
Predecessor Company) 97,007,881
Acquisitions during the period 1,272,035
Proceeds from matured policies (33,370,704)
Net realised gains on policies 22,008,433
Movements in cash from policy loans 233,472
Movements in unrealised valuation 2,661,883
_________
Closing valuation 89,813,000
=========
Detail at period end : USD
Acquisition value 109,415,812
Unrealised capital gains 2,661,883
Policy loans (22,264,695)
_________
Closing valuation 89,813,000
=========
Distribution of the portfolio by class of Shares and by type of
risk:
Class A Class Class Class Total
B D E
USD USD USD USD USD
Elderly life insurance
(non HIV) portfolio 23,889,000 10,645,000 7,092,000 3,722,000 45,348,000
HIV portfolio 41,204,000 - 2,232,000 1,029,000 44,465,000
(______________) (_____________) (_____________) (_____________) (______________)
Balance as at
31 December 2018 65,093,000 10,645,000 9,324,000 4,751,000 89,813,000
========= ======== ========= ========== =========
Fair market value reflects the view of Acheron Capital Ltd (the
Investment manager of the trusts in which the policies of Class A,
B, D and E are kept). Acheron Capital has set up an internal
actuarial model to value the policies and produces monthly
valuations.
14.1 Main assumptions used to determine the fair value
a) Mortality/Life expectancy
Lewis & Ellis Inc. ("L&E") has built its own proprietary
general population mortality table. It has done so by utilising
insurance industry and other data available, including the
underlying data that went into the construction of the Valuation
Basic Table, which has been commonly utilised within the life
settlement industry. The mortality is adjusted for several factors,
such as demographic shifts in the population, improvements in
mortality, pharmaceutical advances and volatility in the mortality
experienced as measured against the baseline curves chosen for
valuation. The table includes an assumption of continuing mortality
improvement each year. The retained table is used in connection
with each insured age, gender and smoking status.
L&E is also considering the most recent life expectancy
reports, when available. Life expectancy reports are medical
opinions from specialised companies, based on the latest medical
updates of each individual, giving their specific mortality profile
and life expectancy. When life expectancy reports from more than
one external provider are available, L&E uses an average. When
only 'stale' life expectancy reports are available, the life
expectancy is used but adjusted materially upwards using a formula
dependent upon the medical underwriter that issued the report.
L&E uses the retained or computed life expectancy with the
adjusted mortality table to derive a probability of death for each
insured for every month over the next 35 years.
The Actual to Expected ratio is a measure of how well the model
has behaved compared to experience. This ratio was computed for the
life settlement portfolios underlying Class A and Class B Shares. A
key issue with this exercise is the concentration of all Share
Classes in certain policies with larger face values. This generates
an imbedded volatility in the actual maturity outcomes compared to
statistical projections. To circumvent this imbalance, the
actuaries have calculated the Actual to Expected ratio to measure
the model's performance while limiting the maximum exposure of the
portfolio to any life insurance policy. L&E set its model such
as the Actual to Expect of the portfolio is 100% from 2010 to 2018
for the Life Settlement and 101% for HIV from 2012 to 2018 (110%
from 2010 to 2018).
L&E report an actual to expect of 82% for Life Settlement
and 102% for HIV in 2018 for class A.
In the case of specific diseases, such as HIV, L&E has
developed an internal specific mortality adjustment that is applied
to the general population table it has built. In 2015, L&E
updated its HIV model with a focus on the most advanced age
mortality. The updated L&E model continues to allow for a
yearly increase of the mortality for each additional year that a
patient has suffered from HIV, but at a reduced pace for the senior
over 65. It is thus an age-based and time-based disease model, with
a specifically computed over-mortality applied to each affected
individual.
L&E's HIV model continues to be adjusted to fit the observed
data over the past years, so that it is by nature consistent with
observed experience. One of the modelling challenges is the
speculative nature of HIV at the most advanced ages given the lack
of a population to test any hypothesis on. Another is incurred but
not reported maturities ("IBNR"), particularly with one servicer.
On the ABC portfolio (representing less than 5% of the value of the
portfolios), the Board has come to the conclusion that additional
monitoring is required to ensure maturities are captured on a
timely basis.
b) Projected Premiums
Whenever an illustration is available, L&E uses this data
for premium projections. An illustration is an official document
from the insurance company that specifies what premiums are due to
be paid in the following years for a life insurance policy. An
illustration can be used to compute what is the likely minimum
payment that can be made for each year until the life insurance
policy expires. The process of moving from paying a fixed premium
to paying the minimum contractual premium is known as
optimisation.
Premium projection has been more challenging given the
unilateral increases in COI made by a few insurance companies.
Whenever information on such COI increases has been available, it
has been directly incorporated.
When no illustration is available or is deemed unsuitable to be
used, for instance because it does not project sufficiently into
the future, L&E takes the last observed premium payment and
applies an annual increase of 8% per year.
c) Discount rate
The discount rate reflects the time value of money and a risk
component. The risk component reflects the uncertainties attached
to each individual life insurance policy, such as its mortality
risk, premium risk and counterparty party risk.
HIV/AIDS Portfolios
In determining the discount rate for the HIV/AIDS portfolios, it
should be noted that there is no readily observable market for
these policies. As a result L&E used their experience in the
life settlement market, on the basis that life settlement
portfolios are comparable assets.
A discount rate of 11% is used for the HIV/AIDS portfolios which
is consistent with past valuations. To assess the discount rate,
the following reasoning has been used, starting with a base
rate:
- Assuming a sufficiently large portfolio, the base rate must be
consistent with the discount rate determined for a situation where
the mortality assumptions and policy specifics are well-defined.
Specifically, the mortality is defined so that actual experience is
expected to track well with the defined mortality assumptions.
The base rate is increased for the following criteria:
- Mortality experience: although the actual-to-expected (A/E)
mortality ratio over the last seven years is about 100%, the A/E
ratio over the last three years is about 90%;
- Mortality assumptions: this criterion has been lowered in
relation with the more conservative mortality assumptions beyond
age 65;
- Policy modelling: this parameter reflects some portfolio-wide
assumptions that are made to define the premium schedules;
- An additional adjustment has been added to the base rate to
account for items not mentioned above.
Life Settlement Portfolios (Non-HIV/Non-AIDS)
In determining the discount rate for the life settlement
portfolios, it has been considered that complete policy information
was not always available. For most life settlement valuations, the
premium schedules and at least two recent life expectancy opinions
are usually provided. For these valuations, premium schedules were
estimated for some of the policies and mortality assumptions were
developed using an actuarial approach. Across all classes, only 13
policies were valued using older 'extended' AVS and Fasano Life
Expectancies. Given this, the discount rate is subjective but based
on the actuary's experience in the life settlement market.
In determining the portfolio values, a portfolio-wide discount
rate assumption equal to 12% for non HIV and 11% for HIV has been
used which is consistent with past valuations. Some buy/sale
observations were considered where the effective discount rate was
between 12% and 14%, although effective discount rates in the
competitive market were probably between 10% and 12%. Other well
documented portfolios have been valued at between 7% and 11% in
their financial statements. It is estimated that the
actual-to-expected mortality ratios for most of these portfolios
are lower than 70%, materially below the rates of experience by our
portfolios. Given this, discount rates of 12% and 11% respectively
have been maintained for the current period, considering the actual
performance compared to other portfolios in the market, and
considering a risk premium related to the quality of the
documentation.
14.2 Precision and changes in actuarial parameters/data
As per the market standard, the servicing, management and
holding entities expenses are not taken into account in deriving
the valuation of the life settlement portfolios. The actuaries,
following industry standards, are solely discounting the
probabilistic projections of death benefits minus premiums, "policy
loans" and interest thereon.
14.3 Sensitivity analysis
L&E conducted various sensitivity analyses which are
summarised as follows:
a) Class A
a.1) Discount rate sensitivity
Discount rate -
non HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 25,377,000 24,610,000 23,889,000 23,218,000
% of total face
amount 25.1% 24.4% 23.7% 23.0%
Discount rate -
HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 43,898,000 41,204,000 38,869,000 36,832,000
% of total face
amount 11.5% 10.8% 10.1% 9.6%
a.2) Premium assumption sensitivity
Value based on 12% discount rate Annual premium increase
- non HIV portfolio at
8% 9%
Value of portfolio (USD) 23,889,000 23,657,873
% of total face amount 23.7% 23.4%
Value based on 11% discount rate Annual premium increase
- HIV portfolio at
8% 9%
Value of portfolio (USD) 41,204,000 40,023,904
% of total face amount 10.8% 10.7%
a.3) Mortality sensitivity
Value based on 12% discount rate - USD % of face
non HIV portfolio amount
Value of portfolio as reported 23,889,000 23.7%
Value at 90% of current mortality assumption
(*) 20,698,000 20.5%
Value at 80% of current mortality assumption 17,468,000 17.3%
(*) Assumption that mortality is only 90% of expected
mortality.
Value based on 11% discount rate - USD % of face
HIV portfolio amount
Value of portfolio as reported 41,204,000 10.8%
Value at 90% of current mortality assumption 36,386,000 9.5%
Value at 80% of current mortality assumption 31,249,000 8.2%
b) Class B
b.1) Discount rate sensitivity
Discount rate -
non HIV portfolio 11% 12% 13% 14%
Value of portfolio
(USD) 11,047,000 10,645,000 10,269,000 9,915,000
% of total face
amount 22.5% 21.7% 20.9% 20.2%
In class B, the portfolio comprises one HIV Policy with amount
of USD 5 446.
b.2) Premium assumption sensitivity
Value based on 12% discount rate Annual premium increase
(non HIV portfolio) at
8% 9%
Value of portfolio (USD) 10,645,000 10,613,115
% of total face amount 21.7% 18.7%
b.3) Mortality sensitivity
Value based on 12% discount rate (non USD % of face
HIV portfolio) amount
Value of portfolio as reported 10,645,000 21.5%
Value at 90% of current mortality assumption 9,215,000 18.8%
Value at 80% of current mortality assumption 7,727,000 15.8%
c) Class D
c.1) Discount rate sensitivity
Discount rate -
non HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 7,507,000 7,293,000 7,092,000 6,904,000
% of total face
amount 31.4% 30.5% 29.6% 28.9%
Discount rate -
HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 2,449,000 2,232,000 2,045,000 1,882,000
% of total face
amount 15.0% 13.7% 12.5% 11.5%
c.2) Premium assumption sensitivity
Value based on 12% discount rate Annual premium increase
- non HIV portfolio at
8% 9%
Value of portfolio (USD) 7,092,000 6,837,088
% of total face amount 29.6% 28.6%
Value based on 11% discount rate Annual premium increase
- HIV portfolio at
8% 9%
Value of portfolio (USD) 2,232,000 2,150,514
% of total face amount 13.7% 13.2%
c.3) Mortality sensitivity
Over the last 10 years, the actual to expected has generally
been in a range of 20% variation compared to the projected
mortality. This kind of variation is normal and to be expected, as
mortality will vary over time. On this basis, the Company retained
10% and 20% shift in mortality as reasonable threshold for the
mortality stress testing analysis.
Value based on 12% discount rate - USD % of face
non HIV portfolio amount
Value of portfolio as reported 7,092,000 29.6%
Value at 90% of current mortality assumption 6,280,000 26.2%
Value at 80% of current mortality assumption 5,442,000 22.7%
Value based on 11% discount rate - USD % of face
HIV portfolio amount
Value of portfolio as reported 2,232,000 13.7%
Value at 90% of current mortality assumption 1,928,000 11.8%
Value at 80% of current mortality assumption 1,611,000 9.9%
d) Class E
d.1) Discount rate sensitivity
Discount rate -
non HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 3,931,000 3,824,000 3,722,000 3,627,000
% of total face
amount 28.4% 27.6% 26.9% 26.2%
Discount rate -
HIV portfolio 10% 11% 12% 13%
Value of portfolio
(USD) 1,122,000 1,029,000 949,000 879,000
% of total face
amount 16.9% 15.5% 14.3% 13.2%
d.2) Premium assumption sensitivity
Value based on 12% discount rate Annual premium increase
- non HIV portfolio at
8% 9%
Value of portfolio (USD) 3,722,000 3,654,217
% of total face amount 26.9% 26.8%
Value based on 11% discount rate Annual premium increase
- HIV portfolio at
8% 9%
Value of portfolio (USD) 1,029,000 997,251
% of total face amount 15.5% 15.0%
d.3) Mortality sensitivity
Value based on 12% discount rate - USD % of face
non HIV portfolio amount
Value of portfolio as reported 3,722,000 26.9%
Value at 90% of current mortality assumption 3,262,000 23.6%
Value at 80% of current mortality assumption 2,783,000 20.1%
Value based on 11% discount rate - USD % of face
HIV portfolio amount
Value of portfolio as reported 1,029,000 15.5%
Value at 90% of current mortality assumption 891,000 13.4%
Value at 80% of current mortality assumption 750,000 11.3%
Distribution of face value by insurance company as at 31
December 2018
Class A: companies assuring
at least
Number Total
%
Over 10 % of the nominal
face value 1 12.1
5 % to 10 % 1 6.2
2 % to 5 % 12 35.1
0 % to 2 % 307 46.6
Class B: companies assuring
at least
Number Total
%
Over 10 % of the nominal
face value 1 21.2
5 % to 10 % 3 24.1
2 % to 5 % 11 32.5
0 % to 2 % 30 22.2
Class D: companies assuring
at least
Number Total
%
Over 10 % of the nominal - -
face value
5 % to 10 % 2 17.6
2 % to 5 % 15 47.1
0 % to 2 % 98 35.3
Class E: companies assuring
at least
Number Total
%
Over 10 % of the nominal
face value 2 25.2
5 % to 10 % 2 11.6
2 % to 5 % 12 34.4
0 % to 2 % 67 28.8
Note 15 Maturities receivable
Maturities receivable of USD 17,796,938 are declared maturities
that have not yet been paid. Maturities receivable are due within
one year.
Note 16 Premiums paid in advance
Premiums paid in advance of USD 13,327,613 consist of premiums
on life insurance policies paid as at 31 December 2018 that relate
to the period following the balance sheet date.
Note 17 Cash and cash equivalents
As at 31 December 2018, cash and cash equivalents consist solely
of cash held on deposit and on current accounts with banks.
Note 18 Other payables
Group Company
USD USD
Trade and other payables 486,186 486,186
Tax liabilities as assumed from
the Predecessor Company 745,217 745,217
Other creditors and accruals 783,619 783,619
2,015,022 2,015,022
(============) (============)
Note 19 Provision for performance fees
Group Company
USD USD
Provision brought forward 2,888,192 2,888,192
Reduction in provision during the
period (75,349) (75,349)
Provision at the period end -------------- --------------
2,812,843 2,812,843
======== ========
The item relates mainly to performance fees assumed from the
Predecessor Company.
Note 20 Liabilities to subsidiary
Liabilities to the subsidiary are interest free loans which will
be reimbursed when the liquidation of the subsidiary is
completed.
Note 21 Share Capital
At the 31 December 2018 the Company's share capital amounts to
USD 710,689, and is represented by 71,068,874 ordinary shares of
USD 0.01 each. The movement in the share capital is as follows:
A Shares B Shares D Shares E Shares Redeemable Total
preference
shares
USD USD USD USD USD USD
Balance as at 16 - - - - - -
August 2017
Movements for the
period:
* Shares issued at Incorporation - (-) (-) - 66,988 66,988
* Redemption of shares - - - - (66,988) (66,988)
* Shares allotted on 26 March 2018 454,469 145,961 92,926 17,333 - 710,689
(___________) (___________) (_________) (_________) (_________) (__________)
Balance as at 31
December 2018 454,469 145,961 92,926 17,333 - 710,689
(===========) (===========) (=========) (=========) (=========) (==========)
At incorporation, the Company issued 1 ordinary A share of USD
0.01 and 50,000 of GBP1 preference shares at par. Redeemable
Preference shares were cancelled on 26 March 2018.
The share capital was increased on 26 March 2018, by the issue
of:
- 45,446,946 A Shares with a nominal value of USD 0.01, in
addition to a share premium of USD 95,005,656
- 14,596,098 B Shares with a nominal value of USD 0.01, in
addition to a share premium of USD 18,459,574
- 9,292,561 D Shares with a nominal value of USD 0.01, in
addition to a share premium of USD 11,567,984
- 1,733,269 E Shares with a nominal value of USD 0.01, in
addition to a share premium of USD 7,980,276.
As at 31 December 2018, the issued and fully paid share capital
is comprised of 45,446,946 Class A shares, 14,596,098 Class B
shares, 9,292,561 Class D shares, and 1,733,269 Class E shares.
Class A, Class B, Class D and Class E shares relate to specific
investments determined by the Board of Directors or as the case may
be, by a general meeting of Shareholders. Each investment is
undertaken for the exclusive benefit and risk of the relevant class
of shares. All shares have equal voting rights.
Note 22 Capital management policies
The Company's capital management objectives are:
- To ensure it will be able to continue as a going concern;
- To maximise the long-term revenue and capital return to its
Shareholders by returning cash generated from maturities to
Shareholders, taking into consideration cash requirements needed to
fund operations and premium payments. To this effect the Board of
Directors has set policies of the level of cash to be held at any
point in time;
- To realise capital returns to Shareholders by way of dividend
distributions, distributions of capital reserves and share buybacks
or tender offers.
The Board of Directors, with the assistance of the Investment
Manager of the Trusts, monitors the capital requirements and
possibilities of realising capital returns to Shareholders on a
regular basis.
The capital structure of the Company consists of share capital,
share premium, capital and revenue reserves as disclosed on the
Statement of Financial Position.
The capital structure of the Company does not include debt
financing.
The Company uses policy loans to borrow from the cash surrender
value accumulated at some life settlement policies. The Company's
policy is to potentially withdraw that cash from time to time.
Considering the volatility of collected maturities and in some
Share Classes the dependence on a reduced number of large life
settlement policies, the use of gearing cannot be excluded.
Note 23 Net consolidated assets and net asset value per class of shares
The consolidated net assets and net asset value (NAV) for each
class of Shares are shown below.
Class Class B Class D Class E Total
A
USD USD USD USD USD
Net assets 91,649,093 16,150,211 11,590,732 8,246,887 127,636,923
Number of
shares 45,446,946 14,596,098 9,292,561 1,733,269 71,068,874
NAV per share 2.0166 1.1065 1.2473 4.7580
Note 24 Capital commitments and contingent liabilities
At the period end, the Company has no capital commitments in
respect of life settlement portfolios. Life settlements portfolios
do require continued payments of insurance premiums unless the
Company decides not to renew the policies.
At the period end, the Company has no contingent
liabilities.
Note 25 Related party transactions
Related parties to the Company are the wholly owned subsidiary,
the members of the Board of Directors of the Company, Compagnie
Européenne de Révision S.à r.l. as Administrator who has a member
on the Board of Directors and the Trustee of the US trusts who is
also a member of the Board of Directors.
USD
Per income statement:
Trustee fees (*) 125,000
Compagnie Européenne de Révision
S.à r.l. 243,986
Directors' fees (*) (Note 9) 175,459
Amounts payable per balance sheet:
Compagnie Européenne de Révision
S.à r.l. 177,070
Directors' fees 57,442
Shares held by related parties (Directors
and companies under their control)-
Jean Medernach 50,000
All transactions with related parties are undertaken at arm's
length.
(*) includes within the total non-recurring fees comprising USD
50,000 in relation to Trustee fees and USD 35,199 in relation to
Directors' fees.
Note 26 Post balance sheet events
There are no events that have occurred after the balance sheet
date which would have an impact on or influence the financial
statements.
By the end of February, the Company received a notification for
maturities with a face value amounting to USD 20.3 million,
impacting the four classes of shares.
ADDITIONAL INFORMATION
Additional information of exhibits I to IV do not form part of
the financial statements.
EXHIBIT I (unaudited)
Life Settlement Assets Plc
Class A
Consolidated Statement of Comprehensive Income for the period
ended 31 December 2018
Revenue Capital Total
USD USD USD
Income
Income from life settlement portfolios 515,755 - 515,755
Gains from life settlement portfolios - 1,889,095 1,889,095
Other income 68,740 - 68,740
Net foreign exchange loss (26,508) - (26,508)
___________ ___________ ___________
Total income 557,987 1,889,095 2,447,082
Operating expenses
Investment management fees (1,441,271) - (1,441,271)
Other expenses (3,538,035) - (3,538,035)
___________ ___________ ___________
(Loss)/profit before finance costs
and taxation (4,421,319) 1,889,095 (2,532,224)
Finance costs
Interest payable (1,278,808) - (1,278,808)
___________ ___________ ___________
(Loss)/profit before taxation (5,700,127) 1,889,095 (3,811,032)
Taxation - - -
___________ ___________ ___________
(Loss)/profit for the period (5,700,127) 1,889,095 (3,811,032)
========= ========= =========
EXHIBIT I (unaudited)
Life Settlement Assets Plc
Class A
Consolidated and Individual Company Statement of Financial
Position
as at 31 December 2018
Group Company
USD USD
ASSETS
Non-current assets
Financial assets at fair value through
profit and loss - Life settlement
investments 65,093,000 65,093,000
65,093,000 65,093,000
Current assets
Maturities receivables 10,507,385 10,507,385
Trade and other receivables 644,254 644,254
Premiums paid in advance 9,401,624 9,401,624
Cash and cash equivalents 7,085,149 7,085,149
Inter class receivables 234,933 234,933
27,873,345 27,873,345
Total Assets 92,966,345 92,966,345
============ ============
Current liabilities
Other payables (1,317,252) (1,317,252)
Provision for performance fees - -
(1,317,252) (1,317,252)
Net Assets 91,649,093 91,649,093
============ ============
Capital and reserves
Share capital 454,469 454,469
Share premium 95,005,656 95,005,656
Capital reserve 1,889,095 1,889,095
Revenue reserve (5,700,127) (5,700,127)
Total equity attributable to ordinary 91,649,093 91,649,093
shareholders of the Company ========= =========
EXHIBIT II (unaudited)
Life Settlement Assets Plc
Class B
Consolidated Statement of Comprehensive Income for the period
ended 31 December 2018
Revenue Capital Total
USD USD USD
Income
Income from life settlement portfolios 8,777 - 8,777
Gains from life settlement portfolios - (1,796,678) (1,796,678)
Other income 23,102 - 23,102
Net foreign exchange loss (221) - (221)
______ _________ _________
Total income 31,658 (1,796,678) (1,765,020)
Operating expenses
Investment management fees (279,083) - (279,083)
Other expenses (406,620) - (406,620)
________ _________ _________
Loss before finance costs and taxation (654,045) (1,796,678) (2,450,723)
Finance costs
Interest payable (4,601) - (4,601)
________ _________ _________
(Loss)/profit before taxation (658,646) (1,796,678) (2,455,324)
Taxation - - -
________ _________ _________
(658,646) (1,796,678) (2,455,324)
(Loss)/profit for the period ========= ========= =========
EXHIBIT II (unaudited)
Life Settlement Assets Plc
Class B
Consolidated and Individual Company Statement of Financial
Position
as at 31 December 2018
Group Company
USD USD
ASSETS
Non-current assets
Financial assets at fair value
through profit and loss - - Life
settlement investments 10,645,000 10,645,000
'- Shares in subsidiary - 25,232,533
10,645,000 35,877,533
Current assets
Maturities receivables 2,819,222 2,819,222
Trade and other receivables 92,797 92,797
Premiums paid in advance 1,469,244 1,469,244
Cash and cash equivalents 1,509,782 1,509,782
5,891,045 5,891,045
Total Assets 16,536,045 41,768,578
============ =============
Current liabilities
Other payables (262,376) (262,376)
Provision for performance fees - -
Owed to subsidiary - (25,232,533)
Inter class payables (123,458) (123,458)
(385,834) (25,618,367)
Net Assets 16,150,211 16,150,211
============ =============
Capital and reserves
Share capital 145,961 145,961
Share premium 18,459,574 18,459,574
Capital reserve (1,796,678) (658,646)
Revenue reserve (658,646) (1,796,678)
Total equity attributable to ordinary 16,150,211 16,150,211
shareholders of the Company ========= =========
EXHIBIT III (unaudited)
Life Settlement Assets Plc
Class D
Consolidated Statement of Comprehensive Income for the period
ended 31 December 2018
Revenue Capital Total
USD USD USD
Income
Income from life settlement portfolios 19,762 - 19,762
Gains from life settlement portfolios - 525,976 525,976
Other income 23,289 - 23,289
Net foreign exchange loss (125) - (125)
___________ ___________ ___________
Total income 42,926 525,976 568,902
Operating expenses
Investment management fees (202,486) 77,766 (124,717)
Other expenses (506,476) - (506,476)
___________ ___________ ___________
Loss/(profit) before finance costs
and taxation (666,036) 603,745 (62,291)
Finance costs
Interest payable (7,887) - (7,887)
___________ ___________ ___________
(Loss)/profit before taxation (673,923) 603,745 (70,178)
Taxation - - -
___________ ___________ ___________
(Loss)/profit for the period (673,923) 603,745 (70,178)
========= ========= =========
EXHIBIT III (unaudited)
Life Settlement Assets Plc
Class D
Consolidated and Individual Company Statement of Financial
Position
as at 31 December 2018
Group Company
USD USD
ASSETS
Non-current assets
Financial assets at fair value
through profit and loss - Life
settlement investments 9,324,000 9,324,000
9,324,000 9,324,000
Current assets
Maturities receivables 2,328,199 2,328,199
Trade and other receivables 91,200 91,200
Premiums paid in advance 1,297,562 1,297,562
Cash and cash equivalents 704,058 704,058
4,421,019 4,421,019
Total Assets 13,745,019 13,745,019
============ ============
Current liabilities
Other payables (208,686) (206,686)
Provision for performance fees (1,883,679) (1,883,679)
Inter class payables (61,922) (61,922)
(2,154,287) (2,154,287)
Net Assets 11,590,732 11,590,732
============ ============
Capital and reserves
Share capital 92,926 92,926
Share premium 11,567,984 11,567,984
Capital reserve 603,745 (673,923)
Revenue reserve (673,923) 603,745
Total equity attributable to ordinary 11,590,732 11,590,732
shareholders of the Company ========= =========
EXHIBIT IV (unaudited)
Life Settlement Assets Plc
Class E
Consolidated Statement of Comprehensive Income for the period
ended 31 December 2018
Revenue Capital Total
USD USD USD
Income
Income from life settlement portfolios 22,009 - 22,009
Gains from life settlement portfolios - 720,249 720,249
Other income 18,525 - 18,525
Net foreign exchange loss (691) - (691)
______ _______ _______
Total income 39,843 720,249 760,092
Operating expenses
Investment management fees (178,332) (2,420) (180,752)
Other expenses (325,010) - (325,010)
________ _______ _______
(Loss)/profit before finance costs
and taxation (463,499) 717,829 254,330
Finance costs
Interest payable (5,052) - (5,052)
________ _______ _______
(Loss)/profit before taxation (468,551) 717,829 249,278
Taxation - - -
________ _______ _______
(Loss)/profit for the period (468,551) 717,829 249,278
========= ========= =========
EXHIBIT IV (unaudited)
Life Settlement Assets Plc
Class E
Consolidated and Individual Company Statement of Financial
Position
as at 31 December 2018
Group Company
USD USD
ASSETS
Non-current assets
Financial assets at fair value
through profit and loss - Life
settlement investments 4,751,000 4,751,000
4,751,000 4,751,000
Current assets
Maturities receivables 2,142,132 2,142,132
Trade and other receivables 111,771 111,771
Premiums paid in advance 1,159,183 1,159,183
Cash and cash equivalents 1,288,226 1,288,226
4,701,312 4,701,312
Total Assets 9,452,312 9,452,312
============ ============
Current liabilities
Other payables (226,708) (226,708)
Provision for performance fees (929,164) (929,164)
Inter class payables (49,553) (49,553)
(1,205,425) (1,205,425)
Net Assets 8,246,887 8,246,887
============ ============
Capital and reserves
Share capital 17,333 17,333
Share premium 7,980,276 7,980,276
Capital reserve 717,829 (468,551)
Revenue reserve (468,551) 717,829
Total equity attributable to ordinary 8,246,887 8,246,887
shareholders ========= =========
SHAREHOLDER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING 2019
Life Settlement Assets PLC
(the "Company")
Notice is hereby given that the 2019 Annual General Meeting (the
"AGM") of the Company will be held at the offices of Hogan Lovells
International LLP, Atlantic House, Holborn Viaduct, London EC1A 2FG
on Thursday 13 June 2019 at 10:00 am for the following
purposes:
1. To receive and adopt the audited Annual Report and Accounts
of the Company for the period ended 31 December 2018 together with
the Directors' Report and Auditor's Report thereon.
2. To approve the Directors' Remuneration Policy.
3. To approve the Directors' Remuneration Report as set out in
the Annual Report.
4. To elect Jean Medernach as a Director of the Company.
5. To elect Michael Baines as a Director of the Company.
6. To elect Robert Edelstein as a Director of the Company.
7. To elect Franck Mathé as a Director of the Company.
8. To elect Yves Mertz as a Director of the Company.
9. To elect Guner Turkmen as a Director of the Company.
10. To re-appoint Grant Thornton UK LLP as Auditors to the
Company until the conclusion of the next AGM.
11. To authorise the Directors' to determine Grant Thornton UK
LLP's remuneration as Auditor to the Company.
Special Business
To consider the following resolutions:
Authority to allot new shares - Ordinary Resolution
12. THAT, in substitution for all existing authorities pursuant
to section 551 of the Companies Act 2006,(the "Act") the Directors
of the Company are generally and unconditionally authorised to
exercise any power of the Company to allot shares and relevant
securities (as described in that section) in the Company, and to
grant rights to subscribe for, or to convert any security into,
shares in the Company, up to an amount representing 10% of each
issued Ordinary Share Class (excluding treasury shares) as at the
date of the notice convening the meeting at which this resolution
is proposed, provided that the price at which each such Ordinary
Share may be allotted will be above the then prevailing estimated
net asset value per Ordinary Share of the relevant Share Class (as
determined by the Board of Directors in their reasonable
discretion) and that this authority shall expire at the conclusion
of the annual general meeting of the Company to be held in 2020
(unless renewed at a general meeting prior to such time), save that
the Company may before such expiry make offers or agreements which
would or might require shares and relevant securities to be
allotted, or rights to be granted after such expiry and so the
directors of the Company may allot shares and relevant securities
or grant rights in pursuance of such offers or agreements as if the
authority conferred hereby had not expired.
Authority to disapply pre-emption rights on allotment or sale of
relevant securities - Special Resolution
13. THAT, subject to the passing of Resolution 12 set out in
this notice, in substitution of all existing authorities the
Directors of the Company be and hereby are empowered pursuant to
sections 570 and 573 of the Act to allot or make agreements to
allot equity securities (within the meaning of section 560 of that
Act) for cash pursuant to the authority conferred on them by
Resolution 12 set out in this notice or by way of a sale of
treasury shares as if section 561(1) of the Act did not apply to
any such allotment or sale provided that this power shall be
limited to:
(a) the allotment or equity securities and/or sale of equity
securities held in treasury for cash up to an aggregate number of
equity securities of each Share Class as represents 10%. of the
number of Ordinary Shares of that Share Class (excluding treasury
shares) as at the date of the notice convening the meeting at which
this resolution is proposed; this power shall expire (unless
previously renewed, varied or revoked) upon the expiry of the
general authority conferred by Resolution 12 above; and
(b) before this power expires, the Directors may make offers or
agreements which would or might require equity securities to be
allotted (and treasury shares sold) after such expiry and the
directors are entitled to allot or sell equity securities pursuant
to any such offer or agreement as if this power had not
expired;
(c) this power is in substitution of all unexercised powers
given for the purposes of section 570 of that Act; and
(d) no allotment of securities shall be made which would result
in equity securities being issued or sold from treasury at a price
which is equal to or less than the then prevailing estimated net
asset value per Ordinary Share of the relevant Share Class as
determined by the Board of Directors in their reasonable
discretion.
Authority to repurchase the Company's shares - Special
Resolution
14. THAT the Company be and hereby is generally and
unconditionally authorised for the purposes of section 701 of the
Act to make one or more market purchases (as defined in section
693(4) of the Act) of its issued Ordinary Shares of any class, in
the capital of the Company, on such terms and in such manner as the
Directors may from time to time determine, provided that:
(a) the maximum number of Ordinary Shares hereby authorised to
be purchased is the number of Ordinary Shares of each Share Class
(excluding treasury shares) that represents 14.99% of the issued
Ordinary Share capital of that Share Class as at the date of
passing this resolution;
(b) the minimum price (exclusive of expenses) which may be paid
for an Ordinary Share is the nominal amount of that share; and
(c) the maximum price (exclusive of expenses) which may be paid
for an Ordinary Share is the higher of:
i. an amount equal to 5%. above the average of the middle market
quotations for an Ordinary Share as derived from the Daily Official
List of the
ii. London Stock Exchange plc for the five business days
immediately preceding the day on which that Ordinary Share is
contracted to be purchased; and
iii. an amount equal to the higher of the price of the last
independent trade and the highest current independent bid on the
trading venues where the purchase is carried out at the relevant
time,
(d) any purchase of shares will be made in the market for cash
at prices below the latest estimated monthly net asset value per
share (as determined by the Directors);
(e) the authority conferred by this resolution shall (unless
previously renewed or revoked in general meeting) expire on the
date falling 15 months after the passing of this resolution or, if
earlier, at the conclusion of the Annual General Meeting of the
Company to be held in 2020; and
(f) the Company may make a contract to purchase Shares under the
authority hereby conferred prior to the expiry of such authority
which contract will or may be executed wholly or partly after the
expiry of such authority and may make a purchase of shares pursuant
to any such contract as if the authority conferred hereby had not
expired.
By order of the Board
Registered Office Company Secretary
4th Floor Maitland Administration Services Limited
115 Park Street, Hamilton Centre,
London, Rodney Way
W1K 7AP Chelmsford
CM1 3BY
PLEASE NOTE: The notice of the class meetings have been provided
to shareholders separately from this document. Shareholders will
only receive the class meeting notices for the classes of shares
that they own.
Notes to the Notice of the AGM
Proxy appointment and voting
1) A member is entitled to appoint another person as his proxy
to exercise all or any of his rights to attend and to speak and
vote at the AGM, or any adjournment thereof. A proxy need not be a
shareholder of the Company. A shareholder may appoint more than one
proxy in relation to the AGM provided that each proxy is appointed
to exercise the rights attached to a different share or shares held
by that shareholder.
2) The appointment of a proxy will not prevent a member from
subsequently attending and voting at the meeting in person.
3) You can vote either:
-- by logging on to www.signalshares.com and following the instructions;
-- You may request a hard copy form of proxy directly from the registrars, Link Asset Services at
enquiries@linkgroup.co.uk, or on Tel: 0371 664 0300. Calls cost 12p per minute plus your phone company's access
charge. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open
between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales.
-- in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the
procedures set out below.
In order for a proxy appointment to be valid a form of proxy
must be completed. In each case the form of proxy must be received
by Link Asset Services at 34 Beckenham Road, Beckenham, Kent, BR3
4ZF by 10.00am on Tuesday, 11 June 2019 (or, if the meeting is
adjourned, no later than 48 hours (excluding any part of a day that
is not a working day) before the time of any adjourned
meeting).
Joint shareholders
4) In the case of joint holders of a share the vote of the
senior who tenders a vote, whether in person or by proxy, shall be
accepted to the exclusion of the votes of the other joint holders,
and for this purpose seniority shall be determined by the order in
which the names appear in the register of members in respect of the
share.
Nominated persons
5) The right to appoint a proxy does not apply to persons whose
shares are held on their behalf by another person and who have been
nominated to receive communications from the Company in accordance
with section 146 of the Act ("Nominated Persons"). Nominated
Persons may have a right under an agreement with the member who
holds the shares on their behalf to be appointed (or to have
someone else appointed) as a proxy. Alternatively, if Nominated
Persons do not have such a right or do not wish to exercise it,
they may have a right under such an agreement to give instructions
to the person holding the shares as to the exercise of voting
rights.
Information about shares and voting
6) Holders of Ordinary Shares are entitled to attend and vote at
general meetings of the Company. The total number of issued
Ordinary Shares in the Company on 30 April 2019, which is the
latest practicable date before the publication of this Notice is
71,068,874 divided into 45,446,946 Class A shares, 14,596,098 Class
B shares, 9,292,561 D Shares, and 1,733,269 Class E shares. As at
this date there were no shares held in treasury therefore the total
number of voting rights in the Company at this date was
71,068,874.
Right to attend and vote
7) Entitlement to attend and vote at the meeting, and the number
of votes which may be cast at the meeting, will be determined by
reference to the Company's register of members as at the close of
business on Tuesday,11 June 2019, or, if the meeting is adjourned,
no later than 48 hours (excluding any part of a day that is not a
working day) before the time fixed for the adjourned meeting (as
the case may be). In each case, changes to the register of members
after such time will be disregarded.
Venue arrangements
8) Members should note that the doors to the AGM will be open
for registration at 9:45 am.
9) Mobile phones may not be used in the venue, and cameras, tape
or video recorders and other such items as the Chair of the AGM may
specify, are not allowed in the venue. We reserve the right to
confiscate these items for the duration of the AGM if they are used
to record or otherwise disrupt the AGM.
CREST members
10) CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
meeting (and any adjournment of the meeting) by following the
procedures described in the CREST Manual available on the website
of Euroclear UK and Ireland Limited ("Euroclear") at
www.euroclear.com. CREST Personal Members or other CREST sponsored
members (and those CREST members who have appointed a voting
service provider) should refer to their CREST sponsor or voting
service provider, who will be able to take the appropriate action
on their behalf.
In order for a proxy appointment or instruction made by means of
CREST to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with
Euroclear's specifications and must contain the information
required for such instructions, as described in the CREST Manual.
The message (regardless of whether it constitutes the appointment
of a proxy or an amendment to the instruction given to a previously
appointed proxy) must, in order to be valid, be transmitted so as
to be received Link Asset Services Participant ID RA10 by the
latest time(s) for receipt of proxy appointments specified in Note
3 above. For this purpose, the time of receipt will be taken to be
the time (as determined by the timestamp applied to the message by
the CREST Applications Host) from which the issuer's agent is able
to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to
a proxy appointed through CREST should be communicated to him by
other means.
CREST members (and, where applicable, their CREST sponsors or
voting service providers) should note that Euroclear does not make
available special procedures in CREST for any particular messages.
Normal system timings and limitations will therefore apply in
relation to the input of CREST Proxy Instructions. It is the
responsibility of the CREST member concerned to take (or, if the
CREST member is a CREST personal member or sponsored member or has
appointed a voting service provider, to procure that his CREST
sponsor or voting service provider takes) such action as shall be
necessary to ensure that a message is transmitted by means of the
CREST system by any particular time. In this connection, CREST
members (and, where applicable, their CREST sponsors or voting
service providers) are referred, in particular, to those sections
of the CREST Manual concerning practical limitations of the CREST
system and timings.
The Company may treat as invalid a CREST Proxy Instruction in
the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001.
Corporate representatives
11) Any corporation which is a member can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to
the same shares.
Audit concerns
12) Shareholders should note that, under section 527 of the Act,
members meeting the threshold requirements set out in that section
have the right to require the Company to publish on a website a
statement setting out any matter relating to: (i) the audit of the
Company's accounts (including the auditors' report and the conduct
of the audit) that are to be laid before the AGM for the financial
period ended 31 December 2018; or (ii) any circumstance connected
with an auditor of the Company appointed for the financial period
ended 31 December 2018 ceasing to hold office since the previous
meeting at which annual accounts and reports were laid. The Company
may not require the shareholders requesting any such website
publication to pay its expenses in complying with sections 527 or
528 (requirements as to website availability) of the Act. Where the
Company is required to place a statement on a website under section
527 of the Act, it must forward the statement to the Company's
auditor not later than the time when it makes the statement
available on the website. The business which may be dealt with at
the AGM for the relevant financial period includes any statement
that the Company has been required under section 527 of the Act to
publish on a website.
Questions
13) Any member attending the AGM has the right to ask questions.
The Company must cause to be answered any such question relating to
the business being dealt with at the meeting but no such answer
need be given if (a) to do so would interfere unduly with the
preparation for the meeting or involve the disclosure of
confidential information, (b) the answer has already been given on
a website in the form of an answer to a question, or (c) it is
undesirable in the interests of the Company or the good order of
the meeting that the question be answered.
Website information
14) A copy of this notice and other information required by
section 311A of the Act can be found at
www.lsaplc.com/investor-relations/reports-company-literature/
Use of electronic address
15) Members may not use any electronic address provided in
either this notice of meeting or any related documents (including
the enclosed form of proxy) to communicate with the Company for any
purposes other than those expressly stated.
Documents available for inspection
16) Copies of the letters of appointment of the non-executive
Directors may be inspected during normal business hours on any
weekday (Saturdays, Sundays and public holidays excepted) at the
registered office of the Company at 115 Park Street, London W1K
7AP, up to and including the date of the AGM, and on the date
itself at the AGM venue 15 minutes before the meeting until it
ends.
Communication
17) Except as provided above, shareholders who have general
queries about the AGM should use the following means of
communication (no other methods of communication will be
accepted):
-- by calling the Registrar's helpline on 0345 922 0044, or
-- by writing to the Registrar, Link Asset Services, 34
Beckenham Road, Beckenham, Kent BR3 4ZF.
SHAREHOLDER INFORMATION
Directors
Jean Medernach
Michael Baines
Robert Edelstein
Franck Mathé
Yves Metz
Guner Turkman
Registered Office
115 Park Street
4th Floor
London W1K 7AP
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2P 2YU
Trusts' Investment Manager
Acheron Capital Limited
115 Park Street
4th Floor
London W1K 7AP
Share Registrar
Link Asset Services
34 Beckenham Road
Beckenham
Kent BR3 4ZF
Brokers
Shore Capital
100 Wood Street
London
EC2V 7AN
Company Secretary
Maitland Administration Services Limited
Hamilton Centre
Rodney Way
Chelmsford
CM1 3BY
Email: cosec@maitlandgroup.co.uk
Telephone: 01245 398984
Financial Calendar
Company year end: 31 December
Annual results announced: April
Annual General Meeting: 13 June 2019
Company half-year end: 30 June
Half-year results announced: November
Website - https://www.lsaplc.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EASLEDSLNEFF
(END) Dow Jones Newswires
April 30, 2019 12:15 ET (16:15 GMT)
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