Nigel Grinsted, Marketing Consultant, explains how this once esoteric investment vehicle delivers solid and predictable returns that cannot be ignored. In today's totally manic market, IFAs need to find safe havens that deliver a good return with no significant risk. So, if you could find an investment that scores on all these fronts: - Is not affected - in any way - by equity performance in any markets. (Read that again!)
- Has a track record of between 8% and 10% per annum total net return every month for the last 33 consecutive months (as at 1st September 2008. Source: ViaSorce Funding Group LLC).
- Currency risk mitigated by hedging US dollar exposure.
- Is in a substantial fund ($277 million) that has been running almost three years (Source: ViaSorce Funding Group LLC).
- Is ethical, equitable and transparent.
- then, can you really afford to ignore it? So, what exactly is a life settlement? The best way to describe how a life settlement works is to give a real life and death example: Joe Willampton lived in Milwaukee. He was 72 years old and had a life policy with Lincoln National with a sum insured of $1,000,000.
The policy was a whole of life policy that only pays out on death.
When he was 70 he found that a mole on his leg had begun to swell, was painful and was weeping. The specialist's verdict was not comforting. His life prognosis was that he would survive close to three years.
He had some savings but nothing significant. His family wanted to make the last years as good as possible for Joe.
They found that there were companies who would buy the life policy for up to $400,000. So, Joe sold the policy and had enough money to end his life in some comfort. When he died, the company that bought the policy received the $1,000,000 but they had paid out $400,000 and had funded all the premiums in between. Aren’t life settlements a little unethical?  Photo left: Christopher Daly, MD of ViaSorce Funding Group LLC
"We believe it is far more unethical to expect someone who doesn't have many years left to struggle through, perhaps in considerable pain and suffering, when there is an easy way to provide some help", said Christopher Daly, Managing Director of ViaSorce Funding Group LLC, the US based Company who are among the leading and most respected firms in the Life Settlements market.
"Remember, the costs associated with extra care are high and often prolonged and the monthly premiums of the life policy will still need to be met. By selling the policy the premiums cease immediately for the life assured and they receive a tax free cash sum that is greater than the surrender value offered by the Life Company.
We always check fully with the family members to obtain their OK to proceed. It's very seldom that anyone objects", Mr. Daly said.  How can UK-based IFAs get access to life settlements?
New WAY Life Settlements Fund coming soon ... It is possible to attempt to buy life policies directly but being able to judge which policies to buy and how much to pay for them are issues that are critically important. Anyone buying a policy will need to assess accurately the medical status of the life assured and the likely prognosis. There are companies that will assist in this but realistically the best way to access this specialist investment market is through unitised funds which specialise in them. And one such fund is the WAY Life Settlements Fund, based in Guernsey (a new and special share class of the EEA Life Settlements Fund to be launched soon). Isn’t there a risk due to stock market fluctuations? There is no stock market risk whatsoever because the policies are all whole of life with no investment element whatsoever. "We frequently buy policies that have absolutely no surrender value because all we are interested in is the "maturity value" – that's what we Americans call the value on death – and the life expectancy of the life assured. The Life Settlements Fund is totally unconnected to share market movements which, in the current market conditions, make it particularly interesting for investors", Mr. Daly said. But what happens if the policyholder broke the uberrima fides ("utmost good faith") rules and lied on the proposal form? In the US, a life company can only contest a life policy in the first two years. After that it cannot be contested. That's why all the policies in the WAY/EEA fund will be more than two years old when purchased. Why are Life Settlements mainly in the US? In the UK, the most common protection policy is a term life policy. This only pays out on death before a fixed expiry date. If the life insured lives beyond that date they get nothing from the policy. The other big life policy in the UK is the endowment. These can and are bought and sold on the open market but most will be linked in some way via profits or unit-linking to the stock market, so their value on maturity (that's the UK interpretation) is uncertain. Often the death benefit is fixed and known, especially as the inherent investment performance has not been good enough to exceed the death benefit. "Overall the US market is more clearly structured and significantly larger than the UK market", said Christopher Daly. "Add the non-contestability factor and it's no contest – the US market is the better bet", he said. But there must be a currency risk? All investments are hedged to Sterling. How good is the performance? The underlying EEA fund has performed positively every month for the last 33 consecutive months. Through the last turbulent 12 months, it has produced a positive return of +8.67%. (as at 1st September 2008. Source: ViaSorce Funding Group LLC). But what if one of the US life companies goes bust? Firstly, the master fund currently has 300 policies spread across 72 issuers, so there is minimal concentration of risk. These issuers have an average life company rating of A+. Finally, all life policies have individual state guarantees. "Some sceptical people may question the value of that but in reality it is of major significance especially in these troubled times. It is a fact that no US life policy has yet to fail to pay out it's contracted maturity value", said Mr. Daly. Overall, Life Settlements funds have proved to be worthwhile investment vehicles with a consistent performance that is totally disconnected from subjective value-based markets. They may seldom set the world alight but with their steady and logical returns they will form an increasing part of client portfolios. How to contact us
If you wish to talk to someone about the issues raised in this e-newsletter or about any of WAY's products, please feel free to call either your local Regional Sales Manager or Tony Lyons, IFA Support Manager, head office telephone number: 01202 890895. Or you can use the website: Contact Form to get in touch. We look forward to hearing from you. - Ends - Link to: the WAY Life Settlements Fund Factsheet for IFAs Newsletter: October 2008. Please Note: This newsletter commentary has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This information is supplied to you in confidence and you may not pass it on to any other party without prior written consent. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this commentary. The commentary does not constitute investment advice or a recommendation to purchase or sell any security. Neither the author nor WAY Investment Services Ltd accept any liability whatsoever for any loss or damage arising in any way from any use of or reliance placed on the commentary. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority. |