EEA launches review into valuation issues

The board of the EEA Life Settlements fund has said it has launched a review of its portfolio, in response to damning claims from its auditor.

EEA chairman Mark Colton said in a letter to investors that the fund’s assets were “highly illiquid” at the end of 2011 and so were hard to value, which led to a dispute between EEA and Ernst & Young, outlined in the fund’s 2011 annual report, only published this week.

Mr Colton admitted that maturities on the contracts held by the fund “have occurred at a slower rate than indicated by the initial assessments of longevity”.

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“We have always taken valuations very seriously so the board must consider the evidence and assess the implications for pricing and for valuation purposes,” he said.

“The board has commissioned a mortality review of the entire portfolio. It will use this and updated estimates of longevity from industry specialists to guide the decision making.”

In the annual report Ernst & Young disputed the company’s valuation of its portfolio of second hand life insurance contracts, claiming that EEA had not updated its estimates for when the contracts would mature since they were purchased, and had understated the discount which would be applied if they tried to sell on the contracts.

It said this had led to EEA overstating the valuation of its portfolio by as much as $100m (£65.9m).

Mr Colton said the policies purchased by the fund were “safe”, and the fund maintained “a substantial reserve for the payment of future premiums”. He added that the board was finalising documentation for a proposed restructure and reopening of the fund.

Dealing in the fund was suspended in November 2011 following a wave of redemption requests prompted by the FSA’s warning that such investments were “toxic” and inappropriate for retail investors.