Suspended EEA fund takes 10% hit to portfolio value

The suspended EEA Life Settlements fund has taken a 10 per cent hit to the value of its portfolio after re-valuing the life insurance contracts it invests in.

The move follows criticism from auditors Ernst & Young (E&Y) about the way the fund had valued the contracts previously. E&Y said EEA had overvalued the portfolio by as much as $100m.

In a letter to investors EEA chairman Mark Colton said EEA had taken the decision to value the contracts based on longer life expectancies to ensure a more conservative valuation. It means the fund is likely to have reduced in value by close to E&Y’s estimate, based on a reported fund size of $995m when the fund was suspended in November 2011.

Article continues after advert

The chairman said: “The valuation of the fund’s policies is particularly sensitive to the estimates of life expectancy... The changes set out [therefore] result in a reduction to the net asset value of the fund of around 10 per cent relative to the value immediately prior to the suspension of dealings.”

Mr Colton added that each life insurance contract had been updated with 2013 actuarial estimates and would be reassessed every two years.

“Calculating the life expectancy of older, medically impaired lives is not an exact science,” Mr Colton said. “There have been considerable changes in the period since 2011, in the market generally and within the fund. None of these changes could have been foreseen with any certainty.”

EEA previously contacted investors in September 2012 regarding plans for reopening the fund, but it is yet to obtain permission from the Guernsey regulator to resume trading.