The Secured Life Fund, which is expected to float on the Irish Stock Exchange this month, is being aimed at institutional investors and pension funds, and has a minimum investment of €250,000.
However, there are plans to roll out the fund for smaller sum investments through a UK-based plan manager, according to Andrew Walters, a spokesman.
Walters, who is also finance director of Policy Selection Ltd, the Cayman life settlements company, said that until now this asset class has only been available in the US, to institutions there that purchased private portfolios.
Loans, rather than policies
The Secured Life fund is based on a portfolio of loans it makes to terminally ill US cancer patients, which allow them to borrow against the maturity value of their existing, qualifying life insurance policies at reasonable rates.
This is similar to life settlement funds, except that instead of buying the insurance policies from the elderly or terminally ill, the company buys loans made against such policies from the insurance companies that originally provided them.
Also like life settlements, the returns are regarded as reasonably certain as long as the insurance companies that issued the policies on which they are based pay out as expected, according to Secured Life fund literature.
Both loan-based funds like the Secured Life fund and the more traditional life settlement funds enable the terminally ill and their relatives to benefit from the money in the insurance policies while the insured individual is still alive.
5, 7 and 10-year bonds
The Secured Life Fund will offer investors five, seven and 10-year investment bonds paying fixed-rate returns annually, paid in arrears, according to Walters.
Returns range from 8% for the five-year bond, and rise to 8.5% for the seven-year version and 9% for the 10-year bond.
This income is generated by investing in a combination of cash, cash-equivalent assets and through the repayment of loans collateralised by US life insurance policies, Walters, who is based in Cambridge, added.
Certainty of returns
For investors, the appeal of such funds is that they give investors what Walters refers to as “a degree of reliability of return over a given period” during a time when returns from such other income producing vehicles as corporate bonds and gilts are low.
The Secured Life Fund is able to achieve its relatively high returns with low volatility because of the nature of providing loans to terminally-ill individuals who seek them, typically in order to meet medical and living expenses, Walters says.
For policies to be included in the fund, the insurance companies that provide them must be rated ‘A’ or better by Standard & Poor’s and the policy must mature on the death of the potential customer, Walters said.
He said the investment operations are being handled by Ironshore, utilising US “supply channels”.
Criticisms
Life settlement funds, sometimes also known as traded life policies, have been criticised in the past for the fact that they profit from the death of elderly and terminally ill people. But people in the business of marketing them, including Walters, argue that they actually help such individuals by ensuring that those looking to take money out of their policies get the best price possible, by creating a competitive market for them.
He also cites US Life Insurance Marketing Research Association figures that showed almost one-third of all US families caring for a seriously ill family member during a two year period lost most or all of their savings.
The Secured Life Fund makes a point of ensuring that anyone involved in direct contact with the insured individuals to whom it extends its loans are experienced and trained to handle queries sensitively, Walters said.
IA FUND FACTS:
Name: Secured Life Fund
Domicile: Dublin
Minimum investment: €250,000
Type of fund: Listed closed-ended fixed term bonds
Annual charge: 1.75%
Performance fee: none
Launch date: mid-April 2010
Manager: Ironshore Ltd
Benchmark: (none)
