EEA Life Settlements was suspended on 30 November after the FSA’s issuance of draft guidance on what it termed "death bonds".
This latest development in the ‘death bond’ fund saga follows a damning report from auditors Ernst & Young in July, which said the fund was worth approximately $100m (or 11.48%) less than the directors’ fair valuation at that time of $871m.
EEA Fund Management has since had a “mortality review” of the underlying investments completed by third party specialists, which considered the pace of maturities of the life policies.
The board of EEA Life Settlements said it had carefully assessed the results from the review and the updated life expectancies.
‘Not an exact science’
“Calculating the life expectancy of older, medically impaired lives is not an exact science. 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,” the board said in the letter to shareholders.
As a result of the review, however, the board decided it would be appropriate to make changes to the fund’s valuation policy.
The valuation policy will now double the average of estimates from two specialist firms rather than just adding a period of 12 months. So if a person’s life expectancy is 15 months, EEA will double it to 30 months rather than adding 12 months to make it 27 months.
In addition, all life expectancy estimates obtained in 2013 will now be used to replace the original valuations obtained for each policy.
Finally, the board intends to establish an assessment programme which will see every policy reviewed every two years.
