Alternative Asset Opps PCC Ltd Cost of Insurance (3869Z)

TIDMTLI

RNS Number : 3869Z

Alternative Asset Opps PCC Ltd

26 May 2016

Alternative Asset Opportunities PCC Limited (the "Company")

26 May 2016

Cost of Insurance (COI)

The Company is now in a position to provide further information relating to COI increases.

Portfolio

The Company's portfolio currently comprises 81 US Universal Life Policies (ULPs), issued on 70 lives, with a face value of $117.6m. Average age of lives assured is 92 years.

ULPs, subject to limitations, allow the policyholder to vary the amount and timing of premium payments and the face value of the policy. The insurance company accumulates cash values by crediting premium payments and interest accumulated in respect of the policy to a fund from which deductions are made for expenses and the cost of providing the insurance. The insurance company declares the rates at which the interest is to be credited to the policy, with most insurers guaranteeing a minimum rate of interest.

Many policyholders pay more in the early years than the actual COI to build up a cushion against subsequent age-related premiums. The Company has, in general, paid the minimum amount required to keep the policies in force.

Each policy includes a provision which permits the insurer to increase premium rates in certain circumstances. These vary by insurer but usually refer to mortality rates, interest rates, expenses and tax.

A typical clause is:

"The maximum guaranteed cost of insurance rates shown on the Policy Summary are based on the Insured's age, sex and rate class for the Initial Stated Amount and each increase in the Stated Amount. We may use lower than those shown. We will base any future changes in these rates only on Our future expectations as to investment earnings, mortality, expenses and persistency. Nothing in this policy will be effected by Our actual mortality and expenses. We will determine the current rates for the Initial Stated Amount and for each increase to the Stated Amount at the start of each Policy Year and will guarantee them for that Policy Year. Any change We make in the current rates will be on a uniform basis for insured's of the same age, sex duration and rate class."

The maximum rates in policies owned by the Company are on average approximately 3.5x the existing premium. In some policies the contract terms allow these increases to be partially mitigated.

To date, 13 policies, with a face value of $15.9m, will see COI increases ranging from 5% to 100% (the latter assuming the latest expectations regarding Transamerica's intentions come to pass).

The Company's portfolio contains a further 12 policies with a face value of $14.7m issued by insurance groups known to have already applied COI increases elsewhere, but where our policies remain unaffected.

Litigation

The Company previously made reference to recent class-action litigation taking place in the US in response to actual and proposed COI increases which are perceived to be excessive and for which the explanations given to policyholders appear to be inadequate.

The Company is not currently involved in any litigation and is unable to comment on the merits or expected outcomes from the class-actions, but the Board shares the widespread outrage at the magnitude of some of the recently proposed increases. Industry observers suggest it will take a minimum of two years for these actions to be concluded.

Other Courses of Action

Trade bodies have registered their protests with State Regulators who supervise the operations of the Insurers and the Company intends to do likewise.

Liquidity

Outgoings for the 13 months to 30 June 2017 (including COI premium increases) are estimated at $10.6m assuming no mortalities and no further premium increases beyond those recently intimated. The Company currently has cash balances of $7.8m with undrawn bank facilities of $10m. The Board therefore considers the Company's financial position to be robust.

It is the Board's current intention to retain all maturity proceeds within the business to fund ongoing operational requirements.

Outlook

It is difficult to predict what, if any, further COI increases are in the pipeline but should the Board become aware of any increases that will have a material impact on the Company, shareholders will be advised.

The Board, with its team of advisers, will continue to evaluate all options to optimise the outcome for shareholders.

Enquiries:

Charles Tracy

   Chairman                                Tel: [phone] 

Alastair Moreton

   Stockdale Securities               Tel: [phone] 

This information is provided by RNS

The company news service from the London Stock Exchange

END

MSCDMGZKNVKGVZG

(END) Dow Jones Newswires

May 26, 2016 03:47 ET (07:47 GMT)