Assured Fund Establishes New Euro-zone Structure
The Belgian Connection: Assured Fund establishes new Euro-zone structure ahead of impending US tax changes for traded life settlement funds
Brussels initiative to protect investor returns ahead of punitive IRS move - POLICY SELECTION Ltd, (PSL) which runs Assured Fund – the UK’s biggest traded life settlement fund – has completed a new Euro-zone tax structure in order to ring fence investor returns from impending US tax legislation affecting traded life settlements.
The new initiative will see the company move its administration assets from its incumbent offshore, Guernsey Cayman base to Brussels, Belgium, in order to utilise dual taxation treaties between Belgium and the US.
It is understood that American IRS (Internal Revenue Service) Withholding Tax legislation will apply to all policies purchased after 26 August 2009.
“The intention of the IRS is to tax any offshore investor in US Life Settlements market at 30% of their gain (i.e. face value less acquisition cost and maintenance costs),” said PSL finance director Andrew Walters.
“To date, scarce detail has emerged as to how the rules are to be enforced, but one thing is for sure – a 30 % tax on life settlement profits would severely limit any return and indeed, on policies where the life insured is living longer than expected, may leave the buyer out of pocket.,” added Walters.
“Bear in mind we have known anticipated that the IRS could have implemented
this ruling this legislation has been on the way for several years now and not
wishing to expose the investors to any risks with regard to this: which is why
we have put together a watertight euro-zone structure which will effectively
ensure that WHT will not impact on returns paid to Assured Fund investors,”
“Our solution is built around the double tax treaty with Belgium, which was ratified in January 2008,” explained Walters.
“Under the terms of a double tax treaty the US tax authorities will remit the gross face value of the policy offshore with the understanding that the gains will be subject to the tax law of the counterparty’s jurisdiction.
“Assured Fund will, therefore, transfer beneficial ownership of the policies to a Belgium company, which is a subsidiary of Assured,” he said.
“Crucially, there will be no change operationally to the Fund from an investor’s perspective and there will be no loss of control over the Fund’s assets. The share price of Assured will still reflect the underlying value of the portfolio of life policies,” said Walters.
Assured Fund invests in US life assurance policies sold on the second hand traded market by elderly US citizens – the typical age of policy holders is between 75 and 85.
Reflecting similar products in the UK, the US-based policies carry a guaranteed death benefit and the sum assured.
When the policyholder dies, the full sum assured is realised, with Assured Fund then receiving the proceeds.
“The return from a Life Settlement depends principally on the maintenance costs, i.e. the number of premiums to be paid over the life of the insured. Thus it is important to us to partner with independent underwriters who have a proven track record,” added Walters.
The fund has grown at between 9 and 11 % per year since its launch in 2005. Predictions for the remainder of 2009 for returns going forward are for the fund to grow by 9%.
Its Sterling Share Class C has easily outperformed government gilts and as the returns are based on pay outs from maturing life policies held within the fund, investors do not have the worry of the market volatility which has seen the value of equities plummet.
The investment concept is attractive as the concept is relatively simple and the returns clearly defined. However, an investor must be circumspect about his choice of Fund Manager in that their practices do not compromise the integrity of the asset.
The Team behind Assured Fund, are not looking to deliver dramatic returns, though in the current climate, its Share Class A, denominated in USD, has delivered appealing returns of 11.51% (annualised since launch).
Its philosophy is to be building to institutional standards a robust structure that will continue to deliver consistent returns into the future. To this end, Assured has had its valuation model verified by the independent actuarial firm, Institut fur Finanz und Aktuarwissenschaften, and its monthly pricing is checked by Deloitte in Zurich.
It operates with complete transparency with no hidden performance fees which may distract from the consistent application of the valuation methodology.
It continually refines its purchase criteria in order to secure a balanced portfolio by illness, sex, and life office spread. It only purchases traditional Life Settlements, i.e. no premium financed or contestable policies, issued by Life Offices rated A or above by Standard and Poors.
It seeks to protect the assets of the Fund at all times, becoming the beneficial owner of the Life Settlement policies prior to making payment to all parties in the supply chain.
Policy Selection Ltd was established in 2003, and is specifically designed to specialise in the US Senior Life Settlement market. With around $396 million (US) in assets under management, PSL is a private limited company registered in the Cayman Islands. The Assured Fund is an independent company with its own Board of directors. The Fund is audited by PriceWaterhouseCoopers, Douglas, Isle of Man and has been evaluated by Deloitte & Touche.
Assured Fund management fee – 0.75 to 2.25 per cent depending on share class. A PDF is available giving full details on the fund’s structure/charges/authorisation etc.
Andrew Walters, Finance Director,
Rogan Redfarn, Business Development Director, PSL
Cathy Tully, Consultant