Life Settlements Funds Limited - Life Settlements Wholesale Funds

Life Settlements are an emerging secondary market for life insurance policies issued by insurance companies in the USA and, due to the substantial amounts of capital investment required, are usually acquired by large financial institutions or international corporate investors. The Fund’s primary objective is to acquire a portfolio of Life Settlements from senior citizens in the USA with health impairments.

What is a Life Settlement?

A Life Settlement is the transfer of the beneficial interest in an existing life insurance policy to a third party, by a person normally aged around 65 years with a health impairment and a medically evaluated life expectancy of 10 years or less. The policy is sold at a discount to its Face Value for an immediate cash settlement. The Fund, as purchaser of such a policy, will receive the net death benefit to which the Fund is entitled from the insurance company upon the death of the insured. Life Settlements are an actuarially based investment, valued using USA Standard Mortality Tables. The insured is diagnosed with impaired health conditions making life expectancy shorter than would ordinarily be expected. The Fund will buy and hold to maturity a portfolio of Life Settlements sourced by Providers. Historically, most Life Settlements have been purchased by institutional investors in the USA seeking longterm portfolio diversity (typically averaging 5-6 years), as they represent an investment alternative which is insulated to a large extent from domestic and global debt markets, interest rate fluctuations, world stock market volatility, economic trends and business cycles. A Life Settlement investment is therefore different to traditional investments.

Why do people sell their life insurance policies?

Most people acquire life insurance early in their careers as a means of protecting their income and family in the event of an unexpected event. However, over time, changes in people’s circumstances often mean that individuals want access to the value “locked-in” their life insurance policy prior to their death. In the USA people are becoming increasingly aware that their life insurance policy may qualify for a Life Settlement. These changing circumstances could include the following:

• The insured may have outlived the beneficiaries the policy was originally intended to protect.
• Premiums may have become unaffordable and unless sold as a Life Settlement, the insured may have to let the policy lapse.
• The insured may be financially secure and have no further need for the policy.
• The insured may wish to make a gift of the monetary value of the policy while they are still alive.
• The insured may sell the policy for estate planning purposes.
• The insured is considering whether or not to lapse or surrender the policy.

In circumstances where the alternative for the insured is to let the policy lapse and lose a potentially large portion of the premiums which have been paid on the policy, a Life Settlement is an attractive option.

Why does the Fund invest in Life Settlements in the USA?

The Responsible Entity’s investment strategy is to purchase Life Settlements in the USA for the following reasons:

• Because of the nature of the investment it is not a matter of “if” but “when” a policy is paid out. The returns are not correlated to events in the stock, bond or property markets.
• There is a large volume of policies available for purchase.
• Some of the world’s largest life insurance companies operate in the USA reducing the risk of financial failure by insurers.
• Most States in the USA provide a US State Government Guarantee Fund that guarantees the payment of policy death benefits up to US$300,000 per life insured in the event of insurance company insolvency. This provides limited assurance for the Fund.
• Under the non-contestability provisions imposed on insurance companies by the Statute of Limitations in the USA, life insurance companies cannot contest the payment of death benefits, provided premiums have been fully paid during the Contestability Period and up to the date of the death of the Insured. The Contestability Period is generally between one and three years with two years being the standard.
• The Life Settlements Industry has been established in the USA since 1997.

Life Settlements Wholesale Funds

Investment strategy

The Fund intends to buy and hold to maturity a diverse portfolio of USA based life insurance policies called Life Settlements. Diversification will be achieved by monitoring exposure to individual insurance companies, credit rating classes of insurance companies, individual insured persons and classes of medical impairments. The Fund will purchase individual policies, fractional policies and bundles of policies. The Fund may also place funds on the official short-term money market or on deposit with authorized deposit-taking institutions pending the acquisition of policies. All interest earned on these investments will form part of the Assets of the Fund. The Fund may also acquire interests in trusts which own Life Settlements. These trusts may be operated by associates of the Responsible Entity. Interests in these trusts, if acquired, will become Assets of the Fund. In such situations, the Responsible Entity will review the underlying Life Settlements held in the trust to ensure they satisfy the Policy Purchase Criteria. In addition, the Fund may also acquire Life Settlements (or interests in trusts) which are encumbered. In these situations, the Fund will generally assume the responsibility of the borrower to repay the loan. However, any encumbrance will be taken into account as part of the acquisition and valuation process.

Subscription details

The minimum initial subscription that will be accepted from each direct Investor is AUD$30,000. The minimum additional subscription amount that will be accepted from each direct Investor is AUD$5,000. The Responsible Entity may accept amounts lower than this in its absolute discretion. The Fund is not restricted in the number of Units it may issue under this PDS as the Fund will continue to acquire Assets so long as there is demand from Investors and the Fund’s investment strategy can be followed.

A USD Class is also available at US$30,000

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