Insurance Investors lose betting on death

by Will Ashworth10 Jun 2015
The good health of policyholders associated with hundreds of “death bonds” are expected to stand in the way of investors looking for a quick return.

“[EEA Life Settlements is] both mismanaging the portfolio and misleading investors and their advisors,” said EEA Investors’ Group representative David Trinkwon when speaking to media last week. "But we accept legal action is a last resort, as it is costly and the outcomes often uncertain.”
The Guernsey-based fund invested more than $800 million in so-called “death bonds” which paid American pensioners a lump sum for their life insurance policies ahead of their death in return for the insurance payout when the policyholders actually died.

Pensioners liked this proposition because they got to use the cash prior to their death instead of the funds going to beneficiaries; investors liked these death bonds (or so they were led to believe) because they would receive annual returns of eight per cent on their capital investment in the EEA Life Settlements fund.

Things fell apart when policyholders lived longer than anticipated combined with investors rushing for the exits after a senior Financial Conduct Authority official described the death bonds as ‘toxic” in a 2011 speech comparing them to Ponzi schemes.

The fund’s management strongly refute any wrongdoing in this situation as does the FCA.

“No guarantee was given to shareholders as to the amount of their investment that they would receive back. It was explained that the valuation of shares can go down as well as up and therefore that shareholders might well receive back less than the amount they invested,” a spokesman for EEA Fund Management told the Telegraph last week. “The fund’s board and the manager have acted at all times to seek to achieve medium to long term capital growth, within the terms of the fund’s investment objectives, and have actively overseen and managed the portfolio’s composition with that overriding objective in mind.”

The FCA, which can’t be sued in British courts, suggested advisors are to blame for investors losing their money.

"We believe that some who invested in a fund called EEA Life Settlements are likely to have been mis-sold the product,” the FCA said in a September 2014 written statement. “As a result, you may wish to make a complaint to the firm which sold you the investment or make a claim against it."