The chairman of suspended EEA Life Settlements fund has replied to criticism by the fund’s auditor over the valuation of the portfolio.
In the fund’s recently published annual report for the 12 months ended 31 December 2011, Ernst & Young says it considers the fund to be worth around $100m (£65.6m) less than the $871m valuation given by its directors for the year.
Responding in a letter to shareholders, EEA Life Settlements chairman Mark Colton notes that 2011 was the only year in which the fund and its auditor has disagreed over the portfolio’s valuation and explains that an independent valuation exercise has been commissioned.
The fund suspended trading in 2011 after the FSA branded life settlement funds as “toxic products”, which led an increase in redemption request and the withdrawal of subscriptions.
“At the end of the 2011 financial year the underlying policies remained highly illiquid. The effect of this was that their valuation for the purposes of International Financial Reporting Standards was considerably more difficult than in previous years,” Colton says.
“As as result, the board and its auditors arrived at different assessments of the IFRS value of the policies. This contrasted with several previous years where there was no disagreement.”
Colton adds that since 31 December 2011, the fund’s underlying policies have been subject to continuing activity with premiums being paid and maturities, which are paid out when policyholders die, being collected. However, maturities have occurred at a slower rate than anticipated.
“We have always taken valuations very seriously, so the board must consider the evidence and assess the implications for pricing and for valuation purposes,” the chairman says. “The board has commissioned a mortality review of the entire portfolio. It will use this and updated estimates of longevity from industry specialists to guide the decision-making.”
Colton also points out that the publication of 2011’s results brings the restructuring process of the fund further forward. “The implementation of the restructure as soon as possible is now the primary goal of the board,” he adds.