Life Settlemen Regulatory News (LSAA)

LIFE SETTLEMENT ASSETS PLC

LEI: 2138003OL2VBXWG1BZ27

(the "Company" or "LSA")

Half-Year Announcement

LSA, a closed-ended investment company which manages portfolios of whole and fractional interests in life settlement policies issued by life insurance companies operating predominantly in the United States, is pleased to announce its unaudited half-year results for the period ended 30 June 2022.

Highlights

· Total maturities during the period were USD $16.3 million (H1 2021 USD $25.8 million)

· Estimated AE ratio ("actual to expected ratio") of HIV segment of 54%, and of non-HIV segment of 168%, aggregating to 127%

· The Company's Net Asset Value ("NAV") as at 30 June 2022 was $USD 2.20 per share

· Acquisition of small portfolios of 20 fractional policies with a face value of USD $1.6 million

· Cost reductions continuing to be a strategic priority including making agreed changes to the Investment Manager's remuneration

· Ongoing litigation progressing satisfactorily albeit slower than hoped. Resolution expected during the first half of 2023. 

Michael Baines, Chairman, commented:

"Whilst the market background in this period reflects the challenges arising from greatly increased global geopolitical tensions and resulting economic turbulence, the non-correlation of the Company's performance with financial markets is reassuring. Overall, whilst the portfolio has had mixed results reflecting the nature of the asset base, it has outperformed expectations, considering the estimated Actual to Expected maturity performance on an aggregated basis.

Our focus as a Board is on seeking a successful conclusion to the litigation being pursued, and continuing to achieve cost reductions, while at the same time promoting awareness of the Company as a truly decorrelated asset class and attractive alternative investment, against the background of broader economic uncertainty."

Enquiries

For further information, please visit https://www.lsaplc.com/, or contact:

Acheron Capital Limited (Investment Manager)

Jean-Michel Paul

020 7258 5990

Shore Capital (Financial Adviser and Broker)

Robert Finlay

020 7408 4080

ISCA Administration Services Limited

Company Secretary

Tel: 01392 487056

Company performance

Performance analysis is provided in the tables below:

A Share Class

Chairman's Statement

On behalf of the Board, I am pleased to present the Company's half year results for the period ended 30 June 2022. The market background in this period reflects the challenges arising from greatly increased global geopolitical tensions and resulting economic turbulence. Positively for the Company, the non-correlation of our performance with financial markets, and the strong US dollar, work in favour of our investment case and are factors which may strengthen in the face of recessionary headwinds. However, these factors are balanced by higher discount rates and inflationary pressure on costs.

Investment overview

The financial highlights above show the results for the half year to 30 June 2022. The Company has continued its strategy of streamlining the Company's structure with an aim to reduce costs over the longer term, which has been ongoing from the start of LSA's London Listing. These steps have included consolidation of all the Company's share classes into Share Class A and, since the start of 2022, we have also reduced by agreement the future cost to the Company of the Investment Manager's activities.

For the time being, however, our overall performance is still impacted by the ongoing litigation costs in the USA in the previously announced MBC case, where legal action has been taken by the Company in order to protect or enhance the value of existing investments. Progress continues to be made, albeit at a frustratingly slow pace, regarding the Company's participation in the judicially approved sale process relating to the relevant portfolio, through which we aim to secure an important enhancement to portfolio value. Once resolved, the Company will, through the Acheron Portfolio Trust, then overwhelmingly only own 'whole' policies rather than fractional entitlements. This will improve risk management in the future.

Recent judicial decisions regarding the auction procedure made since the middle of the calendar year have been encouraging for the Company and, although progress has been slower than we had hoped, we believe the matter should be resolved in the first half of 2023. Resolution of this litigation will have important consequences for the Company. First, the litigation costs forming part of the ongoing cost base will be significantly reduced, whilst secondly, it will mark the end of the need to accumulate cash resources to purchase the relevant policy interests, so enabling the Board to resume further distributions to Shareholders.

The portfolio itself has had mixed results over the first six months reflecting the nature of the asset base. The non-HIV policy component of the portfolio has experienced higher maturities than expected, while the HIV policy component had significantly less. On an aggregated basis, this has meant higher than expected cash receipts, but with results close to net asset value, reflecting the full internal valuation of the policies that have matured in the period.

Continuing the policy described at the time of publication of the 2021 Annual Report in April 2022, the Board has so far resolved to defer any decision regarding payment of a special dividend until the final MBC auction takes place, and the result is known and fully assessed.

The Life Settlement Market

Recent market volatility, high inflation, and overall economic dynamics are increasing the risk levels for investors across all asset classes. The prospects of a recession tend to increase interest in truly decorrelated asset classes, which includes life settlement assets. As increased amounts of investment capital enter the secondary market for life insurance, institutional buyers compete for the limited supply of policies available for purchase. This trend has supported increased awareness of the concept of life settlements as an attractive alternative asset class.

Portfolio

The overall portfolio is subdivided into portfolios exposed to either HIV-positive policy holders or non-HIV positive policy holders. The following table provides information on the Company's policies, shown by exposure to HIV and non-HIV positive insureds as at 30 June 2022.

HIV and Non-HIV Exposed Policies

In the first half of 2022, small portfolios of fractional policies, to which the trusts were already overwhelmingly exposed, were added. 20 policies with a coverage of USD 1.6 million were assigned to the portfolio held by Acheron Portfolio Trust.

Maturities in the period to 30 June 2022

In the period under review, considering the estimated Actual to Expected maturity performance ("AE") on an aggregated basis, the portfolio outperformed expectations. In particular, the non-HIV segment of the portfolio experienced high level of maturities, with estimated AE of 168% until June 2022. However, the HIV segment of the portfolio had an estimated AE of only 54% by June 2022.

This relative underperformance for HIV and overperformance for non-HIV life settlements demonstrates how short term results may not always reflect longer term trends as has been observed in the past, and we would typically expect this to reverse over time. While recent improvements suggest this, the assumptions underlying the valuation model are kept under review, and outputs are carefully monitored to ensure that they do not reveal any new trends which could potentially affect valuations.

The Actual to Expected ratio achieved in the period is set out in the table below.

* in maturity dollar amounts, estimated until June 2022

As at 30 June 2022 the net asset value ('NAV') of the A shares was USD 2.20 per share.

The NAV performance history can be seen in the table below.

Portfolio Composition

Further information on the composition of the portfolio as at 30 June 2022 can be found on our website https://www.lsaplc.com/investor-relations/reports-company-literature

Distributions

No distributions were made to Shareholders in the period.

Outlook

The Board's focus is on seeking a successful conclusion to the litigation being pursued to protect and enhance the value of the Company's portfolio. This outcome is not assured but the Board is encouraged by recent progress.

Alongside this, the Board expects to make good progress in continuing to achieve cost reductions, while at the same time promoting awareness of the attraction of investment in the Company's asset base against the background of broader economic uncertainty.

Michael Baines

Chairman

27 September 2022

Key Performance Indicators (KPIs)

The Board monitors success in implementing the Company's strategy against a range of key performance indicators (KPIs), which are viewed as significant measures of success over the longer term. These key indicators are those provided in the performance tables above. Although performance relative to the KPIs is monitored over quarterly periods, it is success over the long-term that is viewed as more important. This is particularly important given the inherent volatility of maturities and short-term investment returns.

The Board has adopted the following KPIs:

· Share Price - a key measure for Shareholders to show the most likely realisable value of this investment if it was sold. Changes in the share price are closely monitored by the Board.

· NAV per share - as this is the primary indicator of the underlying value attributable to each share.

· Premium/(discount) to NAV - as this measure can be used to monitor the difference between the underlying Net Asset Value and share price.

· Total maturities (USD) - the value of the total maturities in USD provides an indicator of the underlying cash flow that the Company receives from its main source of income - policy maturities. There are factors which could impact the outcome of this performance measure including: average life expectancy and the age of the underlying policy holders. 

Please note that the Actual to Expected ("A/E") ratio, which is closely linked to the total maturities KPI, is a key method by which the Board monitors the level of maturities. The A/E ratio measures the declared maturities compared to the projected maturities based on the actuarial models. A ratio close to 100% indicates maturities correspond exactly to the model. A percentage greater than 100% means the maturities are more than anticipated by the models and less than 100% the opposite is the case.

· Earnings per share - this is a key measure of financial performance used to assess the fortunes of the Company over each financial period.

· Profit/(loss) for the period - this is a key measure of financial performance used to assess the fortunes of the Company over each financial period.

· Running costs - The Ongoing Charges of the Company for the financial period under review represented 8.7% (year to 31 December 2021: 7.6%) of average net assets. Excluding the servicing and legal costs the ratio would be 3.9%.

Shareholders should note that this ratio has been calculated in accordance with the Association of Investment Companies' ("AIC") recommended methodology, published in May 2012. This figure indicates the annual percentage reduction in Shareholder returns as a result of recurring operational expenses. Although the Ongoing Charges figure is based on historic information, it does provide Shareholders with a guide to the level of costs that may be incurred by the Company in the future.

Please Note: The Company regularly uses alternative performance measures to present its financial performance. These measures may not be comparable to similar measures used by other companies, nor do they correspond to IFRS standards or other accounting principles.

Directors' Statement of Principal Risks and Uncertainties

The important events that have occurred during the period under review and the key factors influencing the financial statements are set out in the Chairman's Statement above.

In accordance with DTR 4.2.7, the Directors consider that the principal risks and uncertainties facing the Company have not materially changed since the publication of the Annual Report and Accounts for the year ended 31 December 2021.

The principal risks faced by the Company include, but are not limited to:

· Mortality risk

· Premium management risk

· Volatility risk

· Fractional premium risk

· Fractional ownership risk

· Advance age mortality risk

· Discount rate risk

· Modelling risk

· Tax

· Breach of applicable legislative obligations

· Counterparty risk

A more detailed explanation of these risks and the way in which they are managed can be found in the Strategic Report on pages 21 to 24 and in Note 4 to the Financial Statements on pages 63 to 66 of the 2021 Annual Report and Accounts - copies can be found via the Company's website, www.lsaplc.com.

There have been no significant changes in the related party disclosures set out in the Annual Report.

Directors' Statement of Responsibilities in Respect of the Financial Statements

In accordance with Disclosure and Transparency Rule (DTR) 4.2.10 Michael Baines (Chairman), Christopher Casey (Audit Committee Chairman) and Guner Turkmen, the Directors, confirm that to the best of their knowledge:

· The condensed set of financial statements contained within this Half-Yearly financial report have been prepared in accordance with International Accounting Standard ("IAS") 34 as adopted in the UK and gives a true and fair view of the assets, liabilities, financial position and profit of the Company; and

· The Half-Yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.7R being disclosure of important events that have occurred during the first six months of the financial year, their impact on the condensed set of financial statements and a description of the principal risks and uncertainties for the remaining six months of the year; and

· The Half Yearly financial report includes a fair review of the information required by the FCA's Disclosure and Transparency Rule 4.2.8R being disclosure of related party transactions during the first six months of the financial year, how they have materially affected the financial position of the Company during the period and any changes therein.

This Half-Yearly Report was approved by the Board of Directors on 27September 2022 and the above responsibility statement was signed on its behalf by:

Michael Baines

Chairman

27 September 2022

Condensed Statement of Comprehensive Income

for the six months ended 30 June 2022

______________________________________________

All revenue and capital items in the above statement derive from continuing operations of the Company.

The Company does not have any income or expense that is not included in the profit for the period and therefore the profit for the period is also the total comprehensive income for the period.

The total column of this statement is the Statement of Total Comprehensive Income of the Company. The supplementary revenue and capital columns are prepared in accordance with the Statement of Recommended Practice ("SORP") issued by the Association of Investment Companies ("AIC") in April 2021.

The notes form part of these financial statements.

Condensed Statement of Financial Position

as at 30 June 2022

Registered in England and Wales with Company Registration number: 10918785

The notes form part of these financial statements.

Condensed Statement of Changes in Equity

for the six months ended 30 June 2022

________________________________________________________

The Special reserve was created as a result of the cancellation of the Share premium account following a court order issued on 18 June 2019. The Special reserve is distributable and may be used to fund purchases of the Company's own shares and to make distributions to Shareholders.

The revenue and realised capital reserves are also distributable reserves.

The notes form part of these financial statements.

Condensed Cash Flow Statement

for the six months ended 30 June 2022

____________________________________________________

The notes form part of these financial statements.

Notes to the Condensed Financial Statements

for the six months ended 30 June 2022

Note 1 General information

Life Settlement Assets ("Life Settlement Assets" or the "Company") is a public company limited by shares and an investment company under section 833 of the Companies Act 2006. It was incorporated in England and Wales on 16 August 2017 with a registration number of 10918785. The registered office of the Company is 115 Park Street, 4th Floor, London W1K 7AP.

The principal activity of Life Settlement Assets is to manage investments in whole and partial interests in life settlement policies issued by life insurance companies operating predominantly in the United States.

In May 2018, the Company received confirmation from HM Revenue & Customs of its approval as an investment trust for tax accounting periods commencing on or after 26 March 2018, subject to the Company continuing to meet the eligibility conditions contained in section 1158 of the Corporation Tax Act 2010 and the ongoing requirements in Chapter 3 of Part 2 of the Investment Trust (Approved Company) (Tax) Regulations 2011(Statutory Instrument 2011/2999).

The Company currently has one class of Ordinary Shares in issue, namely the A shares which principally participates in a portfolio of life settlement assets and associated liabilities, which were acquired from Acheron Portfolio Corporation (Luxembourg) SA ("APC" or the "Predecessor Company") on 26 March 2018.

The Ordinary B Share class was cancelled following the merger of Ordinary Share Classes A and B on 3 June 2021.

The Ordinary Share classes D and E were cancelled following the merger of Ordinary Share Classes A, D and E on 30 April 2020.

Note 2 IFRS accounting policies

2.1 Basis of preparation

These condensed interim financial statements have been prepared using the same accounting policies and methods of computation as in the 2021 annual financial statements.

The condensed financial statements, which comprise the unaudited results of the Company have been prepared in accordance with UK adopted International Reporting Standards ("IFRS") and with the requirements of the Companies Act 2006. They have also been prepared in accordance with the SORP for investment companies issued by the AIC in April 2021, except to the extent that it conflicts with IFRS. The accounting policies are as set out in the Report and Accounts for the period ended 31 December 2021.

The half-year financial statements have been prepared in accordance with IAS 34 "Interim Financial Reporting".

The financial information contained in this Half-Yearly financial report does not constitute statutory accounts as defined by the Companies Act 2006.The financial information for the periods ended 30 June 2022 and 30 June 2021 have not been audited or reviewed by the Company's Auditor. The figures and financial information for the year ended 31 December 2021 are an extract from the latest published audited statements and do not constitute the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and include a report of the Auditor, which was unqualified and did not contain a statement under either Section 498(2) or 498(3) of the Companies Act 2006.

2.2 Changes in accounting policy and disclosures

Standards and amendments to existing standards that are not yet effective and have not been early adopted by the Company

The following new standard has been published but is not effective for the Company's accounting period beginning on 1 January 2022. The Directors do not expect the adoption of the following new standard to have a significant impact on the financial statements of the Company in future periods.

IFRS 17 "Insurance contracts" applies to insurance contracts, including reinsurance contracts issued by an entity; reinsurance contracts held by an entity; and investment contracts with discretionary participation features issued by an entity that issues insurance contracts. IFRS 17 will be effective for reporting periods beginning on or after 1 January 2023. As IFRS 17 is not relevant to the life settlement market, it is expected that it will have no impact on the Company's financial statements.

2.3 Going concern

The Directors have made an assessment of the Company's ability to continue as a going concern and are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of 12 months from the date these financial statements were approved). Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Company's ability to continue as a going concern, having taken into account the liquidity of the Company's investment portfolio and the Company's financial position in respect of its cash flows, liabilities from its assets and the ongoing charges, including annual premiums. Therefore, the financial statements have been prepared on the going concern basis and on the basis that approval as an investment trust will continue to be met.

Note 3 Gains from life settlement portfolios

When a maturity is declared, a realised capital gain or loss is recognised on the investment in the policy, calculated by deducting from the value of the maturity the initial acquisition cost and the previously unrealised fair value adjustments.

The amount of premiums incurred during the period is reflected as a deduction of income from life settlement portfolios. The amount of premiums paid in advance as at 30 June 2022 amounted to USD 6,277,000 (30 June 2021: USD 7,301,000, 31 December 2021: USD 6,525,000).

Note 4 Management fees and performance fees

Under an agreement dated 26 March 2018, the Investment Manager is entitled to a management fee payable by the Trust at an annual rate of no more than 1.5% of the Net Asset Value for class A. Previously, until the merger of classes A, D and E on 30 April 2020 and A and B on 3 June 2021 an annual rate of no more than 1.5% of the Net Asset Value was payable in respect of class A, B and D and 2% in respect of class E. Management fees paid in the period amounted to USD 820,000 (30 June 2021: USD 758,000, 31 December 2021: USD 1,547,000).

The Performance fee in respect of the Trust shall be an amount equal to 20% of the sum of the distributions made to the holders of the Shares in the Company corresponding to the Trust, in excess of the Performance Hurdle (assessed at the time of each distribution).

The "Performance Hurdle" is met when (from time to time) the aggregate distributions (in excess of the Catch-Up Amount) made to the holders of the corresponding Ordinary Shares compounded at 3% per annum for classes A and B prior to 3 June 2021, and prior to 30 April 2020, 5% for classes D and E (from the date of each distribution) equal the aggregate investment made by the Ordinary Shares in the Company (from time to time) compounded at 3% and 5% respectively.

The "Catch-Up Amount" is an amount equal to the distributions that would have been required to be made to the Predecessor Company's shareholders of the corresponding share class in order for the Accrued Performance Distributions (less, where applicable, any clawback of such Accrued Performance Distributions) to be paid (determined as at 30 June 2022), reduced by an amount equal to any distributions paid to the Predecessor Company's shareholders of the relevant share class prior to the Acquisition.

As referred to in the Company's annual results for the year ended 31 December 2021, LSA has been in discussions with Acheron Capital Limited ("ACL") regarding the re-negotiation of the performance fee payable to ACL, which is currently defined as an amount equal to 20% of the total distributions made by the Company over an agreed hurdle rate. Agreement has now been reached with ACL that once the current litigation process with one of the policy trustees has been resolved, which is expected to occur during the first half of 2023, the performance fee will be reduced from 20% as described above to 10% over the existing hurdle rate.

The resolution of the legal dispute is expected to be accompanied by a judicially approved sale of the policies in the relevant trustee portfolio. The completion of such a sale process, including LSA`s participation therein whether successful or not, would mark the end of LSA`s need to accumulate cash to purchase the relevant policies, so enabling LSA to resume further distributions to Shareholders. Assuming resolution of the dispute, following the first such distribution LSA has agreed to make a one-off payment to ACL of any accrued performance fee payable to ACL held by the Company in excess of $1 million, based on the 2022 financial results and subject to the cash requirements of the business. As at 31 December 2021 the accrued performance fee stood at $2.8 million. However, in acknowledgement of the significant work that ACL has had to perform with regard to engagement with the legal dispute over a long period, the Directors of LSA have agreed to make an immediate advance to ACL, subject to an agreed clawback mechanism, of $0.5 million which will be credited against any amount to be paid under the above one-off payment arrangement following the publication of the 2022 financial results.

Note 5 Taxation

The Company has an effective UK tax rate of 0% for the year ending 31 December 2022. The estimated effective tax rate is 0% as investment gains are exempt from tax owing to the Company's status as an investment trust and there is expected to be an excess of management expenses over taxable income.

The company suffers US withholding tax on income received dividends and interest. The tax charge for the period amounted to USD nil.

5.1 Withholding tax on matured policies

In accordance with the taxation treaty between the United States of America and the United Kingdom, withholding tax on matured policies is not due if at least 6% of the average capital stock of the main class of Shares is traded during the previous year on a recognised stock exchange. The Board believes that in the period ended 31 December 2021 the Company fulfilled this requirement.

Note 6 Return per share

As stated in Note 9, the share capital of the Company comprises 49,826,784 A shares. The B shares were cancelled following the merger of share classes A and B on 3 June 2021 and Share Classes D and E were cancelled following the merger of Share Classes A, D and E on 30 April 2020. All Shares are fully paid. Neither unpaid shares nor any kind of option are outstanding, so the basic profit/(loss) per share is also the diluted profit/(loss) per share.

Note 7 Financial instruments measured at fair value

The life settlement portfolios have been classified as financial assets held at fair value through profit or loss as their performance is evaluated on a fair value basis.

The fair value hierarchy set out in IFRS 13 groups financial assets and liabilities into three levels based on the significant inputs used in measuring the fair value of the financial assets and liabilities.

The fair value hierarchy has the following levels:

- level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

- level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e as prices) or indirectly (i.e. derived from prices); and

- level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

The life settlement portfolios of USD 65,902,000 (30 June 2021: USD 85,095,000, 31 December 2021: USD 88,024,000) are all classified as level 3.

Note 8 Financial assets held at fair value through profit or loss: Life Settlement Portfolios

Distribution of the portfolio by class of Shares and by type of risk:

Fair market value reflects the view of Acheron Capital Limited, the Investment Manager of the trust in which the policies of Class A are kept. 

Note 9 Share Capital

At the 30 June 2022, (the Company's share capital amounts to USD 498,268 (30 June 2021: USD 498,268 31 December 2021:498,268) and is represented by 49,826,784 Ordinary A shares of USD 0.01 each. Share class B was cancelled following the merger of Share classes A and B on 3 June 2021 and Share Classes D and E were cancelled following the merger of Share Classes A, D and E on 30 April 2020.

The issued and fully paid share capital at 30 June 2022 is comprised of 49,826,784 Class A shares.

Class A shares relate to specific investments determined by the Board of Directors or as the case may be, by a general meeting of Shareholders. Each investment is undertaken for the exclusive benefit and risk of the relevant class of shares. All shares have equal voting rights.

As announced on 4 May 2020, the Company undertook a capital reorganisation whereby the shares of Classes D and E were merged into class A shares. A total of 8,792,561 D shares and 1,566,603 E shares were redesignated as 3,832,668 A shares. The remaining 6,526,496 D and E shares were designated as Deferred Shares and subsequently cancelled.

As announced on 2 June 2021, the Company undertook a Capital Reorganisation whereby the shares of Class B were merged into Class A shares. A total of 14,596,098 B shares were redesignated as 6,102,725 A shares. The remaining 8,493,373 B shares were designated as Deferred Shares and subsequently cancelled.

Note 10 Special reserve

The Special reserve was created as a result of the cancellation of the Share premium account following a court order issued on 18 June 2019. The Special reserve is distributable and may be used to fund purchases of the Company's own shares and to make distributions to Shareholders.

Note 11 Net assets and net asset value per Share Class

The Net Asset Value (NAV) is shown below.

Note 12 Related party transactions

Related parties to the Company are the members of the Board of Directors of the Company, Compagnie Européenne de Révision S.à r.l. as Administrator who previously had a member on the Board of Directors and the Trustee of the US trust who was also previously a member of the Board of Directors.

Note 13 Post balance sheet events

There are no post balance sheets events to disclose.

COMPANY INFORMATION

Directors

Michael Baines Chairman

Christopher Casey

Guner Turkmen

Registered Office

115 Park Street

4th Floor

London W1K 7AP

Auditors

BDO LLP

55 Baker Street

London

W1U 7EU

Trust's Investment Manager

Acheron Capital Limited

115 Park Street

4th Floor

London W1K 7AP

Registrars

The City Partnership (UK) Limited

The Mending Rooms

Park Valley Mills

Meltham Road

Huddersfield

HD4 7BH

Brokers

Shore Capital

Cassini House

57 St James Street

London

SW1A 1LD

Company Secretary

ISCA Administration Services Limited

Suite 8,

Bridge House

Courtenay Street

Newton Abbot

TQ12 2QS

Email: lsa@iscaadmin.co.uk

Telephone: 01392 487056

LEI: 2138003OL2VBXWG1BZ27

Website - https://www.lsaplc.com

Registered in England and Wales with Company Registration number: 10918785

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of this announcement.