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 2023.

Highlights

·    Total maturities during the period were USD $14.2 million (H1 2022 USD $16.3 million)

·    Estimated AE ratio ("actual to expected ratio") of HIV segment of 80%, and of non-HIV segment of 147%, aggregating to 119%

·    The Company's Net Asset Value ("NAV") as at 30 June 2023 was $USD 2.16 per share

·    Cost reductions continue to be a strategic priority.

Michael Baines, Chairman, commented:

"While these results cover a period when market fears of stagflation are accompanied by inflation and rising interest rates, the non-correlation of our performance with financial markets works in favour of our investment case. It is worth noting the outperformance of the portfolio when measured against other long duration fixed income assets over the last two years.

The non-HIV policy component of the portfolio has experienced a high level of maturities, while the HIV policy component had somewhat less.  On an aggregated basis, this has meant higher than expected cash receipts, but with maturities closely reflecting their book values, NAV has not been materially affected.

With the completion of the acquisition and the current assimilation of the acquired policies into the portfolio, the Board remains focussed on assessing the mortality risk in the Company's portfolio.  Alongside continuing to make further distributions when maturities occur, controlling costs against the background of the inflationary environment remains a core priority for the Board."

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 2023.

These results cover a period when market fears of stagflation are accompanied by inflation and rising interest rates. Positively for the Company, the non-correlation of our performance with financial markets works in favour of our investment case.  In this context it is worth noting the outperformance of the portfolio when measured against other long duration fixed income assets over the last two years.

Investment overview

The financial highlights above show the results for the half year to 30 June 2023.  As investors are aware, in the first half of 2023 the acquisition of the MBC portfolio of insurance policies in the MBC Trust was completed.  However, the Company still awaits confirmation of the final distribution by MBC to its investors, including APT.  Confirmation of the value of the portfolio was conducted by the Company's external actuary, and this value has been incorporated into the estimated NAV as at 30 June 2023.

The Company's portfolio has experienced a number of sizeable maturities in the period, with an aggregate value of USD 14.2 million arising from a total of 51 policies.   

Policy administration costs are a key component in determining the future returns available on the Company's portfolio and Acheron, continues its review of the policy administration cost base. Whilst the Company's portfolio structure has been somewhat simplified following the MBC acquisition, the overall cost of holding life settlements has, nevertheless, been increasing due to inflationary pressures on all market participants.

The Life Settlement Market

The secondary market in life settlements continues to be active, with the decorrelation of the asset class (especially in US dollars) attracting investors in search of a safe haven.

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 by exposure to HIV and non-HIV positive insureds as at 30 June 2023.

The non-HIV policy component of the portfolio has experienced a high level of maturities, while the HIV policy component had somewhat less.  On an aggregated basis, this has meant higher than expected cash receipts, but with maturities closely reflecting their book values, NAV has not been materially affected.

Maturities in the period up to 30 June 2023 are shown in the table below.

In the period under review the non-HIV segment of the portfolio experienced an estimated AE ("Actual to Expected") ratio of 147%.  However, the HIV segment of the portfolio had an estimated AE ratio of 80%. While the Non-HIV portfolio has performed well above expectations, the HIV portfolio has underperformed against expectation during the first half year. 

* in maturity dollar amounts, estimated until June 2023.

The Board believes results over the long term are the best indicator of underlying performance, and it will continue to monitor performance in the second half to ascertain whether model assumptions remain accurate.

On 30 June 2023, Share Class A had a NAV of USD 2.1630 per share with the NAV performance history shown in the table below.

Portfolio Composition

Further information on the composition of the portfolio as at 30 June 2023 can be found in the Factsheet on our website https://www.lsaplc.com/investor-relations/announcements/.

Distributions

On 3 February 2023 the Company declared a special dividend of 6.0209 cents per share totalling approximately USD3.0 million, which was paid on 24 February 2023 to Shareholders on the register on 10 February 2023.  The Board anticipates being in a position to make further distributions following receipt of the MBC proceeds, and, in the meantime, Acheron will be evaluating the future potential cashflows from the portfolio in the light of its work on reviewing administration costs.

Outlook

With the completion of the acquisition and the current assimilation of the acquired policies into the portfolio, the Board remains focussed on assessing the mortality risk in the Company's portfolio.  Alongside continuing to make further distributions when maturities occur, controlling costs against the background of the inflationary environment remains a core priority for the Board.  At the same time the Board will continue to promote awareness of the relative benefits to investors of the Company's investment case.

Michael Baines

Chairman

26 September 2023

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 5.0% (year to 31 December 2022: 7.1%) of average net assets. Excluding the servicing and legal costs the ratio would be 2.5%.

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 2022.

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

·    HIV 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 23 and in Note 4 to the Financial Statements on pages 63 to 66 of the 2022 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 26 September 2023 and the above responsibility statement was signed on its behalf by:

Michael Baines

Chairman

26 September 2023

Condensed Statement of Comprehensive Income

for the six months ended 30 June 2023

______________________________________________

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 July 2022.

The notes form part of these financial statements.

Condensed Statement of Financial Position

as at 30 June 2023

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 2023

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 2023

The notes form part of these financial statements.

Notes to the Condensed Financial Statements

for the six months ended 30 June 2023

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.

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 2022 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 July 2022, except to the extent that it conflicts with IFRS. The accounting policies are as set out in the Report and Accounts for the year ended 31 December 2022.

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 2023 and 30 June 2022 have not been audited or reviewed by the Company's Auditor. The figures and financial information for the year ended 31 December 2022 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 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 2023 amounted to USD 4,488,000 (30 June 2022: USD 6,277,000, 31 December 2022: USD 5,264,000).

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. Management fees paid during the period amounted to USD 810,000 (30 June 2022: USD 820,000, 31 December 2022: USD 1,640,000).

Until 30 June 2022 the Performance fee in respect of the Trust was 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" was 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.

The"Catch-Up Amount"was 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 31 December 2021), reduced by an amount equal to any distributions paid to the Predecessor Company's shareholders of the relevant share class prior to the Acquisition.

On 30 June 2022 the Company announced that after discussions with Acheron Capital Limited ("ACL") an agreement had been reached with ACL that once the current litigation process with one of the policy trustees has been resolved, the performance fee will be reduced from 20% as described above to 10% over the existing hurdle rate.

In consideration of this reduction the Board agreed to release any accrued performance fees payable to ACL held by the Company in excess of USD 1 million, as calculated at 31 January 2023, as a one-off payment. In acknowledgement of the significant work that ACL has had to perform with regard to the legal dispute over a long period, the Directors of LSA agreed to make an advance to ACL on 30 June 2022, subject to an agreed clawback mechanism, of USD 0.5 million, which was credited against the amount to be paid under the above 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 2023. 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 2022 the Company fulfilled this requirement.

Note 6        Return per share

As stated in Note 10, the share capital of the Company comprises 49,826,784 A shares.  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 73,421,000 (30 June 2022: USD 65,902,000, 31 December 2022: USD 62,742,000) 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     Provision for performance fees

The Performance fee does not have a fixed date for payment but can become payable immediately in the event that:

a.  a crystallisation event as set out in the Investment Management Agreement occurs; or

b. distributions to Shareholders exceed the Performance Hurdle.

As a result the Performance fee has been treated as a current liability.

As described in Note 8 on page 67 of the 2022 Annual Report, an advance of USD 500,000 was made on 30 June 2022 as a one-off payment. A further payment of USD 500,000 was advanced during the period as shown in the table above.

Note 10      Share Capital

At the 30 June 2023, (the Company's share capital amounts to USD 498,268 (30 June 2022: USD 498,268 31 December 2022: USD 498,268) and is represented by 49,826,784 Ordinary A shares of USD 0.01 each.

The issued and fully paid share capital at 30 June 2023 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.

Note 11      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 12      Net assets and net asset value per Share Class

The Net Asset Value (NAV) is shown below.

Note 13      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 14      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

Auditor

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 and Corporate Limited

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.