Bloomberg News

EEA Aims to Double Life Settlements Fund With Japan Investment

November 01, 2011

Nov. 1 (Bloomberg) -- EEA Group Ltd., a London-based alternative investment manager, is aiming to double its fund that invests in U.S. life insurance policies to $2 billion over the next two years as it seeks to lure more Japanese investors.

The fund, which buys life insurance policies from individuals and takes on their premium payments in return for the insurance payout once the individual dies, has had an annualized return of about 8.9 percent since inception in November 2005 through the end of September, according to the firm. Japanese investors account for about 5 percent of the EEA Life Settlements Fund that has about $1 billion under management and is only open to non-U.S. investors, said Peter Winders, marketing director of the company.

“We are expanding internationally, and for us, Japan seems to have huge prospects,” said Winders in an interview in Tokyo. “Clearly, our goal is to increase the percentages of Japan.”

Japan has the world’s second-biggest pension market with assets of $3.47 trillion after the U.S., according to Towers Watson & Co.’s 2011 Global Pension Asset Study. Japanese corporate pension funds plan to increase investments in alternative assets such as hedge funds to reduce risk and boost returns in a country with one of the world’s lowest bond yields and a falling birthrate that is curbing contributions.

Every year in the U.S., about $1 trillion of life insurance policies lapse or are surrendered out of the $21 trillion market, according to Winders, citing Conning Research & Consulting Inc. data. The U.S. life-settlements market had $10 billion in transactions last year, he said.

Profitable Bets

The fund, which only invests in U.S. life insurance policies, currently has 704 policies issued by 88 life companies, said Winders. The average weighted age of policy holders in the fund is 83.26 years, with illnesses including cancer, diabetes, dementia and leukemia.

Typically, funds investing in the life settlements market have declining profit the longer an insured person lives, as the managers must keep paying premiums until the individual dies. Profitability rises the sooner the insured passes away.

The fund has lost money only on one policy so far because EEA did “conservative” check-ups, based on medical records, on policyholders. It had to sell only four policies because the individuals’ life expectancy changed, Winders said. So far, 222 policies matured, generating $296 million in cash, according to the firm.

EEA has 30 staff in the U.S., including five nurses, who follow up on the policyholders’ state of health, Winders said. The firm may hire more staff as the fund grows, he said.

About 65 percent of the fund’s investors are from the U.K., followed by 15 percent in Europe, 10 percent in South Africa and 10 percent in Southeast Asia, said Winders.

Thirty-one percent of 135 Japanese retirement funds plan to increase alternative investments such as hedge funds from this fiscal year starting April 1, according to a JPMorgan Asset Management (Japan) Ltd. survey in May.

“Japan has shown good appetite for alternative assets,” said Mark Partington, a consultant at the firm.

--Editors: Malcolm Scott, Linus Chua

To contact the reporters on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net.


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