Main Risk Factors

Settlements intends to invest in, and exclusively invests in Life Settlements’s Portfolios. The return on such investment is and will be the sole source for providing positive return on the Shares. However, such investment returns may be highly volatile, and even insufficient, as they are subject to the following risks:

Purchase Price of the Portfolio

Settlements intends to compose a portfolio of Life Settlements (“LS”) starting through the purchase from the entire existing portfolio of a Cayman Hedge fund : Assured Fund.

There can however be no guarantee that thereafter, the LS will continue to be valued at least at the value of said purchase prices. Should Settlements be forced to sell such SMPs, it is possible that Settlements would not be able to obtain selling prices that are higher than or equal to such purchase prices. Indeed, such selling prices may be substantially lower, leading hence to a substantial reduction in Settlements net worth, and hence the book value of the Shares.

Longevity Risk

When Settlements purchases a LS, it preliminary makes an assessment of the life expectancy of the insured, often advised in the matter by third party medical evaluators. The expected target return Settlements requires on the investment and the premium load that will be required to maintain the policy till it matures, together determine the maximum price Settlements is prepared to pay for such LS.

It is however possible that the insured outlives the life expectancy as medically assessed. In that event, the moment of pay-out of the maturity benefits will be postponed in time, leading to deterioration of return. At the same time, it will be necessary to continue to pay premiums during a longer than initially expected period, further deteriorating return, even to the point that it may become negative.

It is possible to reduce longevity risk by investing in a diversified portfolio of life settlement policies, as Settlements does. However, as life settlement policies tend to cover the lives of individuals that belong to higher socio-economic population segments, which have therefore better than average quality of life and easier than average access to medical services, there is a strong bias towards better than expected longevity among such policies.

To mitigate such risks, Settlements will only purchase policies that have been underwritten by two independent, approved medical underwriters. The average of the two life expectancies will be adopted. Such practice will be subject to ongoing review taking into account market information and balancing the need of Settlements to react prudently to market movements and changes in the recognized “best practice” within the policy purchasing arena.

Life expectancy will be determined using medical and actuarial information. Settlements will actively monitor the accuracy of predictions made on this basis and if found to be unsatisfactory, will seek opinions from independent third party medical experts to highlight any potential problems with this method. Its ability to reduce risks associated with life expectancy could be affected by the amount of funds raised.

Risk of Insufficient Premium Reserves

When Settlements purchases a LS, Settlements actuarially calculates and sets aside a certain amount of premium reserve, which is intended to serve the payment of policy premiums until such policy matures. However, due to longevity risk (see above) it is possible that the premium reserve depletes before the policy has matured. In such case, the policy will lapse, leading to a complete loss of both the initial premium reserve and the purchase price of the policy. It is possible to reduce the risk of insufficient premium reserves by investing in a portfolio – rather than a single policy – of life settlements, as Settlements does, which will reduce the required per-policy-premium-reserve size.

To additionally reduce the risk Settlements SA may negotiate a credit facility with a financial institution dedicated to the premium payment.

Risk of Bankruptcy of the Underwriting Insurance Company

In the event of a bankruptcy of the underwriting insurance company of a LS, Settlements may not receive maturity benefits related to such policy. Settlements tries to mitigate such risk by purchasing only policies underwritten by insurance companies rated “A” or better by rating agencies such as Standard & Poor’s, Moody’s, Fitch or AM Best .

Holding a spread of individual policies also significantly reduces the potential effect of this
risk, but there can never be any assurance that such spread will sufficiently mitigate the bankruptcy risk.

Risk of Fraud

The underwriting insurance company may challenge payment as a result of fraud by the originator of, or any other party that was previously involved with handling the policy, thus reducing returns to Settlements. Settlements will only purchase LS that are “noncontestable” but some risk of challenge could remain in exceptional fraud cases.

Settlements intends to purchase policies that have been in force beyond the contestability period as fraud would therefore be an unlikely motive for having purchased an insurance policy. Additionally, at point of medical review, policies are validated with both relevant doctors and life offices contacted. Holding a spread of individual policies also significantly reduces the potential effect of this risk. Therefore, Settlements is not significantly at risk in this respect.

There is also the risk that the examining expert credulously under-states the life expectancy, thereby reducing its expected returns. To mitigate such risk, Settlements will only source policies that have been underwritten by two independent, approved underwriters using medical and actuarial information. Providing a life expectancy in this way requires doctors’ notes only and not an opinion on life expectancy from a doctor. The assessment is accordingly objective and unbiased.

Risk of Medical Advancement

Life expectancies are assessed, among others, on the basis of the insured’s impairments (if any) and the current state of medical treatments that are available. There exists the risk that unforeseen new medical treatments may be developed, leading to a prolonged life expectancy and therefore to lower than expected returns on its investment in the underlying policy.

Settlements will therefore diversify policy holdings across gender, impairments and locations. Also, Settlements will only be purchasing policies on older lives where natural decline is inevitable at some point.

Risk of Third Party Claims

Previous beneficiaries may have a legal claim to the maturity benefits of a policy, thereby depriving Settlements of the maturity benefits on such policy, and hence reducing its returns.
Settlements therefore will only purchase policies where all previous beneficiaries have signed a legal waver – witnessed by a notary public – of their previous rights to the policy. As is the case with many of the other risks mentioned, holding a spread of individual policies also significantly reduces the potential effect of this risk.

Fiscal risk

Presently Settlements cannot guarantee that under Belgian fiscal laws the interest paid on issued debt notes will be fully deductible. The non deductibility of the interest will have a huge impact on the Company capacity to remunerate its capital.

The Company has obtained a fiscal ruling from the Belgian tax authorities confirming the interest deductibility of those interests.

Risks related to the purchase of the Portfolio

Settlements has negotiated a purchasing option to secure the purchasing of the Portfolio from Assured Fund. To fund such purchasing such amount, Settlements will issue debt notes and will publicly offer them.

Although Settlements and its shareholders believe that the debt notes will be subscribed and that the Portfolio will be purchased, Settlements cannot in any way guarantee the subscription of the debt notes.

Risks Relating to the Company

Intended High Level of Financial Leverage

Settlements intends to publicly issue debt notes, with the aim of financing the purchase of the Portfolio. Upon completion of such issue, Settlements will be financially leveraged to a very high level, as its outstanding financial liabilities will be about $ 274.000.000 whereas its net worth will only be about $ 3.867.210. This means that, if the market value of said portfolio of LS will drop as little as 2% from its purchase price, its entire net worth will have been consumed, and the Shares would therefore no longer have a positive book value.

Limited Operating History

Though it is its intention to take over the entire Portfolio of Assured Fund, which has a long track record, Settlements itself as a company was only incorporated on July 28, 2008.

Operational Uncertainty

Settlements’ prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as the life settlements market. To address these risks and uncertainties, Settlements must, among other things, secure reliable and available sources for its policy investments, dispose of knowledgeable
and trustworthy medical underwriters, find, if required, suitable purchasers of its policies calculate, respond to competitive developments, and attract, integrate, retain and motivate qualified personnel.

There can be no assurance that Settlements will be successful in accomplishing all of these things, and the failure to do so could have a material adverse effect on its business, results of operations and financial condition, and therefore the repayment of the Shares.

Litigation

Settlements may, from time to time, be subject to or named as a party in negligence claims, libel actions, and other legal proceedings in the ordinary course of its business. Settlements could incur significant legal expenses and its management’s attention may be diverted from its operations in defending ourselves against lawsuits or claims and resolving them. An adverse resolution of any such lawsuits or claims against Settlements could have a negative effect its ability to generate return for the Shares.

Key Personnel

Settlements’ performance is substantially dependent on the continued services and on the performance of its management and other key advisers. Its performance also depends on its ability to retain and motivate its key advisers. The loss of the services of key advisers could have a material adverse effect on its business, results of operations and financial condition.

Settlements does not have long-term employment agreements with any of its key officers neither its advisers and maintain no “key person” life insurance policies.

Additional Capital Requirements

Settlements may not generate a sufficient amount of cash from its investments in LS to maintain its portfolio and/or service the Shares. Selling certain policies may, due to adverse pricing conditions in the life settlements market, at such time not be a viable option. Settlements could therefore be forced to seek third party financing. This financing may not be available to the Company at all or at an acceptable cost.

Risks Relating to the Industry

Competitive Environment

The market for life settlement policies is relatively new, rapidly evolving and intensely competitive, and Settlements expects competition to intensify further in the future.

Settlements currently or potentially competes with a number of other companies in the pursuit to acquire life settlement policies at prices that are compatible with its desired return levels. Certain of its competitors with other revenue sources may be able to adopt more aggressive pricing policies than Settlements. Competitive pressures created by any one of these companies, or by its competitors collectively, could have a material adverse effect on its average policy acquisition prices, and therefore on its results of operations and financial condition. In the event Settlements would be required to sell a policy, the same competing factors can work to the detriment of its pricing terms.

Governmental Regulation

The purchase and sale of life settlement policies is increasingly subject to both US state and federal legislation. Where such legislation tends to create a level playing field, which should be considered as beneficial to its business, it on the other hand is sometimes often, with the interest of the insured in mind, aimed at restricting policy pricing parameters. The relevant authorities may also consider introducing licensing and other additional regulations to the market, and in such event, it is not sure that Settlements would be able to secure such licensing or to comply with such regulations. Though Settlements believes current legislation, in the US, not to prohibitively restrictive to the sound conduct of its business, there can be no assurance that such workable environment will continue to exist in the future.