Thousands of investors in Keydata plans backed by Lifemark are facing another setback in their bid for compensation after the administrator says he is "really questioning" the quality of traded life policies (TLP).
The FSCS has said the final level of compensation to investors will depend on the value still left in beleaguered Lifemark.
However, KPMG's Eric Collard, who has spent a year working on re-financing deals to keep Lifemark from liquidation, says the TLP industry is "too young" to accurately assess mortality dates, and therefore the final value of the 303 Lifemark policies.
Lifemark has had about 88% fewer maturities this year than the projections estimated when policies were purchased for the portfolio.
The fund is struggling to pay $4.5m (£2.8m) a month for the premiums on the TLPs because the original holders are not dying as frequently as expected.
Deloittes of Dublin, the actuary which assessed the policies, projected two maturities per month for the life of the fund. But in 2010 only three matured in total, with the last in June paying just £250,000.
A spokesperson for Deloittes declined to explain the huge difference, saying: "We are unable to discuss client matters."
Lifemark has not paid income to its thousands of investors since February.
Collard says: "I am really questioning the quality of the portfolio. If there are no mortalities by March you have the reflection of a fund that only swallows money, and no-one wants to give to a charity."
He says the original policyholders' wealth and location, which impacts their access to life-prolonging medical care, must not have been factored into the actuarial assessment.
The TLPs were owned by elderly US citizens living in Florida, with some providing tens of millions of dollars worth of cover.
TLP specialist Managing Partners Limited (MPL) and Professor Merlin Stone, from Oxford Brookes University Business School, published a report in August with a warning to investors of the dangers of inaccurate life expectancy estimates.
"The only way to adjust the portfolio to be a fair reflection of average life expectancies and secure the 8-10% returns investors should expect would be to use the mortality experience of the portfolio to date, rather than use general population tables," it states.
Otherwise, "the growing use of securitisation instruments with TLPs is fraught with risks for unwitting...investors", the report says.
Lifemark was forced to borrow £1.5m and $7.5m (£4.8m) respectively from Norwich & Peterborough (N&P) and US hedge fund CarVal in October.
The FSCS has agreed to compensate "eligible" Lifemark investors, but said last month it does not know what the fund is worth or the amount of potential payouts.
Lifemark investors' £350m bought life insurance policies which were due to pay about $1.35bn into the fund on their maturity.
Bondholders who invested more than the £48,000 FSCS limit are hopeful a long-term rescue deal will enable the fund to return their capital, plus interest.
Lifemark was due to repay €461m to investors between 2011 and 2014. However, this is likely to be heavily reduced by operating costs, the interest and repayment of the current and any future loans, paying remaining premiums as well as fees to administrators.
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