Potential increase in the Cost of Insurance

Alternative Asset Opportunities PCC Limited (the "Company")

11 May 2016

Potential increase in the 'Cost of Insurance' (COI)

The interim report for the six months to December 2015 referred in some detail to insurers applying increases to applicable premium rates. These are known as 'cost of insurance' (COI) increases. COI increases have historically been very rare and, although they can be implemented each year by the insurer, until September 2015 the Company had not experienced any such increases since its launch in 2004. To date, only three of the Company's 26 insurers have applied COI increases, on seven out of the 75 policies in the portfolio with a face value of $6m, with an average increase of 10% (as referred to in the interim report).

A small number of insurers have recently applied aggressive COI increases to premium rates for some classes of policy. So far, we have received only one confirmed notice of such an aggressive increase from Banner Life Insurance Company, but we have now been advised by our Investment Manager that on a further six policies issued by Transamerica Life Insurance Company (with a face value of $9.9m out of a total portfolio face value of $118m) substantial increases may be made which, if implemented, would raise the future premiums payable on these policies by 97% on average. Such increases would take effect between June and October 2016 resulting in additional premiums of approximately USD$800,000 in the year to 30 June 2017. The impact on the valuation of these six policies would be a reduction of 51%, which would have a negative impact on the Company's net asset value of around 5%.

Clearly your Board is extremely concerned by this possible development. If other insurers decide to implement increases of the order of magnitude indicated by Transamerica, this could have a significant adverse effect on the Company's net asset value. 

It would appear that insurers are not required to provide a detailed explanation to policy holders to justify COI increases and therefore it is not clear why premiums should be increased. The aggressive increase in premiums by certain insurers has resulted in a number of class actions in the USA against them, two of the recipients being the two insurance companies named above. In conjunction with our advisers we are monitoring developments carefully and will update shareholders in due course.

Enquiries:

Alastair Moreton

Stockdale Securities Tel: 020 7601 6118

Charles Tracy

Chairman Tel: 020 3246 7405