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This website contains information which may or may not be applicableto your own situation and circumstances.

Any information or advice on this site does not constitute a personal recommendation. If you have any doubts as to whether a product or service is suitable for you, please seek independent advice.

Alternatives

There are many alternative investments which people should be aware of that provide returns that can be wholly counter-cyclical to markets, or completely unaffected by world events, often acting as safe havens at time of trouble. These do have their own risks attached and should only be considered for a minority of anyone’s portfolio, depending on your own risk assessment. The ‘Sunday Times’ published some information and we have added our own info.

• Venture Capital Trusts
• Commodity Funds
• Agriculture Funds
• Precious Metals

LLOYD’S OF LONDON

Lloyd’s unveiled pre-tax profits in 2008 of £949m for the first half of the year, down from £1.8 billion a year ago, because last year was a benign one for natural disasters, meaning insurers had to cut premiums.

However, Hurricane Gustav, which hit Louisiana this month, and Ike, which lashed Texas, are expected to lead to higher premiums — and better returns for Lloyd’s names according to the Sunday Times.

The world’s largest insurance market — rated A+ by both Fitch and Standard & Poor’s — also stands to benefit from the near-collapse of AIG. Business that was underwritten by AIG could re-direct to Lloyds Last year, Lloyd’s names netted 23%. Returns for 2008 are expected to come in at up to 12.5% but could yet be affected by any insurance ‘disaster’

Liability

Those who became names before 2003 have unlimited liability — they can lose more than they stake — but new names have limited liability. Potential profits and losses are accentuated by the “double use of assets”. Names typically provide only 40p of capital per pound of insurance they underwrite. Lloyd’s takes a charge on that 40p and can call on it at any time to cover losses. Investors can keep their capital, though, and invest it how they choose, giving them a second potential return (or exaggerating their losses). Returns are free from inheritance tax after two years. The minimum capital required is £350,000, and investors usually commit about £1m and sometimes as much as £10m.

For less outlay, you can access the market through funds such as Hiscox Insurance, which has 20% of its portfolio in Lloyd’s and requires a minimum £1,000 investment.

TRADED ENDOWMENTS

Although bonuses on many policies taken out in the late 1980s and early 1990s to repay mortgages have been slashed, leaving people facing mortgage shortfalls, wealthy investors have been buying them up.

TRADED LIFE POLICIES

Death futures can offer steady, predictable returns that are uncorrelated with other asset classes. These funds buy US life-insurance policies at a discount to their maturity value.
The EEA Life Settlements fund has returned 10.4% in the past year. It buys insurance policies of Americans with an average life expectancy of 36 months, and has grown by £40m to £141m since August.

The Assured Fund has made an annual average of 10.2% since its launch in 2005, while Managing Partners Traded Policies has returned 9.8% after charges in the past year.
Each fund has reinsurance, while US states provide protection of between $300,000 and $500,000 per policy in the event of an insurer’s collapse.

SOCIAL LENDING

Zopa.com brings together those who want to borrow money with potential lenders who have seen their average returns on new loans rise to more than 10% over the past two months.

“As unsecured personal loan rates in the wider market have gone up, this has had a knock-on effect on Zopa rates, allowing lenders to increase what they charge,” said Giles Andrews at Zopa, set up by the team that launched behind internet bank Egg. Since March 2005, its 230,000 members have borrowed and lent each other over £26m.(2008)