What is.... Endowment Policies Market (II)

Endowment Policies Market


APPMM: Association of Policy Market Makers. (UK)

The Association of Policy Market Makers (APMM) consists of member firms who buy and sell with-profits endowments and whole-of-life policies. Autorised and regulated by the Financial Services Autority, FSA, http://www.fsa.gov.uk/

The Association was founded in April 1992 to:

• Promote awareness and understanding of the TEP market;
  
• Ensure that the highest professional standards are maintained by members and that they adhere to the Association’s Practice Guidelines;

APMM and all its members are regulated under the Financial Services and Markets Act 2000 by the FSA. They all have well–established trading records and also carry Professional Indemnity Insurance.

Association members source and analyse appropriate policies, which are then offered for sale as investments. Apart from one auctioneer, the members are Market Makers – buying or selling on their own account or as agents for third parties on whose behalf they have authority to execise discretion.

Web site: http://www.apmm.org/about.asp


Why is there a Market? Who are the players?

Endowment Policies have traditionally been a very good long-term investment. However, only one third of all policies taken out reach maturity; policyholders cancel 30% in the first few years, 40% are surrendered or sold mid term, leaving 30% to reach maturity in their original ownership.

Policyholders who decide that they no longer want or can afford a policy have a number of options:

• Selling to a third party by obtaining a quote from an APMM member
  (which will be available within 2 working days.)
  Or
  
• Making the policy paid-up; these policies can also be sold through APMM members
  Or
  
• Borrowing against the policy
  Or
  
• Surrendering the policy to the originating Life Office
  
  

A Traded Endowment Policy (TEP) is an endowment policy purchased part way through its term from the original policyholder. It then becomes a pure investment in that no life cover is transferred to the new policyholder.

The market exists because investors believe that the Surrender Value offered by many Life Offices often does not represent the full value of a continuing contract.

Thus the Traded Endowment Market provides policyholders with an alternative to simply accepting the Surrender Value: selling the policy may achieve a better price than surrendering it. The TEP market also offers excellent investment opportunities.


Market Participants
There are two types of organisations to which policyholders can turn for help in disposing of with–profit endowment policies:

Market Makers: are companies who provide the bridge between policyholders and investors. They undertake detailed administrative checks on the policy and policyholder before completing the purchase. Investors therefore have an assurance that the policies they purchase from Market Makers carry good title. Market Makers arrange and pay for the legal assignment of policies from policyholders and their subsequent sale to investors.

Auctioneers: ‘Open outcry’ auctions are held by Foster & Cranfield weekly; these take place in London and a number of towns around the country. The auctioneer competes with Market Makers for policies to sell but, because of the nature of auctions and the buyers who attend them, the auctioneer can often sell policies that are not suitable for market making.

Summary of Selling Process

Policyholders wishing to dispose of a policy will either make direct contact with the APMM or Market Makers or the auction house directly, or use a financial adviser to do so on their behalf. Market Makers quote a price for buying the policy while the auction house recommends a reserve price to be set. When a policyholder has decided which route to follow and which offer to accept, contracts will be exchanged and the sale will proceed to completion.

Summary of Investment Process

Potential investors contact Market Makers either directly or through their financial adviser to discuss their requirements, such as how much they wish to invest over what period of time. Alternatively, they can contact the auction house to obtain information on forthcoming policy sales.

Market Agents

(Example).

APPMM members list:

- Foster & Cranfield (Auctioneers). http://www.foster-and-cranfield.co.uk/
- Surrenda-Link Ltd. http://www.surrendalink.co.uk/
- Absolute Assigned Policies Ltd. http://www.aap.co.uk
- PolicyPlus International Plc. http://www.policyplus.com/
- 1st Policy Company Limited. http://www.1stpolicy.co.uk/
- Neville James Ltd. http://www.neville-james.co.uk/


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