Post on 08-Apr-2018
8/7/2019 Life Settlement - Premium Finance pdf
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Copyright American Council of Life Insurers 2006
Premium Financing, Life Settlementsand Insurable Interest Law
John P. GerniACLI Regional Vice PresidentPresentation to the OCI Life Advisory CouncilFebruary 5, 2008
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Copyright American Council of Life Insurers 2006
Whats in an acronym?WhatWhats in an acronym?s in an acronym?
COLI: Corporate Owned Life Insurance
BOLI: Bank Owned Life Insurance
CHOLI: Charity Owned Life Insurance
LILACS: Life Insurance Life Annuity Contracts
IOLI: Investor Owned Life Insurance
SOLI: Stranger Owned Life Insurance
STOLI: Stranger Originated Life Insurance
SILI: Stranger Initiated Life Insurance
IILI: Investor Initiated Life Insurance
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Copyright American Council of Life Insurers 2006
Insurable Interest: The Heart of Life InsuranceInsurable Interest: The Heart of Life InsuranceInsurable Interest: The Heart of Life Insurance
Widows and Orphans
Key Man
Charities Trusts
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Copyright American Council of Life Insurers 2006
Insurable Interest: Sample Statute: WisconsinInsurance Law 631.07Insurable Interest: Sample Statute: WisconsinInsurable Interest: Sample Statute: WisconsinInsurance LawInsurance Law631.07631.07
Insurable interest and consent.
(1) INSURABLE INTEREST. No insurer may knowingly issue a policy to aperson without an insurable interest in the subject of the insurance.
(2) CONSENT IN LIFE AND DISABILITY INSURANCE. Except under sub.
(3), no insurer may knowingly issue an individual life or disabilityinsurance policy to a person other than the one whose life or health is atrisk unless the latter has given written consent to the issuance of thepolicy. Consent may be expressed by knowingly signing the applicationfor the insurance with knowledge of the nature of the document, or in
any other reasonable way.
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Copyright American Council of Life Insurers 2006
Insurable Interest: Sample Statute: CaliforniaInsurance Code 10110.1:Insurable Interest: Sample Statute: CaliforniaInsurable Interest: Sample Statute: CaliforniaInsurance CodeInsurance Code10110.1:10110.1:
(a) An insurable interest, with reference to life and disability insurance, is
an interest based upon a reasonable expectation of pecuniary advantagethrough the continued life, health, or bodily safety of another person andconsequent loss by reason of that persons death or disability or asubstantial interest engendered by love and affection in the case ofindividuals closely related by blood or law.
(b) An individual has an unlimited insurable interest in his or her own life,health, and bodily safety and may lawfully take out a policy of insuranceon his or her own life, health, or bodily safety and have the policy madepayable to whomsoever he or she pleases, regardless of whether the
beneficiary designated has an insurable interest.California Insurance Code 280: If the insured has no insurable interest,
the contract is void.
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Copyright American Council of Life Insurers 2006
The Viatication of Life InsuranceThe Viatication of Life InsuranceThe Viatication of Life Insurance
The AIDS Epidemics in the 1980s
The viatical settlement market 1990s
From Viatical to Life SettlementsSTOLI and Premium Financing
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Copyright American Council of Life Insurers 2006
What is STOLI?What is STOLI?What is STOLI?
An individual is assisted in obtaining life insurance on his or
her own life through a non-recourse loan from the third-partyinvestor to the insured.
Generally, the investor loans the amount of the premiums
for two years to the insured. At the end of two years, theinsured transfers the policy to the investor in exchange offorgiveness of loan. In some cases, the insured receivescash payment in connection with the transaction.
Insurable interest?
Implications with public policy
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Copyright American Council of Life Insurers 2006
Examples of Life SettlementsExamples of Life SettlementsExamples of Life Settlements
EXAMPLES OF LIFE SETTLEMENTSFace Value CSV Age Settlement
$ 500,000. 0 70 $ 116,340.
$ 750,000. $142,000. 76 $ 225,000.$ 4,000,000. $ 90,000. 82 $1,430,000.
*$10,000,000. $800,000. varied $3,500,000.
*Aggregate of key man policies
Source: SeniorJournal.com
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Copyright American Council of Life Insurers 2006
Life Settlements A Product Life CycleLife SettlementsLife SettlementsA Product Life CycleA Product Life Cycle
Source: National Underwriter
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Life Settlement SecuritizationLife Settlement SecuritizationLife Settlement Securitization
Source: A.M. Best
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Copyright American Council of Life Insurers 2006
Growth of the Settlement MarketsGrowth of the Settlement MarketsGrowth of the Settlement Markets
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
200 1 2002 2003 2004 2005
Size of the Life Settlements Market
$-
$20
$40
$60
$80
$100
$120
$140
2 00 1 2 00 2 2 00 3 2 00 4 2 00 5 2 00 6 2 00 7 2 00 8 2 00 9 2 01 0 2 01 1 2 01 2 2 01 3 2 01 4 2 01 5
And Some Say It Could Top $125 Billion by 2015
Source: Life Settlement Institute, Lehman Brothers Estimates
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Copyright American Council of Life Insurers 2006
Settlement Deconstruction of Life InsuranceSettlement Deconstruction of Life InsuranceSettlement Deconstruction of Life Insurance
From Life Settlements to LILACS
Arbitrage or Vampirism
Unlocking Values: Lapse Underwriting
Investment versus Insurance Values
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The Response to STOLIThe Response to STOLIThe Response to STOLI
Regulatory Guidance
NAIC Viatical Settlement Model Act Amendments
NCOIL Life Settlements Model Act
Federal Excise Tax
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Copyright American Council of Life Insurers 2006
Regulatory ActivityRegulatory ActivityRegulatory Activity
Utah Bulletin 2006-3. Premium financing through a non-recourse loan isnot compliant with insurable interest statute.
Idaho Bulletin 07-03. Arrangements may violate Idaho laws thatrequirean insurable interest in the life of an insured and that prohibitrebates or otherinducements to purchase insurance unless the
inducement is set forth in the policy. Consumer Alerts issued by Illinois, Ohio, Pennsylvania, North Carolina,
and California and FINRA.
New York Opinions: A valid insurable interest does not exist under the
New York insurance law. Zero-Premium Financing Investigations: Vermont, Georgia, and
Alabama
U.S. Treasury response to U.S. Congress on potential tax consequences
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Copyright American Council of Life Insurers 2006
NAIC Viatical Settlement Model ActNAICNAICViaticalViaticalSettlement Model ActSettlement Model Act
Deters STOLI by prohibiting settlement of life insurance policies for fiveyears from policy issuance when the policy is purchased for the purposeof selling into the secondary market
Exempts legitimate life settlement transactions based on insurable
interest and financing on insurance values
Pervasive Fraud that address settlement broker conflicts of interest andrequire settlement broker compensation disclosure.
Requires disclosures to insured, insurers, and insurance regulator
Expands regulatory discretion beyond settlements involving terminally orchronically ill individuals to invalidate transactions
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Copyright American Council of Life Insurers 2006
NCOIL Life Settlements Model ActNCOIL Life Settlements Model ActNCOIL Life Settlements Model Act
Does NOT have 5 year prohibition language.
Definition of life settlement contract also captures trustarrangements where STOLI has been masked.
Definition of Stranger Originated Life Insurance
Violation of STOLI is a fraudulent settlement act.
Disclosures to consumer, insurer, and insurance regulator
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Copyright American Council of Life Insurers 2006
Federal Excise Tax ElementsFederal Excise Tax ElementsFederal Excise Tax Elements
Applies to specified acquisition of a life insurance contract
within 5 years of issue
Tax = 100% of consideration paid to acquire or continueinterest in a policy
Ten categories of exclusions based on state insurableinterest law
Disqualified Persons
Foreign Trusts
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Copyright American Council of Life Insurers 2006
Legislative & Regulatory OutlookLegislative & Regulatory OutlookLegislative & Regulatory Outlook
Federal Legislative Outlook
State Legislative Outlook
State Regulatory Outlook
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