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Surprise Vote Advances Viatical Model

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In a surprise vote, an amended Viatical Settlements model act draft was unanimously approved by the Life & Annuities “A” Committee of the National Association of Insurance Commissioners and will now be returned to the NAIC’s executive committee and plenary for possible full adoption in June.

Reaction to the decision fell largely along industry lines, with representatives of the life settlement and life premium finance industries expressing dismay and life insurers voicing satisfaction. One producer group said it was pleased action was taken but that further consideration is needed before the model is adopted by the full NAIC committee.

The surprise 11-0 vote took place on April 2 during a conference call with over 60 participants. Following discussion by representatives in which 5 new amendments were adopted, New Hampshire Commissioner and NAIC Vice President Roger Sevigny called for a motion to move the amended model draft out of “A” Committee. North Dakota Insurance Commissioner Jim Poolman, who had spearheaded the development of the draft, seconded that motion.

The 5 amendments included 3 offered by the American Council of Life Insurers, Washington (see box).

Sevigny’s motion was made right after Julie McPeak, chair of the “A” Committee and executive director of the Kentucky office of insurance, said it was not her intent to have further discussions on the draft during the June summer NAIC meeting, but rather to have it before the NAIC’s executive committee and plenary. McPeak noted that the model has been in discussion for over a year and that 4-5 drafts of an amended model have been produced.

Many interested parties continued to call for further discussion following the vote.

“It was an extraordinary process that didn’t involve any debate,” said Doug Head, executive director of the Life Insurance Settlement Association, Orlando. “We will continue to object to the approach and continue to point out the problems in this model,” such as a 5-year ban on the sale of contracts with certain 2-year exceptions, he said.

Speaking of an upcoming interim meeting of the National Conference of Insurance Legislators, Troy, N.Y., Head noted that “the NCOIL meeting will be a full-face discussion, which is more than we got at the NAIC.” The NAIC model contains “all kinds of changes that are damaging to the secondary market,” Head added.

“They [regulators] hung their hat on the fact that they worked on this one year. But they completely disregarded substantive comments,” said Scott Cipinko, executive director of the Life Insurance Finance Association, Marietta, Ga. “We will oppose it in every state. It’s a bad model.”

One reason, he said, is that the sale of stranger-originated life insurance through trusts has not been addressed. “People who are doing STOLI are dancing in the streets right now. Insurers will have to do a lot more work [to catch STOLI transactions.]“

The best models adopted by the NAIC, Cipinko said, have been ones such as the Suitability and Sales Illustrations models, about which there was extensive dialogue.

Jack Kelly, a representative of a new group formed in late March, the Institutional Life Markets Association, Washington, said his group would have liked to see more “deliberative” discussions on issues such as the bank provisions adopted to satisfy concerns of the OCC.

The new group represents major investment banks including Bear Stearns, Credit Suisse, Goldman Sachs, Mizuho International, UBS and West LB.

ILMA will testify during the NCOIL interim meeting, said Kelly, and one of its goals is “transactional transparency.”

The NCOIL interim meeting will look at the big issues and focus on revising the NCOIL Life Settlements model act rather than on the NAIC model, said Sue Nolan, NCOIL executive director.

However, other groups such as the American Council of Life Insurers, Washington; the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors, both of Falls Church, Va.; and the National Association of Independent Life Brokerage Agencies, Fairfax, Va., expressed support for the amended draft model.

Michael Lovendusky, ACLI associate general counsel, applauded committee members for advancing the amended model with its “many complex issues” and its work to “explore these issues thoroughly.” In a statement, he said stakeholders were given the opportunity to present their views.

“The amended model will effectively address stranger-originated life insurance transactions while protecting life insurance benefiting individuals, families, businesses and employees, as well as legitimate life settlements. We urge the NAIC Executive Committees to approve the model act amendments as soon as possible,” Lovendusky added.

AALU is pleased that the revised model was adopted by “A” Committee because “we think it is important for there to be solutions that can be considered and enacted by the states this year,” according to Tom Korb, AALU vice president of public policy & public affairs. Korb had spoken for producers during the call.

However, he noted, further consideration is needed to “accomplish AALU’s twin goals of addressing STOLI effectively while protecting legitimate life insurance and life settlement arrangements.”

For instance, in the comment letter that AALU signed along with NAIFA and NAILBA, the groups asked that the term “neither the insured nor the policy has been evaluated for settlement” be changed in a section on exemptions to prohibited practices.

In lieu of that statement, it was requested that the section read, “The policy has not been evaluated for settlement by means of the insured requesting one or more offers to purchase the policy from one or more arms length persons who may reasonably be expected to respond with such an offer or offers.”

The reason, the letter said, was that the wording is “vague,” “broad,” and could “have a harmful impact on legitimate life insurance arrangements and settlements.”


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