Meeting here earlier this month, members of the Life Insurance Settlement Association gathered to discuss the challenges facing the industry in the current legislative climate.
At the outset of the meeting, LISA president Ramiro Rencurrell sought to extend an olive branch to groups such as the National Association of Insurance and Financial Advisors, and the Association for Advanced Life Underwriting, both in Falls Church, Va., saying the groups “have more in common than you think” with life settlement companies despite a running battles in statehouses across the country over which model law should be adopted to regulate life settlements. The groups have been on opposite sides of the debate between a model act crafted by the National Association of Insurance Commissioners, Kansas City, Mo., that has been supported by AALU, NAIFA and the American Council of Life Insurers, Washington, and the LISA-supported model from the National Conference of Insurance Legislators, Troy, N.Y. Just two weeks prior to the conference LISA executive director Doug Head made comments in a California publication that the AALU and NAIFA had “lost their way” and were acting in the interests of life carriers rather than consumers by supporting the NAIC model.
Brian Casey, a partner in the Atlanta office of the law firm of Locke, Lord Bissell & Liddell, LLP and member of LISA’s board, noted that the group is in the midst of the “fiercest” legislative season it has experienced, “even more so than during the first incarnation of the NAIC viatical model act.”
Later during the conference, Mr. Head and others discussed the state of some of those battles, which includes some losses as well as victories. Among the more notable losses was West Virginia, where Mr. Head said that LISA was “assured” that a bill would not be put forth, only to have stern legislation passed at the last moment.
The West Virginia law includes “awful” penalties for those involved with stranger originated life insurance, or STOLI, according to Mr. Head, including criminal penalties that could extend to the policyholders themselves as well as the investors.
Other difficult states include North Dakota, which Mr. Head said passed the NAIC model last year but may reconsider when the state legislature meets again in 2009, Iowa and Nebraska, where Mr. Head said that LISA ran into a very influential lobby on behalf of life carriers. “When you have a large and powerful insurance industry it is very fair and reasonable to expect that life companies will get what they want,” he explained.
There were some victories as well, however, including Connecticut and Hawaii, which passed what Mr. Head said was the NCOIL model “in its purest form,” albeit with an expiration date of 2 years.
However, Jack Kelly, a partner at the McPherson Group, LLP in Washington and head of the Institutional Life Markets Association that represents large institutional investors cautioned that all the laws enacted by the states, even those viewed as positive by LISA, should be considered through the prism of life settlement investors and providing certainty to that segment. As an example, he noted the legislation in Indiana, which is viewed as a “win” by LISA but contains, in Mr. Kelly’s view, a potentially open contestability period for carriers to challenge the legitimacy of a policy. “What happens if, in 5 years from now or 7 years from now, an insurance carrier starts to challenge policies?” he asked. What LISA members should be looking for in legislation, he said, are the same provisions that ILMA members are seeking.
While many LISA members bemoan the NAIC-based model as making life settlements difficult in that state, Mr. Kelly said institutional investors see the criminal penalties it includes as a deal breaker.