Life insurers seek to rein in life settlements.Fearing the loss of favorable tax treatment and the undermining of insurable interest A right, benefit, or advantage arising out of property that is of such nature that it may properly be indemnified. In the law of insurance, the insured must have an interest in the subject matter of his or her policy, or such policy will be void and unenforceable since it laws, life insurers are supporting an effort to put the reins on speculative life settlement transactions. Insurers have been revamping underwriting forms and asking new questions of clients, but they now are turning to state regulators for an answer to a practice within the life settlement industry that allows investors to initiate life insurance transactions and reap benefits when a policyholder dies. "This is a billion-dollar industry. There is a lot of money changing hands and policies are being traded like commodities," said North Dakota Insurance Commissioner The North Dakota Insurance Commissioner regulates the insurance industry in North Dakota, licenses insurance professionals in the state, educates consumers about different types of insurance, and handles consumer complaints. Jim Poolman. Life insurers' overriding fear, Poolman said, is that such speculative life settlement transactions may lead Congress to "re-examine re·ex·am·ine also re-ex·am·ine tr.v. re·ex·am·ined, re·ex·am·in·ing, re·ex·am·ines 1. To examine again or anew; review. 2. Law To question (a witness) again after cross-examination. the current tax advantages" given to the life industry. Following a letter issued by The New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of State Insurance Department in December, in which the practice was likened to "gaming through life insurance purchases," the issue took center stage at a May, 3 meeting of the National Association of Insurance Commissioners The National Association of Insurance Commissioners (NAIC) is an Internal Revenue Code Section 501(c)(3) non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. in New York. The goal was to hear suggestions on reining in speculative uses of life insurance by revamping the Viatical Settlements Model Law adopted by the NAIC NAIC See National Association of Investors Corporation (NAIC). in 1993. "These contrived transactions must be stopped," Sy Sternberg, New York Life Insurance Co.'s chairman and chief executive officer, told the NAIC's Life Insurance and Annuities Committee. "These schemes have been touted as 'win/win' arrangements. However. when you look closely at the details, there is only one winner: The speculator Speculator A person who trades (i.e. derivatives, commodities, bonds, equities or currencies) with a higher-than-average risk, in return for a higher-than-average profit potential. ." The NAIC viatical vi·at·i·cal adj. 1. or vi·at·ic Of or relating to traveling, a road, or a way. 2. Of or relating to a contractual arrangement in which a business buys life insurance policies from terminally ill patients for a percentage model establishes guidelines for fair payment to policyholders and mandates that viatical settlement companies make full disclosures to consumers. While the law already bans the resale of a life insurance policy within two years after policy issuance, Sternberg is proposing an amendment that would prohibit financial incentives provided by investor-arranged transactions. The American Council of Life Insurers The American Council of Life Insurers (ACLI) is a Washington-based lobbying and trade group for the life insurance industry. ACLI represents 373 insurance companies that account for 93 percent of the U.S. life insurance industry's total assets. president and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. , Frank Keating, proposes an amendment that would expand the definition of the viatical settlement to prohibit life settlement transactions within two years after issuance of a policy.
The Life Settlement Business
Transactions (Face Value)
Life Cash Value
Settlements Life (1)
$ Billion $ Trillion
1998 0.2 1.1
1999 1.0 1.1
2000 1.1 1.2
2001 1.3 1.3
2002 1.4 1.4
2003 2.5 1.4
2004 5.0 1.5
2000-04 Averages
Annual Growth
Settlements
Life Cash Value as a % of
Settlements Life Life Sales
1998 0.0%
1999 400.0% 3.1% 0.1%
2000 10.0% 11.0% 0.1%
2001 18.2% 3.0% 0.1%
2002 7.7% 8.1% 0.1%
2003 78.6% -0.2% 0.2%
2004 100.0% 6.6% 0.3%
2000-04 Averages 42.9% 5.7% 0.2%
(1) Excludes Term Life Sales
Source: Bernstein Research Call
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