LISA Applauds Kentucky Proposal to Fight Stranger Originated Life Insurance

The Kentucky House of Representatives has taken an important
step to protect life insurance consumers with a ban on stranger originated life insurance (STOLI) schemes,
according to the Life Insurance Settlement Association. HB 348, unanimously passed last week, protects
consumers by succinctly and directly prohibiting initiation of life insurance for wager purposes—without rolling
back a policy owner’s property right to gain or utilize the market value of a properly initiated policy as he sees
fit.

“LISA commends the Banking and Insurance Committee for drafting this measure and the entire House for its
members’ thoughtful consideration regarding this thorny and frequently mischaracterized issue,” said Doug
Head, LISA Executive Director.

HB 348 passed the House unanimously on Feb. 5 and has been sent to the Senate for its consideration. “We
urge the Senate to pass this bill. If enacted, it will make Kentucky a national leader in the regulation of life
insurance,” said Mr. Head. “We have seen legislation introduced in some states which misplaces regulatory
emphasis by unreasonably restricting assignment of life insurance policies. The Kentucky House concluded
that the proper way to address STOLI is by aggressively prohibiting agreements, made at or before policy
inception, to take out a policy for the benefit of a stranger without insurable interest.”

Mr. Head noted LISA’s significant interest in ensuring that legitimate concerns about STOLI should not result in
anti-consumer regulation: “Secondary market innovations compete with the traditional insurance company
monopoly on the value of insurance. We have seen insurers press for legislation which impairs property rights
by prohibiting legitimate transactions under the guise of protecting consumers. Kentucky legislators
unanimously sided with consumers by rejecting such industry pressure.”

Mr. Head explained that HB 348 strikes a proper balance: “This carefully drafted legislation declares Kentucky’s intolerance—consistent with U.S. Supreme Court precedent—for improper transactions where
consumers are lured into unwise insurance purchases initiated to benefit investors. But, in its refusal to
incorporate unfair restrictions on legitimate life settlements, HB 348 also demonstrates Kentucky’s
determination to foster rather than impair competition in the life insurance marketplace.”

Kentucky basically followed the approach of the National Conference of Insurance Legislators (NCOIL), as
opposed to the National Association of Insurance Commissioners (NAIC). NCOIL focused on insurable interest,
which is necessary at policy inception, and STOLI, which is prohibited. As the chair of the NCOIL Life Settlements Subcommittee explained in NCOIL’s press release announcing its new Model, “STOLI occurs at the
front-end of a life insurance sale.” NCOIL rejected NAIC’s approach of imposing a five year ban on life
settlements and a variety of other restrictions on the secondary market. NCOIL (and the Kentucky House)
concluded that the NAIC bill fails to stop STOLI and attacks property rights: A letter signed by six of the seven
members of the NCOIL Subcommittee explained that the NAIC model “fall[s] short of our two core goals, which
are preventing investors from manufacturing life insurance policies and ensuring that we do not ‘impair, or
interfere with Life Settlements or Viatical Settlements.’” Another letter by a subcommittee member criticized
the NAIC for “imposing unprecedented restrictions on the right of assignment of life insurance in lieu of
encouraging carriers to underwrite for insurable interest and of enforcement of other insurance laws which
already protect against wagering policies.” HB 348 avoided these flaws.

Designed to precisely attack an identified problem, HB 348 is a template for other States to follow, concluded
Mr. Head. “Kentucky has a well functioning and heavily regulated secondary market for life insurance which
provides tens of millions of dollars a year in additional value to Commonwealth policy owners. Targeted
protection of insurable interest at policy inception by banning STOLI is the proper solution. The House hit the
bull’s eye with HB 348, reflecting Kentucky’s well-earned reputation for good targeting by good hunters.”

Founded in 1995, LISA is America’s oldest, largest and most widely recognized trade association force in the
Life Settlement Industry, participating in legislative and regulatory matters in all 50 states, Puerto Rico and
Canada.

Comprised of over 170 member companies in North America, Europe and Australia, their diversity provides a
broad and authoritative voice. LISA is a valuable source of information for the consumer, member companies,
regulators, legislators and all interested parties. It is regarded as the most comprehensive authority in the life
settlement industry.