STOLI
US life settlement industry body the Life Insurance Settlement
Association (LISA) has issued a strong condemnation of the American
Council of Life Insurers’ (ACLI) stance on stranger-originated life
insurance (STOLI). At issue are three STOLI Alerts published this
year by the ACLI in which it warned of what it views as the misuse
of life insurance.
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The LISA, which is the life settlements industry’s oldest and
largest body, represents 160 members, while the ACLI’s 373 member
companies account for 93 percent of the US life insurance
industry’s total assets.
ACLI’s president and CEO, Frank Keating, recently explained the
council’s perspective. “STOLI involves investors inducing
individuals, usually senior citizens, to purchase life insurance
and then sell it to the investors, who expect to profit when the
seniors die. The investors have no insurable interest in the lives
of the seniors. STOLI is widely agreed to represent an abuse of
life insurance,” he said.
The STOLI Alerts were issued ahead of the National Conference of
Insurance Legislators’ (NCOIL) deliberation of the National
Association of Insurance Commissioners’ (NAIC) draft Life
Settlements Model Act that the ACLI has stated it hopes will lead
to the abolition of STOLI.
However, the LISA believes the STOLI Alerts have been misleading.
“The STOLI Alerts are put forth in broad mailings to agents and
policymakers as if they are factual and documented,” said LISA’s
executive director, Doug Head. “The truth is that these STOLI
Alerts are, at best, highly misleading and inconsistent efforts.
The STOLI Alerts contain assertions which contradict the ACLI’s own
positions and which misinterpret the cases and examples which they
cite. We think it’s important that the public and policymakers be
alert to the shortcomings of the STOLI Alerts.”
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By GlobalDataGoing a step further, the LISA challenged the ACLI’s assertion that
it was in favour of a complete abolition of STOLI. In a fact sheet
accompanying Head’s statement, the LISA stressed: “The ACLI knows
that the NAIC Model Settlements Act it promotes today does not
address STOLI.” Head commented: “We note that the proposed NCOIL
amendments which directly attack STOLI arrangements have not
received ACLI support and we wonder at this inconsistency.”
Supporting its assertion of the ACLI’s inconsistency, the LISA fact
sheet cited an example contained in a STOLI Alert published in
June. In the edition, said the LISA, the ACLI grounded its support
for the NAIC model’s efforts to deter STOLI on the basis of
important Supreme Court cases.
The LISA said one Supreme Court case described at length in the
STOLI Alert was Warnock versus Davis, a case heard in 1881. The
LISA said that the STOLI Alert correctly stated that the court
found that “an arrangement in which a group of investors agreed to
finance the purchase of a life insurance policy in exchange for
receiving the lion’s share of the death benefit violated the public
policy against wager policies and was invalid”. In short, the court
had ruled that the arrangement was STOLI and thus invalid.
The LISA continued that the STOLI Alert also correctly noted the
facts of the case. These were that the insured would purchase a
large life insurance policy, the investors would pay the premiums,
the insured would have no liability to repay the investors and the
investors would keep 90 percent of the death benefit, with the
remaining 10 percent going to the insured’s widow.
Hammering home its point, the LISA stated: “STOLI Alert, ignoring
the irony, today supports a model act which exempts from regulation
a scheme much like the arrangement invalidated by Warnock [versus
Davis].”
In conclusion, the LISA stated: “The publication [STOLI Alert] is
about attacking the secondary market, which competes with carriers
and provides value for consumers. STOLI Alert is a ruse for life
insurers to further their protectionist agenda against life
settlements through their support of a model which they uniformly
admit fails to address the fundamental concerns with
STOLI.”
