BILL ANALYSIS                                                                                                                                                                                                    






                        SENATE COMMITTEE ON BANKING, FINANCE,
                                    AND INSURANCE
                           Senator Ronald Calderon, Chair


          SB 98 (Calderon)                        Hearing Date:  April 15,  
          2009  

          As Amended April 1, 2009
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    SB 98 requires any person transacting life settlements  
          to be licensed by the Department of Insurance and makes several  
          other conforming changes.
          
          
           
           DIGEST       This bill requires the licensing of persons who  
          transact life settlement contracts, makes it unlawful to issue  
          or market the purchase of a new life insurance policy for the  
          purpose of settling the policy, generally prohibits individuals  
          from entering into a life settlement during the initial two  
          years of a policy, authorizes the Insurance Commissioner to  
          disapprove life settlement forms, requires specified disclosures  
          to consumers including a notice of possible alternatives to life  
          settlements, regulates marketing practices, and prohibits  
          predatory practices such as false and misleading statements.
             
           
           Existing Law
                     
                     1. Defines a "viatical settlement contract" as an  
          agreement entered into between a person owning a life insurance  
          policy upon the life of a person with a catastrophic or  
          life-threatening illness or condition and another person by  
          which the policy owner receives compensation less than the death  
          benefits of the insurance policy in return for an assignment,  
          sale, or transfer of the death benefits or ownership of the  
          insurance policy, but does not include an assignment of a life  
          insurance policy to a licensed lending institution or credit  
          union as collateral for a loan. 

                     2. Defines a "life settlement contract" as an  
          agreement, other than a viatical settlement contract, for the  




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          purchase, sale, assignment, or transfer of the death benefit of  
          a life insurance policy for consideration that is less than the  
          expected death benefit of the life insurance policy. 

                     3. Exempts life agents, licensed by the Insurance  
          Commissioner (Insurance Commissioner) to transact the sale of  
          viatical or life settlement contracts, from the requirement to  
          become certificated broker-dealers licensed by the             
          Commissioner of Corporations. 

                     4. Defines "an insurable interest," with reference to  
          life and disability insurance, as an interest based upon a  
          reasonable expectation of pecuniary advantage through the  
          continued life, health or bodily safety of another person and  
          consequent loss by reason of that person's death or disability  
          or a substantial interest engendered by love and affection in  
          the case of individuals closely related by blood or law. 

                     5. Specifies that an individual has an unlimited  
          insurable interest in his or her own life, health, and bodily  
          safety and may lawfully take out a policy of insurance on his or  
          her own life, health, or bodily safety and have the policy made  
          payable to whomsoever he or she pleases, regardless of whether  
          the beneficiary designated has an insurable interest. 

                     6. Prohibits anyone from entering into or soliciting  
          viatical settlements unless the person has been licensed by the  
          Insurance Commissioner. An application for a license must be  
          accompanied by a fee of $2,833 and the applicant must provide  
          any information required by the Insurance Commissioner.  The  
          annual renewal fee for these licenses is $177. 

                     7. Prohibits a viatical settlements licensee from  
          using any viatical settlement form unless it has been approved  
          by the Insurance Commissioner.  Any form filed with the  
          Insurance Commissioner by a licensee is deemed approved if it is  
          not disapproved within 60 days. The Insurance Commissioner must  
          disapprove a viatical settlement form if the Insurance  
          Commissioner finds the form is contrary to the interests of the  
          public or otherwise misleading or unfair to the consumer. 

                     8. Requires viatical settlements licensees to  
          disclose to applicants, at the time of solicitation for the  
          viatical settlement, of possible alternatives to viatical  
          settlements for persons with catastrophic or life-threatening  
          illness, including accelerated benefits options that may be  




                                                          SB 98, Page 3




          offered by the life insurer; tax consequences that may result  
          from entering into a viatical settlement; and consequences for  
          interruption             of public assistance as provided by  
          information provided by state agencies. 

                     9. Authorizes the Insurance Commissioner to adopt  
          regulations reasonably necessary to govern viatical settlements  
          and transactions and requires the Insurance Commissioner to  
          adopt regulations to address conflicts of interest that may  
          arise. 

                    10. Authorizes the Insurance Commissioner to examine  
          the business and affairs of any licensee or applicant for a  
          license. The Insurance Commissioner may issue orders to  
          licensees to ensure or obtain compliance with law, and may order  
          payment of a monetary payment not to exceed $10,000. 

                    11. Prohibits any person licensed to sell or solicit  
          viatical settlements from engaging in any false or misleading  
          advertising, solicitation, or practice.  A person who violates  
          this provision is subject to a fine of up to three times the  
          amount of the loss, by suspension of their license, and up to  
          one year imprisonment in the county jail. 

                    12. Specifies that any person who enters into a  
          viatical settlement with a viatical settlements licensee has the  
          right to rescind the settlement within 15 days of execution of  
          the settlement. 

           
          This bill
           
                    1. Defines "life settlement contract" as a written  
          agreement between a "provider" and an owner of a life insurance  
          policy, establishing the terms of compensation.  This  
          compensation is less than the expected death benefit of the  
          insurance policy, and is provided in return for the owner's sale  
          or bequest of the death benefit of the insurance policy,  
          provided that the minimum value for a life settlement contract  
          shall be greater than a cash surrender value or accelerated  
          death benefit available at the time of an application for a life  
          settlement contract.  A "provider" is defined as a person who  
          enters into or effectuates a life settlement contract with an  
          owner of a life insurance policy, with certain exceptions.  
          (Generally, the provider is the person who is buying the  
          policy.) 




                                                          SB 98, Page 4





                    2. Specifies that trusts and special purpose entities  
          that are used to initiate the issuance of policies of insurance  
          for investors, where one or more beneficiaries of those trusts  
          or entities do not have an insurable interest in the life of the  
          insured party, violate the insurable interest laws and the  
          prohibition against wagering on life. 

                    3. Specifies that a "life settlement contract" also  
          includes a premium finance loan, under certain conditions, and  
          the transfer for compensation in a trust, under specified  
          conditions. 

                    4. Specifies that a "life settlement contract" does  
          not include any of the following: 


                      A.    A policy loan by a life insurance company  
                      pursuant to the terms of the life insurance policy  
                      or accelerated death provisions contained in the  
                      life insurance policy.

                      B.    A premium finance loan or any loan made by a  
                      bank or other licensed financial institution,  
                      provided that neither default on the loan nor the  
                      transfer of the policy in connection with the  
                      default is pursuant to an agreement or understanding  
                      with another person for the purpose of evading  
                      regulation under this bill.

                      C.    A collateral assignment of a life insurance  
                      policy by an owner.

                      D.    An agreement where all of the parties satisfy  
                      one of the following conditions: 

                                      (1)      They are closely related to  
                      the insured by blood or law.

                                      (2)      They have a lawful  
                      substantial economic interest in the continued life,  
                      health, and bodily safety of the person insured.

                                      (3)      They are trusts established  
                      primarily for the benefit of those parties.





                                                          SB 98, Page 5




                      E.    Any designation or agreement by an insured who  
                      is an employee of an employer in connection with the  
                      purchase by the employer, or by a trust established  
                      by the employer, of life insurance on the life of  
                      the employee.

                       F.    Bona fide business succession planning  
                      arrangements that meet specified criteria.

                       G.    Any other contract or arrangement from the  
                      definition of "life settlement contract" that the  
                      Insurance Commissioner determines is not of the type  
                      intended to be regulated by this act. 


                    5. Defines "stranger-originated life insurance  
          (STOLI)" as an act, practice, or arrangement to initiate the  
          issuance of a life insurance policy in this state for the  
          benefit of a third-party investor who, at the time of policy  
          origination, has no insurable interest, under the laws of this  
          state, in the life of the insured. 

                    6. Specifies that STOLI practices include cases in  
          which life insurance is purchased with resources or guarantees  
          from or through a person or entity, that at the time of policy  
          inception, could not lawfully initiate the policy himself,  
          herself, or itself, and where at the time of inception, there is  
          an arrangement or agreement to directly or indirectly transfer  
          the ownership of the policy or the policy benefits to a third  
          party. 

                    7. Defines "terminally ill" as having an illness or  
          sickness that can reasonably be expected to result in death in  
          24 months or less. 

                    8. Repeals the provisions of existing law regarding  
          viatical settlements and, instead, establish a series of  
          requirements and authorities in connection with the transaction  
          of life settlements. 

                    9. Prohibits persons from entering into, brokering, or  
          soliciting life settlements unless that person has been licensed  
          by the Insurance Commissioner.  The person shall file an  
          application with information required by the Insurance  
          Commissioner, and accompanied by a fee set by the Insurance  
          Commissioner.  The license fee for a provider license is not  




                                                          SB 98, Page 6




          specified in the bill but must be reasonable as determined by  
          the Insurance Commissioner.  The license fee for a broker shall  
          not exceed the license fee established for an insurance producer  
          who is acting as life settlement broker.  Each broker licensee  
          shall pay an annual renewal fee of $177. 

                    10. Requires a person acting as a broker to complete  
          at least 15 hours of continuing education regarding life  
          settlements as required by the Insurance Commissioner, prior to  
          operating as a broker.  This requirement does not apply to a  
          life insurance agent who has been licensed for at least one  
          year. 

                    11. Specifies that a person licensed as an attorney,  
          certified public accountant, or financial planner, who is  
          retained to represent the owner, and whose compensation is not  
          paid by the provider or purchaser, may negotiate a life  
          settlement contract on behalf of the owner without having to  
          obtain a license as a broker. 

                    12. Provides that a person licensed to act as a  
          viatical settlement broker or provider as of December 31, 2008,  
          shall be deemed qualified for licensure as a life settlement  
          broker or provider.

                    13. Specifies that the insurer that issued the policy  
          that is the subject of a life settlement contract shall not be  
          responsible for any act or omission of a broker or provider in  
          connection with the life settlement transaction, unless the  
          insurer receives compensation for the replacement of the life  
          settlement contract for the provider or broker. 

                    14. Authorizes the Insurance Commissioner to suspend  
          or revoke a person's license to transact life settlements when,  
          after a hearing, the Insurance Commissioner concludes that it is  
          in the public interest. 

                    15. Requires a life settlements licensee to file with  
          the Insurance Commissioner a copy of all life settlement forms,  
          and prohibits licensees from using any life settlement form  
          unless it has been provided in advance to the Insurance  
          Commissioner. 

                    16. Authorizes the Insurance Commissioner to  
          disapprove a life settlement form if, in the Insurance  
          Commissioner's discretion, the form is contrary to the interests  




                                                          SB 98, Page 7




          of the public, or otherwise misleading or unfair to the  
          consumer.

                    17. Requires life settlement licensees to provide an  
          applicant for a life settlement contract a series of disclosures  
          in writing including that there are possible alternatives to  
          life settlements, including accelerated benefits options that  
          may be offered by the life insurer, and that proceeds of a life  
          settlement may be taxable and that assistance should be sought  
          from a professional tax advisor. 

              18. Requires the broker to provide the owner and the insured  
          a series of disclosures in writing prior to the signing of the  
          life settlement contract, including a complete description of  
          all of the offers, counteroffers, acceptances, and rejections  
          relating to the proposed life settlement contract, and a  
          disclosure of any affiliations or contractual arrangements  
          between the broker and any person making an offer in connection  
          with the proposed life settlement contract. 

                    19. Allows insurance carriers to inquire in the  
          application for insurance whether the proposed owner intends to  
          pay premiums with the assistance of financing from a lender that  
          will use the policy as collateral to support the financing. 

                    20. Specifies that if the loan provides funds for a  
          purpose other than paying for the premiums, costs, and expenses  
          associated with obtaining and maintaining the life insurance  
          policy and loan, the application may be rejected as a violation  
          of a prohibited practice under this bill.  Otherwise, the  
          insurer may not reject the application solely because the  
          premiums will be financed, and the insurance carrier may make  
          disclosures to the applicant to be completed no later than the  
          delivery of the policy.  The disclosure shall state: 

                "If you have entered into a loan arrangement where the  
                policy is used as collateral, and the policy changes  
                ownership at some point in the future in satisfaction of  
                the loan, the following may be true: 

                (1)      A change of ownership could lead to a stranger  
                owning an interest in the insured's life.

                (2)      A change of ownership could in the future limit  
                your ability to purchase insurance on the insured's life."





                                                          SB 98, Page 8




              21. Allows an insurance carrier to require the following  
          certifications from the   applicant or the insured: 
                A.    I have not entered into any agreement or arrangement  
                under which I have agreed to make a future sale of this  
                life insurance policy.

                B.    My loan arrangement for this policy provides funds  
                sufficient to pay for some or all of the premiums, costs,  
                and expenses associated with obtaining and maintaining my  
                life insurance policy, but I have not entered into any  
                agreement by which I am to receive consideration in  
                exchange for procuring this policy.

                C.    The borrower has an insurable interest in the  
                insured. 

                    22. Requires life insurers to provide individual  
          policyholders with a statement informing them that if they are  
          considering making changes in the status of their policy, they  
          should consult with a licensed insurance or financial advisor. 

                    23. Authorizes the Insurance Commissioner to adopt  
          rules and regulations reasonably necessary to govern life  
          settlements and transactions. 

                    24. Authorizes the Insurance Commissioner to  
          investigate the conduct of any licensee, employees, agents or  
          other persons involved in the business of the licensee.

                    25. Requires licensed providers to file with the  
          Insurance Commissioner an annual statement that includes the  
          total number, aggregate face amount, and life settlement  
          proceeds of policies settled during the immediately preceding  
          year. This statement shall also include the names of the  
          insurance companies whose policies have been settled and the  
          brokers that have settled those policies. 

                    26. Prohibits any licensed person from engaging in  
          false or misleading advertising, solicitation, or practice, as  
          specified.  The penalties for a violation are a fine of up to  
          three times the amount of the loss, a license suspension, and up  
          to one year imprisonment in the county jail. 

                    27. Allows any person who enters into a life  
          settlement with a life settlement licensee to rescind the  
          settlement within 30 days of the date it is executed, or 15 days  




                                                          SB 98, Page 9




          from receipt of the proceeds of the settlement, whichever is  
          sooner. 

                    28. Requires a provider entering into a life  
          settlement contract with an owner of a policy, when the insured  
          is terminally ill, to first obtain the following: 

                A.    If the owner is the insured, a written statement  
                from a licensed physician that the owner is of sound mind  
                and under no constraint or undue influence to enter into a  
                settlement contract.

                B.    A document in which the insured consents to the  
                release of his/her medical records. 

                    29. Requires a provider to obtain a witnessed document  
          in which the owner consents to the settlement contract,  
          represents that the owner has a complete understanding of the  
          settlement contract and of the benefits of the policy, and for  
          persons with a terminal illness, acknowledges the terminal  
          illness was diagnosed after the policy was issued.

               30.           Prohibits a person from entering into a life  
                 settlement during a two-year period commencing with the  
                 date of issuance of the policy, except: 

                       A.    If the owner certifies to the provider that  
          the policy was issued upon the owner's exercise of conversion  
          rights arising out of a policy, provided the total of the time  
          covered under the conversion policy plus the time covered under  
          the policy is at least 24 months.

                       B.    If the owner submits independent evidence to  
          the provider that any of the following conditions exist: 

                          (1)      The owner or insured is terminally ill.

                          (2)      The owner or insured disposes of  
          his/her ownership interests in a closely held corporation,  
          pursuant to the terms a buyout in effect at the time the  
          insurance policy was initially issued.

                          (3)      The owner's spouse dies.

                          (4)      The owner divorces.





                                                          SB 98, Page 10




                          (5)      The owner retires from full-time  
          employment.

                          (6)      The owner becomes physically or  
          mentally disabled.

                          (7)      The owner is bankrupt or insolvent. 

                    31. Prohibits an insurer from engaging in any  
          transaction or act that restricts or impairs the lawful transfer  
          of ownership, change of beneficiary, or assignment of a policy.  
          Insurers would also be prohibited from making any false or  
          misleading statement for the purpose of dissuading an owner or  
          insured from a lawful life settlement contract.

                    32. Prohibits a person providing premium financing  
          from receiving proceeds, fees, or other consideration from the  
          policy or owner of the policy that are in addition to the  
          amounts required to pay principal, interest, and any reasonable  
          costs or expenses incurred by the lender or borrower in  
          connection with the premium finance agreement.

                    33. Makes it a fraudulent life settlement act and a  
          violation of law for any person to enter into a life settlement  
          contract if a person knows that the life insurance policy was  
          obtained by means of a false, deceptive, or misleading  
          application for the policy, or to issue, solicit, or market the  
          purchase of a new insurance policy for the purpose of settling  
          the policy.  
                
                    34. Requires life settlement contracts and  
          applications for life settlement contracts to contain the  
          following statement: 

                       "Any person who knowingly presents false  
          information in an application for insurance or for a life  
          settlement contract may be subject to criminal or civil  
          liability." 

                    35. Allows a provider lawfully transacting business  
          prior to the effective date of this bill to continue to do so,  
          pending approval or disapproval of that person's application for  
          a license as long as the application is filed with the Insurance  
          Commissioner within 30 days after publication by the Insurance  
          Commissioner of an application form and instructions. 





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                    36. Allows a person who has lawfully acted as a broker  
          and negotiated life settlement contracts between any owner and  
          one or more providers for at least one year prior to the  
          effective date of this bill to continue to do so pending  
          approval or disapproval of that person's application for a  
          license, provided the application is filed within 30 days of  
          publication of the application form and instructions. 

                    37. Authorizes the adoption of emergency regulations  
          by the Department of Insurance (CDI) and for these regulations  
          to remain in effect until repealed by that department.

                    38. Provides that this bill does not apply to life  
          settlement contracts entered into before July 1,  2010, with one  
                                                                          exception, and that the bill applies to transactions involving  
          life insurance policies in effect after the operative date of  
          this bill. 

                    39. Expresses legislative findings and declarations  
          that there is a compelling interest in regulating the life  
          insurance industry to protect consumers, and that interest is  
          promoted by encouraging the life settlement industry to make  
          full and thorough disclosure of information to the Insurance  
          Commissioner by providing confidentiality for that information.

           COMMENTS

           1. Purpose of the bill The purpose of SB 98 is to  
          comprehensively establish a regulatory system governing life  
          settlement transactions in California, including provisions to  
          make illegal the practice of Stranger Originated Life Insurance  
          (STOLI) and to establish new measures to aid in detecting and  
          preventing STOLI transactions. The bill is patterned on SB 1543  
          (Machado) of the prior legislative session which was sent to the  
          Governor but vetoed last fall. 


           Background
                     
                    The Senate Banking, Finance and Insurance Committee  
          held an informational hearing in February 2008 on the topic of  
          life settlement contracts.  A life settlement is a financial  
          transaction in which an owner of a life insurance policy sells  
          the policy to a third party for more than the cash value offered  
          by the life insurance company.  The purchaser becomes the new  
          beneficiary of the policy at maturity and is responsible for all  




                                                          SB 98, Page 12




          subsequent premium payments. Capital from hedge funds,  
          investment banks, pension funds, and other sources in search of  
          higher returns are flowing into the life settlement market. 

                    Life settlements are a new market that is growing  
          rapidly. These settlements have grown from a few billion dollars  
          less than a decade ago to an estimated $13 billion in 2006, and  
          are expected to grow to an estimated $150 billion in the next  
          decade.  However, life settlements are largely unregulated in  
          California.  There are no licensing requirements or standards  
          for individuals acting as brokers or advising people in these  
          complex transactions. 

                    Senior citizens are the primary market for life  
          settlements.  This can include instances when seniors are  
          planning to surrender their life insurance or let it lapse.  
          According to marketing from the life settlement industry, other  
          reasons for seniors to sell their policies include the use of  
          the proceeds to purchase a new life insurance policy or a  
          long-term care contract, collect immediate cash, make a gift to  
          a family member, pay divorce costs, and obtain funds for other  
          investments. 

                     Life Settlements.   Life settlements can be highly  
          complex transactions and have great benefits, or serious  
          negative effects, for seniors involved.  Several witnesses at  
          the Senate informational hearing testified that they were  
          presented with a two-inch thick stack of legal documents at the  
          closing of the settlement contract. 

                    The life settlement market has grown out of the  
          viaticals market that developed in the 1980s in response to the  
          crisis.  Viatical settlements involved the sale of life  
          insurance policies by persons facing a life expectancy of 24  
          months or less, for an amount less than the death benefit but  
          more than the cash surrender value, to pay for end-of-life care.  
           The desperate circumstances of the sellers raised the potential  
          for abuse, and the Legislature in 1990 enacted legislation to  
          regulate viatical sales. Anyone selling viatical settlements  
          must be licensed and must provide disclosures to the seller,  
          including possible alternatives to settlement, possible tax  
          consequences, and issues relating to the confidentiality of  
          medical information.  The viatical market largely evaporated  
          after medical advances dramatically altered the life expectancy  
          of an AIDS diagnosis. 





                                                          SB 98, Page 13




                    In 2001, a significant number of life settlement  
          providers started purchasing policies for their investment  
          portfolios using institutional capital.  The arrival of  
          well-funded corporate entities transformed the settlement  
          concept into a wealth management tool, and began driving a rapid  
          market expansion.  Both the National Association of Insurance  
          Commissioners (NAIC) and the National Conference of Insurance  
          Legislators (NCOIL) have produced model acts to regulate life  
          settlements.  A primary difference between the two model acts is  
          that in the NAIC act, an owner would wait for five years after  
          purchasing a policy (with financed funds) before being able to  
          enter into a life settlement, while under the NCOIL act, the  
          policy owner may settle after two years. SB 1543 is largely  
          based on the NCOIL Model Act. 

                     Non-Recourse Premium Financing.   In non-recourse  
          premium financing, the insured person uses a loan to purchase a  
          life insurance policy and pay the premiums, and the policy is  
          the sole collateral for repayment of the loan.  Although  
          normally the insured has an option to repay the loan at the end  
          of the two-year contestability period, some reports suggest that  
          some lenders have structured their programs to discourage loan  
          repayment through use of high exit fees and other costs, so that  
          at the end of the two-year contestability period the ownership  
          of the policy will be transferred to the lender in satisfaction  
          of the loan or sold to investors or a settlement company.   
          Alternatively, the policyholder may have been promised a  
          percentage of the net profits of the sale of the policy as an  
          inducement to take out the "free" insurance. 

                    How to ensure that non-recourse premium financing is  
          available to individuals as a legitimate method to purchase  
          needed life insurance, while prohibiting the use of non-recourse  
          premium financing as part of a STOLI transaction, remains the  
          crux of the debate between the life insurance and life  
          settlement industries.  
           

       1.Arguments in Support.   The Association of California Life and  
          Health Insurance Companies, which supports the bill, states that  
          this bill is necessary to curb predatory practices upon seniors  
          and other consumers known as "stranger-originated life  
          insurance," or STOLI.  The need to curb STOLI transactions has  
          already been recognized by 10 or more states which have approved  
          legislation as strong as SB 1543, including Ohio, Indiana,  
          Connecticut, Oklahoma, Kansas, Maine, West Virginia, Iowa,  




                                                          SB 98, Page 14




          Nebraska, and North Dakota.

          The Pacific Life Insurance Company states that, when abused, the  
          sales of life insurance on the secondary market can expose life  
          insurers and their reinsurers to a variety of risks.  The  
          primary risk is that buying and selling of insurance policies on  
          the secondary market might be manipulated by a need to  
          circumvent the restrictions of insurable interest laws.  
          Establishing a framework where the purchase of life insurance is  
          influenced by a strong possibility or certainty that the policy  
          will placed in the secondary market, in a relatively short  
          period of time, violates the purpose of life insurance. Life  
          insurance is intended for individuals or businesses to provide  
          protection and benefits, not for unrelated third party          
          investors.  

          The National Association of Insurance and Financial Advisors of  
          California states that seniors are being hurt by STOLI  
          transactions because they often do not understand the short and  
          long-term consequences of these transactions.  They are often  
          unaware that the income derived from the STOLI transaction is  
          generally taxable and that numerous fees and other expenses must  
          be paid.  They may also be unaware that by entering into a STOLI  
          transaction, they could be affecting their available insurable  
          capacity.

          The Life Insurance Settlement Association (LISA) states that  
          life settlements represent an important option for people who  
          choose to discontinue paying premiums on a policy that no longer  
          serves its original purpose, and allows them to receive payoffs  
          that can be significantly greater than surrendering a policy.   
          This association supports this bill and its regulation of the  
          life settlement market in which consumers have access to the  
          market and receive consumer protections. It states "SB 98  
          establishes a regulatory framework for the growing life  
          settlement industry in California. This bill will offer consumer  
          protections and appropriate regulation of an emerging industry  
          in California. This measure strengthens long-standing consumer  
          property rights in life insurance while ensuring that consumers  
          are aware of the issues facing them when exercising those  
          rights."

          2.        Arguments in Opposition.   The California Life  
          Settlement Association (CALSA), which opposes the bill, states  
          that the bill's vague definition of STOLI would prohibit the  
          future use of premium financing.  CALSA states allows the life  




                                                          SB 98, Page 15




          insurance industry to control the options available to  
          policyholders and to challenge virtually every transaction that  
          they dislike. This association is composed of numerous life  
          settlement providers and agents providing services for insured's  
          throughout the state.
            
          This association also states that the bill indirectly prohibits  
          policy applicants from the long established practice of both  
          recourse and non-recourse premium financing which benefit  
          consumers.  CALSA asserts that premium financing is an important  
          financial tool used by insured persons to purchase life  
          insurance for purposes such as financial planning, estate  
          planning, business transfers or any other lawful purpose.  

          CALSA also states that to the extent the cumulative provisions  
          of SB 98 preclude premium financing, the bill is anti-consumer  
          because it would eliminate the future use of this important  
          financing tool.  Finally, CALSA asserts there has been no  
          demonstrated problem which has been shown to exist in California  
          nor why existing capabilities of life insurers to detect STOLI  
          transactions during review of a life insurance application are  
          not adequate.

          Roycroft Funding, LLC, opposes the bill because it places a  
          two-year ban on the sale of policies which retracts existing  
          consumer protections for seniors and stifles competition within  
          the life settlement market. This reduction in competition would  
          cost California seniors hundreds of millions of dollars for the  
          benefit of a few large companies within the life settlement  
          industry.  The firm also states that the bill would have the  
          unwanted effect of driving hundreds of millions of dollars in  
          tax revenues from the State of California and will lead to a  
          reduction in California and Estate Planning Business.

           2.  Prior Legislation Vetoed  SB 1543 (Machado) was vetoed by the  
              Governor last fall.  In his veto message, the Governor  
              stated:  

                 I am returning Senate Bill 1543 without my signature.

                This bill would enact the Life Settlement Consumer  
                Protection Act of
                2008.  Specifically, this bill would create a regulatory  
                framework
                for life settlements in California.   Life settlements are  
                complex




                                                          SB 98, Page 16




                financial transactions in which a life insurance policy  
                owner
                possessing an unneeded or unwanted life insurance policy  
                sells that
                policy to a third party for more than the cash value  
                offered by the
                life insurance company.  Life settlements have grown  
                increasingly
                popular in recent years, especially with older  
                Californians, raising
                questions of whether adequate regulations are in place to  
                oversee the
                industry.  While life settlement companies are already  
                regulated by
                the California Department of Financial Institutions,  
                proponents of
                this measure believe the Department of Insurance should  
                play a
                greater role in regulating these companies as well.

                Although I share the proponents' goal to ensure that life  
                settlement
                transactions are properly regulated, I cannot sign this  
                measure at
                this time.  The provisions of this bill were amended into  
                it very
                late in the legislative session.  While many of the  
                provisions were
                agreed to by all the parties involved, some of the  
                provisions are
                still subject to worthwhile debate.  For instance, it is  
                my desire to
                ensure that life settlement transactions contain proper  
                notification
                and disclosure to consumers.  I am also concerned that the  
                final
                version of the bill may unfairly exclude some companies  
                from
                participating in the legitimate life settlement market.

                I am asking my staff to convene meetings this fall with  
                all the
                stakeholders to review the provisions of this bill and  
                consider what,
                if any, changes are needed to ensure that any regulatory  
                framework




                                                          SB 98, Page 17




                put into statute appropriately protects seniors, provides  
                consumers
                with adequate disclosure, and does not unfairly  
                discriminate against
                legitimate companies trying to compete in the life  
                settlement
                business.  It is my belief that any outstanding issues can  
                be
                resolved and we can quickly pass any necessary legislation  
                in 2009.

           
          3.  Questions   

                  1.        On page 34, line 30, a reference is made to  
                    regulations adopted or amended by the "state board".   
                    Should this be revised to refer to the Insurance  
                    Commissioner?





           
          4.  Prior Legislation   SB 1224 (Machado) and SB 1543 (Machado)  
              of the 2007-2008 Legislative Session. 


           


          POSITIONS
          
          Support
           
          American Council of Life Insurers
          Association of California Life and Health Insurance Companies
          Pacifica, LLC
          Coventry First, LLC
          Life Insurance Settlement Association
          National Association of Insurance and Financial Advisors of  
          California

           Support as Amended
           Pacific Life Insurance Company
           




                                                          SB 98, Page 18




          Oppose
               
          California Life Settlement Association
          Roycroft Funding LLC
          ING


          Consultant:   Kenneth Cooley (916) 651-4772