Tallahassee, FL, February 21, 2012 -- Life insurance companies and agents in Florida oppose an effort to amend H.B. 1101, an insurance bill before the House Economic Committee, in a way that would effectively serve as an attack on the state’s seniors.

If amendments to H.B 1101 are adopted, hedge funds and other investors would be given a green light to lure Florida seniors into stranger-originated life insurance (STOLI) arrangements.  Under these arrangements, these investor groups profit from seniors’ early demise.

The scheme works like this: seniors typically aged 55-to-75 years are told that they can get free life insurance for two years; that the senior can keep the policy after two years by repaying the premiums paid on his or her behalf; or, the senior can transfer or sell the policy to another entity with no further obligations. Lured into the scheme, the senior is then exposed to federal tax liability for the value of the two years of premiums paid for the policy. They usually don’t know that they likely will be unable to qualify for additional life insurance they may need for legitimate purposes.

The amendment will eliminate the ability of a life insurer to contest whether an insurable interest in the insured was present at the time a life insurance policy was issued. That is because the STOLI schemes involve very intricate and complicated non-recourse premium financing arrangements – arrangements where applicants do not have to post any money or collateral. The schemes also utilize one or more life insurance trusts to hide the true facts surrounding the purchase of the life insurance policy.

In addition, it is important to note that STOLI actually represents a wagering policy, which is prohibited by the laws of Florida and every other state.

If the amendment becomes law, hedge funds and others would be able to skirt STOLI restrictions in place. They will have carte blanche to entice unwary senior citizens into participating in the schemes and exposing them to legal and other complications. The amendment would permit any party, including hedge funds and life settlement companies, to require an insurer to confirm in 90 days that it will not contest insurable interest under hundreds or even thousands of life insurance policies, which is impossible due to the complexity of STOLI transactions and the inability of the insurer to compel production of information and documents from participants in the scheme that are needed to make such a determination.

The amendment will also overrule an important and well-reasoned anti-STOLI court decision, Pruco v. Brasner, from the U.S. District Court in Miami. The court held that a STOLI policy was void ab initio for lack of insurable interest.

A publication covering the life settlement business called The Life Settlement Report recently reported on a lawsuit that helps explain the problems associated with STOLI.

The story examined lawsuits brought by a hedge fund owner against a defunct premium finance firm alleging breaches of representations, warranties and covenants in the sale agreement for the purchase of a portfolio of securitized life insurance policies. The article indicates the portfolio as either “very aggressively created” with policies lacking insurable interest or “pretty much all STOLI manufactured-type policies.”

In 2008, the Florida legislature amended the state’s insurable interest statute to cover every possible legitimate situation. The amendment will do nothing to help any Florida consumer and its sole purpose is to remove the last protection against STOLI for Florida Senior Citizens.

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The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association with more than 300 legal reserve life insurer and fraternal benefit society member companies operating in the United States. ACLI members represent more than 90 percent of the assets and premiums of the life insurance and annuity industry. In addition to life insurance and annuities, ACLI member companies offer pensions, 401(k) and other retirement plans, long-term care and disability income insurance, and reinsurance. ACLI's public Web site can be accessed at www.acli.com.

The Florida Insurance Council’s mission is to provide value through education, research, and representation before consumer, legislative, regulatory, and judiciary organizations. The Council is dedicated to the highest standards of business ethics and professionalism; committed to promoting and protecting the viability of the insurance market; resolved to earn consumer confidence and trust, and determined to foster a positive public image of the insurance community.

Founded in 1932, as the Florida Association of Life Underwriters, NAIFA-Florida, formerly the Florida Association of Insurance & Financial Advisors (FAIFA), is comprised of 21 local associations in the state of Florida and has almost 3,000 members.  The mission of NAIFA-Florida is to enhance the ability of members to provide financial security for their clients, through appropriate legislative action, continuing education, professional skills development and promotion of ethical conduct of agents and others engaged in insurance and related financial services. www.faifa.org.