New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Gregory V. Serio
Superintendent

This Office of General Counsel issued the following information on March 17, 2004 representing theposition of the New York State Insurance Department.

RE: Life Settlements

Questions Presented:

1. Is a company that purchases "Life Settlements" from New York residents required to be licensed by this Department?

2. Does such a company require a securities license?

Conclusions:

1. Provided that the individual whose policy is being purchased is not a viator, as that term is defined in New York Insurance Law § 7801(b) (McKinney 2000), no license from this Department is required.

2. This inquiry should be addressed to the New York State Department of Law.

Facts:

The inquirer’s company, ABC Co., is a limited liability company formed under the Laws of New Jersey and proposes to engage in the business of purchasing life insurance death benefits from insureds who are residents of New York State. The benefits would be purchased in a transaction (hereinafter referred to as a "Life Settlement") by ABC Co. from insureds who do not have a terminal or life illness and have a life expectancy of greater than 24 months.

To help finance its purchase of Life Settlements, ABC Co. intends to implement a securitization program whereby the Life Settlements will be pooled together and the securities collateralized by the Pool will be issued by the company and purchased by investors.

Before entering into a contract to purchase a Life Settlement from an insured, ABC Co. will obtain:

1. A written statement from a licensed attending physician that the person selling the policy is of sound mind and under no constraints or undue influence and that the person has a life expectancy of greater than 24 months and does not have a catastrophic, terminal or life-threatening illness or condition; and

2. A witnessed document in which the person (a) consents to the Life Settlement contract; (b) acknowledges that he or she does not have a catastrophic, terminal or life-threatening illness or condition; (c) represents that he or she has a full and complete understanding of the Life Settlement contract; (d) represents that he or she has a full and complete understanding of the benefits of the life insurance policy; (e) releases his or her medical records; and (f) acknowledges that he or she has entered into the Life Settlement contract freely and voluntarily.

Analysis:

New York Insurance Law Article 78 (McKinney 2000) regulates viatical settlements. New York Insurance Law § 7801(a) (McKinney 2000) defines a viatical settlement company as:

an individual, partnership, corporation or other entity not prohibited from acting as a viatical settlement company . . . that enters into an agreement with a person owning a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, under the terms of which the viatical settlement company pays compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy, in return for the policyowner's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. . . .

New York Insurance Law § 7801(b) (McKinney 2000) defines a viator as:

the owner of a life insurance policy insuring the life of a person who has a catastrophic or life threatening illness or condition, who enters into an agreement under which the viatical settlement company will pay compensation or anything of value, which compensation or value is less than the expected death of the insurance policy, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of the insurance policy to the viatical settlement company. . . .

New York Insurance Law § 7802 (McKinney Supp. 2004) requires viatical settlement companies and those intermediaries who act on their behalf to be licensed by this Department. New York Insurance Law §§ 7807 & 7808 (McKinney 2000) and N.Y. Comp. R. & Regs. tit. 11, §§ 380.7, 380.8 & 380.9 (1995) (Regulation 148) set forth disclosure and other requirements regulating dealings between viatical settlement companies and viators.

Provided that the persons from whom the inquirer’s firm purchases policies are not viators, as that term is defined in N.Y. Ins. Law § 7801(b), it will not be considered a viatical settlement company and the strictures of New York Insurance Law Article 78 and Regulation 148 will not be applicable to it.

As to whether the inquirer’s activities would require a license under New York’s definition of securities, New York General Business Law Article 23-A (McKinney 1996), the inquiry should be addressed to the Investor Protection Bureau at the Department of Law 120 Broadway New York, NY 10271.

For additional Office of General Counsel opinions that have been issued on this subject, the inquirer was directed to visit the Department’s web site at www.ins.state.ny.us.1

For further information you may contact Supervisory Attorney Joan Siegel at the New York City Office.


1 See opinions dated July-21-03, April 8, 2003, April 24, 2002, March 1, 2002, February 21, 2002, August 29, 2001.