SOURCE: Life Insurance Settlement Association

October 25, 2007 13:18 ET

Life Insurance Settlement Association: "Be Alert To 'STOLI Alert'"

ORLANDO, FL--(Marketwire - October 25, 2007) - "The recent STOLI Alert issued by the American Council of Life Insurers (ACLI) is highly misleading and full of errors," the Life Insurance Settlement Association (LISA) said today while issuing the following important fact sheet.

"In advance of the National Conference of Insurance Legislators (NCOIL) Life Settlements Subcommittee meeting, scheduled for Thursday, October 25 in Chicago, and pertaining to STOLI (stranger originated life insurance), we all need to be accurate about information," says LISA Executive Director, Doug Head.

Entitled "Be Alert To STOLI Alert," the LISA fact sheet debunks the most recent ACLI so-called "STOLI Alert," which is published in support of the ACLI-favored and recently approved revisions to the National Association of Insurance Commissioners (NAIC) Viatical Settlements Model Act and in support of the ACLI's protectionist agenda.

"The STOLI Alerts are put forth in broad mailings to agents and policy makers as if they are factual and documented," says Doug Head, LISA Executive Director. "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 Alert," explains Mr. Head.

                           Be Alert To STOLI Alert

The ACLI has now published three editions of its STOLI Alert -- slickly packaged marketing pieces complete with sharp graphics and ominous warnings about the supposed misuse of life insurance. The ACLI states: "Readers are encouraged to copy and share the information contained in STOLI Alert." LISA suggests that a more appropriate tagline would be: "Readers are encouraged to learn the truth about the misleading statements and unsubstantiated legal theories offered by STOLI Alert."

The ACLI knows that the NAIC Model Settlements Act it promotes today does not address STOLI. Furthermore, the law it cites in the STOLI Alert precisely demonstrates both the shortcomings of the NAIC model and the wisdom of the proposed amendments to the NCOIL Model.

The recent September 2007 STOLI Alert makes several erroneous and/or misleading statements as demonstrated in the ACLI's own prior statements and citations regarding this matter. Here are two such misleading assertions:

STOLI Alert False Statement #1: "A five-year moratorium on life settlements sharply focused on STOLI transactions is the most effective and efficient way of preventing STOLI-related fraud." Be alert to the following:

--  According to the ACLI's own internal memorandum summarizing its
    meeting with the former chair of the NAIC Life (A) Committee, who drafted
    the NAIC model:  "All industry participants insisted that model amendments
    that failed to address all financing schemes primarily benefiting investors
    failed to address the fundamental concerns with STOLI."  This document,
    released at the July NCOIL meeting, demonstrates that the NAIC chair
    "expressly defended" the very scheme which the same committee had condemned
    by resolution in 2005.
--  The ACLI summary described that scheme:  "the transaction includes an
    inducement to an applicant with apparent insurable interest to obtain the
    policy and sustain its ownership without settlement with eventual payment
    of some percentage of the death benefit to the estate."  The NAIC had found
    that investors fund premium payments and take 95% of the death benefit from
    policy inception.
--  As verified in numerous published reports, the NAIC model which the
    STOLI Alert now claims "is the most effective and efficient way of
    preventing STOLI-related fraud" does not ban or even regulate the STOLI
    described in the ACLI's own minutes as "the fundamental concern."

Which, then, is the "STOLI-related fraud" for which policymakers should be on the Alert? The legitimate transactions banned by the NAIC model, or the arguments made by ACLI today in STOLI Alert which completely contradict ACLI's own prior fervent statements about STOLI?

STOLI Alert False Statement #2: "It is often extremely difficult to detect STOLI." Be alert to the following:

--  The scheme ACLI condemned as STOLI in its summarized meeting with the
    NAIC Committee Chair also bears a striking resemblance to the U.S. Supreme
    Court's description of STOLI in the very cases cited and quoted at length
    in ACLI's own STOLI Alert.  It is easily identified.
--  The June edition of STOLI Alert grounds its support for the NAIC
    model's supposedly "carefully crafted efforts to deter STOLI" in a line of
    important Supreme Court cases.  It correctly states that "the distinction
    between legitimate life settlements and STOLI goes back more than 130
--  One Supreme Court case described at length in STOLI Alert is Warnock
    v. Davis.  STOLI Alert correctly states 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," because it is STOLI.
--  STOLI Alert correctly recites the facts of this 1881 case: 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.
--  STOLI Alert, ignoring the irony, today supports a model act which
    exempts from regulation a scheme much like the arrangement invalidated by
    Warnock.  In its meeting with the author of the NAIC model, ACLI said that
    a law which did not prohibit a scheme where investors fund premium payments
    and take 95% of the death benefit "failed to address the fundamental
    concerns with STOLI," and then pivots to support that very proposal.
--  STOLI Alert now cites -- as authority for its support of this exact
    flawed model -- a new case which invalidated an arrangement where investors
    funded premium payments and took 90% of the death benefit, which is
    obviously not "difficult to detect."
--  The Supreme Court, in Grigsby v. Russell, 222 U.S. 149 (1911), further
    undermined the ACLI's claim that "it is often extremely difficult to detect

The truth about STOLI Alert is that the NAIC model it supports does nothing about STOLI.

The truth also is that insurers know this: According to published reports, they have secretly negotiated deals with the STOLI program discussed herein, with the active encouragement of the author of the NAIC model while he was a regulator.

The truth about STOLI Alert is, quite simply, that it isn't about STOLI.

The publication 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."

"Public policy makers should be alert to the irony of STOLI Alert," argues Mr. Head of LISA. "The full irony of ACLI's current position is now clear. ACLI now pledges to 'spare no effort to promote passage of' the very NAIC model which protects the precise STOLI scheme that most belies ACLI's claim that 'it is often extremely difficult to detect STOLI.' We note that the proposed NCOIL amendments which directly attack STOLI arrangements have not received ACLI support and we wonder at this inconsistency," notes Mr. Head.

Founded in 1994, the Life Insurance Settlement Association is the oldest and largest trade organization in the industry. Its goal is to promote the development, integrity and reputation of the life settlement industry, and to promote a competitive market for the people it serves. LISA now represents 160 members with a wide variety of interests in the industry. For more about the Association, visit

Contact Information

  • Contact:
    Doug Head
    LISA Executive Director
    Email Contact