WSR 02-13-050

PROPOSED RULES

DEPARTMENT OF

FINANCIAL INSTITUTIONS

[ Filed June 13, 2002, 9:35 a.m. ]

     Original Notice.

     Preproposal statement of inquiry was filed as WSR 01-21-049.

     Title of Rule: Security -- Viatical and life settlement agreements.

     Purpose: Clarify that a viatical or life settlement agreement can be a security if it constitutes an investment contract, risk capital, or otherwise satisfies the definition of "security" in RCW 21.20.005(12).

     Other Identifying Information: WAC 460-10A-215.

     Statutory Authority for Adoption: RCW 21.20.450.

     Statute Being Implemented: RCW 21.20.450.

     Summary: Proposed rule would clarify that a viatical or life settlement agreement can be a security if it constitutes an investment contract, risk capital, or otherwise satisfy the definition of "security" in RCW 21.20.005(12).

     Reasons Supporting Proposal: Issuers, investors and others are sometimes unclear regarding the status of viatical and life settlement agreements. This section would help alleviate this confusion and would make explicit the division's authority to regulate those viatical and life settlements that constitute securities.

     Name of Agency Personnel Responsible for Drafting: William M. Beatty, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; Implementation: Mark Thomson, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760; and Enforcement: Deborah R. Bortner, 210 11th Avenue S.W., Olympia, WA 98504, (360) 902-8760.

     Name of Proponent: Department of Financial Institutions, Securities Division, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: Proposed rule would clarify that a viatical or life settlement agreement can be a security if it constitutes an investment contract, risk capital, or otherwise satisfies the definition of "security" in RCW 21.20.005(12). Issuers, investors and others are sometimes unclear regarding the status of viatical and life settlement agreements. This section would help alleviate this confusion and would make explicit the division's authority to regulate those viatical and life settlements that constitute securities.

     Proposal does not change existing rules.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposal does not impose additional costs on business.

     RCW 34.05.328 does not apply to this rule adoption. The Department of Financial Institutions is not one of the agencies listed in RCW 34.05.328.

     Hearing Location: Department of Financial Institutions, Securities Division, Executive Conference Room, 210 11th Avenue S.W., Suite 300, Olympia, WA 98504, on August 7, 2002, at 11:00 a.m.

     Assistance for Persons with Disabilities: Contact Darlene Christianson by August 5, 2002, TDD (360) 664-8126, or (360) 902-8760.

     Submit Written Comments to: William M. Beatty, Securities Division, P.O. Box 9033, Olympia, WA 98507-9033, fax (360) 704-6923, e-mail bbeatty@dfi.wa.gov, by August 6, 2002.

     Date of Intended Adoption: August 8, 2002.

June 12, 2002

Mark Thomson

Acting Director

OTS-5719.1


NEW SECTION
WAC 460-10A-215   Security -- Viatical and life settlement agreements.   (1) A viatical or life settlement agreement constitutes a security if the agreement falls within the definition of "security" under RCW 21.20.005(12) as an investment contract; an investment of money or other consideration in the risk capital of a venture with the expectation of some valuable benefit to the investor where the investor does not receive the right to exercise practical and actual control over the managerial decisions of the venture; or otherwise.

     (2) For purpose of this section, a "viatical or life settlement agreement" means an agreement for consideration for the purchase, assignment, transfer, sale, devise or bequest of any portion of the death benefit under, or ownership of, either an insurance policy or certificate of insurance. A viatical or life settlement agreement does not include:

     (a) Any agreement for the original issuance of an insurance policy or certificate of insurance;

     (b) An assignment, transfer, sale, devise or bequest of a death benefit under, or ownership of, either an insurance policy or certificate of insurance by the original owner, or a person who has an insurable interest in the insured, to any of the following:

     (i) The insured;

     (ii) A person who has an insurable interest in the insured;

     (iii) A dealer; or

     (iv) A person who is engaged in the business of purchasing the death benefit under, or ownership of, either insurance policies or certificates of insurance;

     (c) An assignment of an insurance policy or certificate of insurance to any bank, savings bank, savings and loan association, credit union, or other licensed lending institution as collateral for a loan; or

     (d) The exercise of accelerated benefits pursuant to the life insurance policy.

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