Effective Date of Rule: November 17, 2009.

     Purpose: This rule amends the use of "viatical" to "life" and "viator" to "owner" throughout the rule. It also sets forth: Licensing requirements for life settlement providers and brokers, annual statement filing requirements for life settlement providers, a required disclosure form, contract filing requirements, and the standards for evaluating reasonableness of compensation for the purchase of life insurance policies by life settlement providers.

     Citation of Existing Rules Affected by this Order: Amending WAC 284-97-010 through 284-97-050.

     Statutory Authority for Adoption: RCW 48.02.060, 48.102.011 (7)(d)(i), 48.102.046(1), 48.102..070(1) [48.102.070(1)], and 48.102.170.

     Under RCW 34.05.350 the agency for good cause finds that immediate adoption, amendment, or repeal of a rule is necessary for the preservation of the public health, safety, or general welfare, and that observing the time requirements of notice and opportunity to comment upon adoption of a permanent rule would be contrary to the public interest.

     Reasons for this Finding: The Life Settlement Act, chapter 104, Laws of 2009, was enacted by the 2009 legislature. The act repeals the existing sections in the chapter on viatical settlements and replaces them with new sections on life settlements. This act also changed the licensing requirements of what were viatical settlement providers and brokers into life settlement providers and brokers, as well as changing some of the requirements for licensing. The act also made further changes to contract filing, disclosures, and other matters. The commissioner has commenced permanent rule making to adopt this rule, but did not have sufficient time to complete the adoption prior to the expiration of the previous emergency rule. Therefore, this rule is being adopted to provide for an interim rule until the commissioner can complete the permanent rule-making process.

     Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 5, Amended 6, Repealed 0.

     Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

     Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0;      Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 0, Repealed 0.

     Date Adopted: November 16, 2009.

Mike Kreidler

Insurance Commissioner

OTS-2538.9

     (2) ((Except as otherwise specifically provided, this chapter applies to every viatical settlement provider or viatical settlement broker as defined in RCW 48.102.005, that transacts viatical settlement business in this state on or after July 23, 1995. This chapter also applies to every viatical settlement contract executed between a viator and a viatical settlement provider in this state on or after July 23, 1995.

     (3))) This regulation is not exclusive, and acts or omissions, whether or not specific in this chapter, may also be violations of other sections of the insurance code or other regulations promulgated thereunder.

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-010, filed 10/20/95, effective 11/20/95.]

     (1) "Domestic life settlement provider" means a provider as defined in section 2(19), chapter 104, Laws of 2009 who if:

     (a) A natural person either resides or has their principal place of business in this state, or both; or

     (b) A legal entity that either has their principal place of business in this state, or is incorporated in or otherwise formed under the laws of the state of Washington, or both.

     (2) "NAIC" means the National Association of Insurance Commissioners.

     (3) "Nonresident or foreign life settlement provider" means a provider as defined in section 2(19), chapter 104, Laws of 2009 who if:

     (a) A natural person does not either reside or have their principal place of business in this state, or both; or

     (b) A legal entity who does not either have their principal place of business in this state, or is not incorporated in or otherwise formed under the laws of the state of Washington, or both.

     (4) "SERFF" means the System for Electronic Rate and Form Filing. SERFF is a proprietary NAIC computer-based application that allows filers to create and submit rate, rule, and form filings electronically to the commissioner.

     (5) "Solicitation" means, for example; proposing, negotiating, signing, or doing any act in furtherance of making or proposing to make a ((viatical)) life settlement contract. Solicitation specifically includes advertising by mail, use of the print or electronic media, telephone, or any other method of presenting, distributing, issuing, circulating, or permitting to be issued or circulated any information or material in connection with a ((viatical)) life settlement contract.

     (((2) "Viatical settlement contract" has the meaning set forth at RCW 48.102.005(3). The commissioner finds that the purchase of a life insurance policy or certificate is outside the scope of this chapter if the viatical settlement contract is entered into between the viator and a close friend or relative.))

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-015, filed 10/20/95, effective 11/20/95.]

     (3))) The application form and instructions for obtaining a license as a life settlement provider are on the commissioner's web site at www.insurance.wa.gov.

     (2) The application for a license as a ((viatical)) life settlement provider shall furnish all of the applicable following information((, on a form prescribed by the commissioner)):

     (a) The name of the applicant, its address, and organizational structure.

     (b) Copies of its organizational documents, including but not limited to its: Articles of incorporation and any amendments thereto, certificate of incorporation and any amendments thereto, bylaws and any amendments thereto, partnership agreement and any amendments thereto, ((and)) articles of association and any amendments thereto, certificate of formation of a limited liability company and any amendments thereto, and limited liability company agreement and any amendments thereto.

     (c) The identity of all: Stockholders holding ten percent or more of the voting securities; investors holding a ten percent or greater interest; partners; corporate officers; trustees; if an association, all of the members; all of the members of a limited liability company; and parent and affiliate entities, together with a chart showing the relationship of the applicant to any parent, affiliated or subsidiary entities.

     (d) A list of all stockholders holding ten percent or more of the voting securities, investors holding a ten percent or greater interest, partners, and officers of any parent or affiliate entities.

     (e) Biographical affidavits of all its officers, directors, investors holding a ten percent or greater interest, partners, members of a limited liability company, and members (if an association).

     (f) For domestic ((viatical)) life settlement providers, fingerprint cards of all its officers, directors, trustees, investors holding a ten percent or greater interest, partners, members of a limited liability company, and members (if an association).

     (g) A list of states in which the ((viatical)) life settlement provider is licensed on the date of application, a copy of each effective license, and a list of the states in which it is or was doing business.

     (h) A list of all business licenses from any level of government, for which the applicant, its officers, partners, trustees, members of a limited liability company, and members (if an association), have applied, together with a certificate of incorporation from the Washington secretary of state, and a statement showing the current status of any such licenses, such as whether it has been revoked or suspended.

     (i) A report stating whether any formal or informal regulatory action, by any level of state or federal government, is pending or has been taken against the applicant or its officers, directors, trustees, investors holding a ten percent or greater interest, partners, members of a limited liability company, or members (if an association).

     (j) A report stating whether any criminal action or civil action has been taken, or is pending, against the applicant or its officers, directors, trustees, investors holding a ten percent or greater interest, partners, members of a limited liability company, or members (if an association).

     (k) A copy of its most recent financial and operating reports, audited and unaudited.

     (l) Copies of documents filed with the federal Securities and Exchange Commission and any applicable state securities regulator.

     (m) A detailed plan of operations for the applicant's business, including but not limited to information regarding or identification of the following items:

     (i) Escrow accounts and banks;

     (ii) Advertising, brokerage, or distribution system to be used;

     (iii) Marketing techniques to be used;

     (iv) Marketing training program; and

     (v) Contract offering and servicing facilities.

     (n) For a nonresident provider, an appointment of the commissioner to receive service of process and a designation of the person to whom the commissioner shall forward legal process.

     (o) A copy of the applicant's antifraud plan that meets the requirements of section 17, chapter 104, Laws of 2009.

     (p) Such other information as the commissioner may reasonably require.

     (((4))) (3) To qualify for authority to transact business as a ((viatical)) life settlement provider((,)) the applicant must:

     (a) Possess unimpaired capital, and thereafter maintain unimpaired capital, in the amount of not less than one hundred fifty thousand dollars((.

     (5) Each viatical settlement provider holding a license in this state shall annually, on or before March 1 of each year, file with the commissioner an annual statement for the preceding calendar year. The annual statement shall be on a form prescribed by the commissioner.

     (6) The commissioner may issue a temporary viatical settlement provider's license, that will expire no later than December 31, 1995, upon receipt and review of the application required in subsection (3) of this section. After reviewing the application, the commissioner may issue the viatical settlement provider's license, refuse to issue such license, or revoke the temporary viatical settlement provider's license.)); and

     (b) Comply with WAC 284-07-100 through 284-07-230, except WAC 284-07-100 (5), (6), and (7) and the applicant shall not be required to file any report, letter, or other document required by WAC 284-07-100 through 284-07-230 with the National Association of Insurance Commissioners (NAIC).

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-020, filed 10/20/95, effective 11/20/95.]

     (2) The annual statement forms and instructions are on the commissioner's web site at www.insurance.wa.gov.

     (3) In addition to any other requirements, for any policy settled within five years of policy issuance, the annual statement shall specify the total number, aggregate face amount, and life settlement proceeds of policies settled during the immediately preceding calendar year, together with a breakdown of the information by policy issue year.

     (4) Annual statements filed by a life settlement provider with the commissioner must be filed in electronic form. Electronic form shall mean in pdf format and according to the instructions on the commissioner's web site.

[]

     (5) Affiliations expire on the renewal date for the licensed firm or corporation to which they apply, and expire every two years thereafter, unless previously cancelled or revoked.)) The application form and instructions for obtaining a license as a life settlement broker are on the commissioner's web site at www.insurance.wa.gov.

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-030, filed 10/20/95, effective 11/20/95.]

[]

     (1)(a) Life settlement providers must file with the commissioner:

     (i) Their life settlement contract form completed in John Doe fashion; and

     (ii) The disclosure form required by section 11(1), chapter 104, Laws of 2009.

     (b) The life settlement contract form and disclosure form must be submitted as separate documents.

     (c) Life settlement providers shall not file any other forms with the commissioner.

     (d) Life settlement providers must submit the life settlement contract and disclosure forms filing through SERFF.

     The SERFF filing instructions are in the SERFF Industry Manual on the SERFF web site at www.serff.com and the Washington state SERFF Life and Disability Rate and Form Filing General Instructions on the commissioner's web site at: www.insurance.wa.gov.

     (2)(a) Life settlement brokers must file with the commissioner:

     (i) The disclosure form required by section 11(1), chapter 104, Laws of 2009; and

     (ii) The disclosure form required by section 11(3), chapter 104, Laws of 2009.

     (b) These two disclosure forms must be submitted as separate documents.

     (c) Life settlement brokers shall not file any other forms with the commissioner.

     (d) Life settlement brokers must submit their disclosure form filings only in paper format.

     (3)(a) Every ((viatical)) life settlement contract shall be in writing, in a type size of no less than ten points, shall be identified by a form number in the lower left-hand corner of the first page, and include the terms under which the ((viatical)) life settlement provider will pay compensation (called by whatever name) to the ((viator)) owner in exchange for the assignment, transfer, sole devise, or bequest of the death benefit or assignment of ownership of the life insurance policy or certificate to the ((viatical)) life settlement provider ((or viatical settlement broker)).

     (b) Every ((viatical)) life settlement contract shall provide for payment to the ((viator)) owner in a lump sum and shall be voidable at the option of the ((viator)) owner if the agreed value is not paid in full within ((thirty)) fifteen days of the date the ((viatical)) life settlement contract is executed by ((both the viator and the viatical settlement provider)) all parties thereto.

     (c) Every ((viatical)) life settlement contract shall provide for transfer of the entire life insurance policy: Provided, however, That if agreed to in writing by both the insurer and the ((viator)) owner, a stated dollar value which is less than the full face amount of the life insurance policy (less any outstanding loans) may be transferred if:

     (i) The ((viatical)) life settlement provider obtains a bond in favor of all beneficiaries of the policy other than the ((viatical)) life settlement provider in an amount sufficient to guarantee the payment of all premium for the balance of the premium-paying period as calculated on the effective date of the life insurance policy; or

     (ii) Another arrangement acceptable to the commissioner is made which guarantees that the insurance policy will remain in full force and effect for the protection of beneficiaries designated by the ((viator)) owner (other than the ((viatical)) life settlement provider) until the death of the insured.

     (((2))) (4) The ((viatical)) life settlement contract shall provide for recision no less favorable to the ((viator)) owner than as set forth in ((RCW 48.102.040 (3) and (4))) section 14(9), chapter 104, Laws of 2009. The recision provision shall appear on the first page of the contract. It shall provide that if the insured dies during the period of time allowed for recision, the contract ((will be terminated effective the date of application and the parties are returned to their original positions)) is considered rescinded subject to repayment by the owner or the owner's estate of all proceeds and any premiums, loans, and loan interest to the life settlement provider. The contract shall provide a method for giving notice of recision. If notice of recision is given by mail, it shall be deemed given when deposited in the United States mail, first class postage prepaid.

     (((3)(a) Each form of viatical settlement contract filed with the commissioner shall include all of the following:

     (i) A viatical settlement contract, completed in John Doe fashion;

     (ii) A copy of a viator's application, completed in John Doe fashion;

     (iii) A copy of an "Insurance Commissioner's Worksheet" as described in WAC 284-97-050(3), completed in John Doe fashion;

     (iv) A copy of any written disclosure material that will be provided to a viator as required by RCW 48.102.035; this written disclosure shall set forth the name, address, and telephone number of the viatical settlement provider; and

     (v) A copy of the pricing memorandum.

     (b) That portion of the disclosure notice warning of possible tax consequences and possible effects on eligibility for public funds shall be prominently displayed.

     (c) The disclosure notice shall state that before entering into a viatical settlement contract, the viator should consult with his or her life insurance agent or life insurer to determine whether accelerated benefits are available.

     (d) The disclosure notice shall contain the definition of accelerated benefits set forth in WAC 284-23-620(1) in its entirety.

     (4))) (5) The ((viatical)) life settlement contract shall specify any effect entering into the contract will have upon the continued availability of supplemental benefits or riders that are or may be attached to the life insurance policy that is the subject of the ((viatical)) life settlement contract, including assigning the responsibility for the continued payment of premiums. The benefits and riders considered shall include, but need not be limited to, the following:

     (a) Guaranteed insurability options;

     (b) Accidental death benefits, or accidental death and dismemberment benefits;

     (c) Disability income or loss of income protection;

     (d) Waiver of premium or monthly deduction waiver; and

     (e) Family, spousal, or children's riders or benefits.

     (((5))) (6) No ((viatical)) life settlement contract may contain any limitation or restriction on the use of the proceeds by the ((viator)) owner.

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-040, filed 10/20/95, effective 11/20/95.]

     (1) Payouts shall be no less than the following percentage of the expected death benefit under the insurance policy, net of loans. The following are minimum standards and shall not be presumed to be proof of fairness as to any specific transaction.

     (a) If the insured's life expectancy is less than ((twelve)) six months, then the percentage of the expected death benefit under the insurance policy, net of loans, to be received by the ((viator)) owner shall be no less than ((seventy-five)) eighty percent.

     (b) If the insured's life expectancy is at least ((twelve)) six months, but less than ((twenty-four)) twelve months, then the percentage of the expected death benefit under the insurance policy, net of loans, to be received by the ((viator)) owner shall be no less than ((sixty-five)) seventy percent.

     (c) If the insured's life expectancy is at least ((twenty-four)) twelve months, but less than ((thirty-six)) eighteen months, then the percentage of the expected death benefit under the insurance policy, net of loans, to be received by the ((viator)) owner shall be no less than ((fifty)) sixty-five percent.

     (d) If the insured's life expectancy is at least ((thirty-six)) eighteen months, but less than twenty-five months, then the percentage of the expected death benefit under the insurance policy, net of loans, to be received by the ((viator)) owner, shall be no less than ((thirty)) sixty percent.

     (2) Payouts shall be no less than the ((expected death benefit)) greater of the cash surrender value or accelerated death benefit under the insurance policy((, net of loans, reduced by the sum of the amounts described in (a), (b), and (c) of this subsection)).

     (((a) The viatical settlement provider may retain the amounts it would be required to pay to the insurer to keep the policy in force during the period of time ending concurrently with the insured's life expectancy.

     (b) The viatical settlement provider may retain an allowance of fifteen percent of the expected death benefit, net of loans, to provide for a risk charge and for its expenses and profit.

     (c) The viatical settlement provider may retain an allowance for the time value of money. The interest rate to be used is fifteen percent per annum, compounded monthly. The calculation shall be performed on the basis that the viatical settlement provider pays the present value of the expected death benefit under the insurance policy, net of loans, reduced by the amounts defined in (a) and (b) of this subsection. The payment to the viator shall reflect an interest adjustment for the period of time beginning when the viator is paid and ending concurrently with the insured's life expectancy.

     (3) The viatical settlement provider shall maintain for each viator, a document bearing the title, "Insurance Commissioner's Worksheet" for ten years after the death of the insured, or recision of the contract. The viatical settlement contract shall provide that the viator may at any time obtain upon request, without charge, a copy of the "Insurance Commissioner's Worksheet," the purpose of which is to assure that benefits comply with this section. This provision shall appear on the same page or page following the first occurrence of the statement of the amount to be paid to the viator. In addition to identifying the insured, the "Insurance Commissioner's Worksheet" shall be dated and shall include the text shown in items (a) through (j) of this subsection.

     (h) What provision, if any, is made in the settlement determination for supplemental insurance benefits or riders.))

[Statutory Authority: RCW 48.02.060, 48.30.010 and 1995 c 161 §§ 2, 4, 5 and 10. 95-22-016 (Order R 95-2), § 284-97-050, filed 10/20/95, effective 11/20/95.]

[]

[]

[]

© Washington State Code Reviser's Office