The Wall Street Journal on Monday ran an interesting piece about state regulators cracking down on "middlemen" pushing Stranger-Originated Life Insurance (STOLI). The article, titled "Regulators Rein in Murky Life Policies," centered around Florida life insurance agent Steven M. Brasner, a STOLI specialist (who last year surrendered a 50-foot yacht named "STOLI on the Docks") arrested by Florida authorities in April on 22 counts of alleged grand theft, fraud and other offenses tied to $78 million of policies that earned him nearly $2 million in commissions.

Stranger-originated annuity transactions (STATs) have stirred up the ire of professionals in the life settlement and life insurance businesses as well as from the fixed and variable annuity businesses, broker-dealers and more.

The battle over stranger-originated annuities is part of a larger battle over the insurance product resale market, representatives from an insurer group and a life settlement group agree.

Witnesses from the American Council of Life Insurers, Washington, and the Life Insurance Settlement Association, Orlando, Fla., appeared Thursday at a STOA hearing organized by the Life Insurance & Annuities Committee at the National Association of Insurance Commissioners.

The Life Insurance Settlement Association is asking regulators and life insurers to do more to stamp out stranger-originated annuity transactions. Also, see NAIFA Adopts Policy Opposing Stranger-Originated Annuities.

The Amrita Life Settlement Index rose about 29% in April. The life settlement activity indicator climbed to 417, from 324 in March.

69% of the respondents said they had no concern with an investor owning a policy on their life, according to ISI. (Ed. note: One wonders how many would change their opinion were they to read this: Davie, Florida Insurance Agent Arrested After Scamming Elders Out of Millions of Dollars)

Life settlement providers see more than a concern about STOLI in the ACLI's call to ban securitization for settlements. They see a line drawn in the sand portending a battle over the settlement industry's survival.

The life settlements industry will transact approximately US $13 billion annually from 2010 to 2013.

A positive for the industry could come from the proposed increase in tax rates for upper-income Americans, “which could help demand for tax-advantaged policies,” according to a note to investors by Andrew Kligerman, an analyst for UBS, New York.

Kligerman says an administration budget proposal to limit tax avoidance on life settlement arrangements would hurt life settlement firms, but he believes that strikes a positive note for life insurers’ policy margins, which are partly supported by lapse rates.

Report issued in January 2009 by the Insurance Studies Institute.

A federal program that collects information about possible cases of money laundering is receiving some reports on life settlement transactions.

Officials at the Financial Crimes Enforcement Network, a branch of the U.S. Treasury Department, have discussed those reports in a catalogue of about 1,300 “suspicious activity reports” that insurers filed with FinCen from May 2007 to May 2008.

At the start of the year, many life insurers worried that rising unemployment and declining portfolio values would increase consumer demand for life settlements as a source of cash. Midway through 2009, we’ve seen the opposite. With few exceptions, brokers in the $12 billion life settlements industry report sluggish sales at sharply reduced prices.

As life settlements (or viatical settlements), have grown enormously in popularity and use over the past few years, regulation of this secondary market has become a headline issue for many states, garnering a great deal of attention (and controversy) among national organizations such as the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL). Consumers, institutional investors, financial advisors, and the “primary market” insurers, as well as regulators and public policy makers are all very interested in the handling of life settlements.