Will states crack down on stranger-originated annuities?

The National Conference of Insurance Legislators will examine the possibility of drafting a model rule relating to stranger-originated-annuity transactions, confirmed Rep. Brian Kennedy, a Rhode Island Democrat. The topic of stranger-originated-annuity transactions or STATs — wherein a third party purchases an annuity with a death benefit and assigns a sickly person as the annuitant — came up at the NCOIL 2010 Spring Meeting in Isle of Palms, S.C., this Saturday. Mr. Kennedy is a member of NCOIL. The legislator confirmed that he had asked the group to bring up the issue of STATs at the group's summer meeting in Boston in July. The group may consider a model act similar to the one it had drafted for stranger-originated life insurance — the act of purchasing life insurance on someone for the express purpose of selling it on the secondary market to an investor, Mr. Kennedy said. NCOIL's model act on life settlement defines STOLI transactions and does not permit the secondary-market sale of life insurance policies for the first two years after issuance. “The general thought is that while this isn't STOLI, it almost has some of the same aspects to it,” Mr. Kennedy said. “We felt it would be wise to start investigating it as a possible model.” The most well-known case of stranger-originated-annuity sales took place in Mr. Kennedy's state and was the subject of an article in The Wall Street Journal. Joseph A. Caramadre, an attorney in Cranston, R.I., allegedly masterminded a scheme in which he solicited terminally ill people through ads, promising them $2,000 to allow investors to take out annuities with death benefits against them. Rhode Island's Department of Business Regulation is also looking into the case, Mr. Kennedy added.