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Securities Law

NIN 2000/18 - Viatical Settlements [NIN - Rescinded]

Published Date: 2000-05-26
Effective Date: 2000-05-23

The purpose of this Notice is to set out the position of the Financial Institutions Commission and the staff of the Securities Commission on the issue of viatical settlements.

Viatical settlements involve a disposition by a terminally ill person of the right to receive death benefits from an insurance policy to a third party in exchange for a cash payment, usually discounted from the face value of the policy.

Section 26 of the Insurance Act, R.S.B.C. 1996, c. 226, states:

“Any person other than an insurer or its authorized agent who advertises, or holds himself or herself out, as a purchaser of life insurance policies or of benefits under it, or who traffics or trades in life insurance policies for the purpose of procuring the sale, surrender, transfer, assignment, pledge or hypothecation of them to himself or herself or any person, commits an offence against this Act.”

The Financial Institutions Commission interprets this to mean that a person who is not an authorized insurance company or its authorized agent, is strictly prohibited from trafficking in insurance policies by way of arranging for viatical settlements.

In addition, staff of the Securities Commission is of the view that a viatical settlement may be an investment contract and consequently, a security under the Securities Act, R.S.B.C. 1996, subject to the registration and prospectus requirements of the Securities Act. While the leading case in the United States of America (Securities and Exchange Commission v. Life Partners Inc. and Brian Pardo (1996)) found that viatical settlements do not constitute investments contracts, that decision has proved to be highly controversial in the United States. Staff of the Securities Commission is of the opinion that the circumstances surrounding a particular viatical settlement will determine whether it is an investment contract or not.

Insurers may sometimes agree to accelerate the death benefits payable under a life insurance policy issued by the insurer by arranging to pay the terminally ill insured person (rather than the beneficiary) a lump sum payment, usually discounted from the face value of the policy. Staff of the Securities Commission does not interpret that kind of arrangement as a viatical settlement.

Any questions relating to the application of the Insurance Act orSecurities Act toviatical settlements should be referred to your legal counsel.

This notice is issued simultaneously with Information Bulletin INS-00-001 issued by the Financial Institutions Commission.

DATED at Vancouver, British Columbia, on May 23, 2000.

Steve Wilson
Executive Director