(No ) (Approved November 7, 2010) AN ACT

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1 (S. B. 1404) (No ) (Approved November 7, 2010) AN ACT To amend paragraphs F and G, respectively, of Section ; amend paragraphs A and B, respectively, and eliminate subparagraph (7) of paragraph (H) of Section ; amend paragraph D of Section ; and amend Section of Act No. 77 of June 19, 1957, as amended; and for other purposes. STATEMENT OF MOTIVES The Life Settlement industry has had a substantial impact on the entire world s economy, since it presently involves nearly $20 billion in sales and continues to grow daily due to the existence of about $18.2 trillion in life insurance coverage. This market responds to the need of various sectors, from insurance holders in their golden years to literate and savvy investors. Many people in all parts of the world have come to use life settlements as an additional mechanism to reach their financial goals. Insurance holders have been able to sell insurance coverage which they no longer wish to hold, do not need, or are unable to keep, while viatical settlement buyers, after having experienced the extreme volatility of financial markets, have been able to obtain good returns with their principal secured, since the same shall be covered by the guarantee that B+ or higher ranking insurance companies shall always pay out death benefits upon the demise of the insurance policyholder.

2 Puerto Rico s present economy has been immensely affected. A large number of companies have left the Island, thus eliminating the likelihood of the entry of new million-dollar revenues into Puerto Rico s economy. Our Government has tried to incentivize savings and investment. However, the current alternatives have been quite limited so as to obtain a favorable yield that surpasses the present Island s cost of living and that, at the same time, eliminates the risk of losing the principal. At this time, it has become essential for Puerto Rico to be at the forefront of worldwide markets, which are increasingly shifting toward the Life Settlement industry. We should make it easier for Puerto Ricans to buy assets of this kind. This action would encourage our golden age generation to take advantage of the opportunity to avail themselves of and benefit from the alternatives that this industry has to offer. Act No. 164 of December 28, 2005 added a new Chapter 43 to the Insurance Code of Puerto Rico, in order to establish the Act to Regulate Viatical Settlements, Life Settlements, and Other Transactions Regarding Life Insurance Benefits, which sets forth a complete and thorough regulatory scheme for viatical settlements in Puerto Rico. After evaluating said Act, together with its amendments, it has been understood that the requirement of bonding, reinsurance, or bond on the purchase of a viatical settlement or life settlement contract in order for the same to be considered and recognized within the jurisdiction of the Office of the Insurance Commissioner, should be eliminated, insofar as there is no such company that provides this bond.

3 With the purpose of overseeing and satisfying the interests of all parties, the Act to Regulate Viatical Settlements, Life Settlements and Other Transactions Regarding Life Insurance Benefits is hereby amended, in order to eliminate the requirement of bonding, reinsurance, or bond on the purchase of viatical or life settlement contracts, since such requirement serves no purpose. We intend to specify and clarify that viatical or life settlement contract buyers should only and exclusively be savvy investors, since their knowledge and resources eliminate their need for reinsurance or a bond as a means of protection. In addition, we intend to implement that all Viatical Settlement Provider Companies shall only offer contracts to buy viatical settlements on life insurance policies underwritten by insurance companies that have been assigned a Good ranking due to their financial strength. Said ranking shall be assigned by independent companies, such as A.M. Best. The purpose of this provision is to have an assurance of the financial capacity and solvency of the insurer company for when the payment of death benefits is claimed due to the passing of the insurance holder. Viatical or life settlement contracts are directly based on the sale of the death benefits in the life insurance policy of a person who shall submit his/her medical and health information for an evaluation of his/her life expectancy through independent medical laboratory testing. In turn, the buyers of viatical settlement contracts receive this information, for which reason, they are aware that when buying such contract, the investment return is bound to a non-guaranteed life expectancy estimate, and that they shall receive the payment of death benefits directly from the life insurance company with the highest qualifications, as per market standards, once the insurance holder dies.

4 It is hereby established and directed that the jurisdiction to regulate the viatical settlement and life settlement business, as well as other transactions, shall lie solely and exclusively with the Office of the Insurance Commissioner (OIC). To such effect, said Office must be provided with effective tools to regulate aspects such as investment and viatical settlement business insurance, and the Office of the Insurance Commissioner is conferred with a wide range of powers so that said Office may adopt efficient and integrated regulations to govern the viatical settlement business in Puerto Rico. Therefore, it is the interest of this Legislative Assembly to specify that any and all regulations issued by the Office of the Insurance Commissioner shall be consistent with this Act, so that the standards set forth herein may be upheld. At the same time, it is hereby clarified that Circular Letter No. CIF-022, issued by the Office of the Commissioner of Financial Institutions on June 11, 2002, is rendered ineffective prospectively, insofar as all viatical or life settlement contracts and transactions fall solely and exclusively under the jurisdiction of the Insurance Commissioner of Puerto Rico, thus the need for a bond, reinsurance, or bonding shall not apply, since the same are by no means considered to be a security. In recognition of the above, subsection (2) of Section of said legislative piece confers to the OIC the authority to promulgate any regulations as necessary within 180 days following the approval of said Act. To such effect, it is hereby clarified that the Commissioner shall be able, if deemed necessary, to draft a regulation to govern the procedures instituted by this Act, which shall not constitute an impediment to implement the same. Such regulation shall be consistent with the provisions of this Act. Likewise, it is hereby provided that the amendments introduced herein shall take effect immediately.

5 BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF PUERTO RICO: Section 1. Paragraph F of Section of Act No. 77 of June 19, 1957, F. Viatical Settlement Buyer. Means a person who gives a sum of money to another person other than the viator or the insurer in exchange for a life insurance policy or an interest in the death benefits of a life insurance policy; or a person who owns or acquires or is entitled to a beneficial interest in a trust that owns viatical settlements or is the beneficiary of a life insurance policy that has been or shall be the subject of a viatical settlement, for the purpose of making a specific financial profit. A viatical settlement buyer does not include:... Section 2. Paragraph G of Section of Act No. 77 of June 19, 1957, G. Viatical Settlement Purchase Agreement. Means a contract or agreement between a viatical settlement buyer and a person other than a viator, to acquire a life insurance policy or an interest in the death benefits of a life insurance policy, or to acquire an interest in a trust that owns viatical settlements or is the beneficiary of a life insurance policy that has been or shall be the subject of a viatical settlement, with the purpose of making a specific financial profit. The purchase, sale, or transfer of a viatical settlement or any interest therein under a viatical settlement purchase agreement shall not constitute the purchase, sale, or transfer of securities, as said term is defined in Section 401(1) of Act No. 60 of June 18, 1963, as amended, known as the Uniform Securities Act of Puerto Rico. In order to be applicable, all life insurance policies referred to in this Act must have been underwritten by an insurance company that has been assigned a Good ranking as a minimum financial strength requirement pursuant to A.M. Best standards.

6 Section 3. Paragraph A of Section of Act No. 77 of June 19, 1957, A. Regarding viators residing in Puerto Rico, a person shall not operate as a viatical settlement broker without first obtaining a license from the Insurance Commissioner of Puerto Rico. The annual fees for the viatical settlement broker license shall not be greater than the cost of the annual contribution required from a life insurance producer. In addition to the requirements provided in this Chapter, a viatical settlement broker shall hold and maintain in effect a license as life insurance producer issued pursuant to the provisions of Chapter 9 of this Code. If there is more than one viator on a single policy and the viators are residents of different jurisdictions, the viatical settlement shall be governed by the laws of the jurisdiction in which the viator having the largest percentage ownership resides. Should the viators hold equal ownership, the viatical settlement shall be governed by the laws of the jurisdiction of residence of one viator, as agreed upon in writing by all viators concerned. Regarding viators residing in Puerto Rico, a person shall not operate as a viatical settlement provider without first obtaining a license from the Insurance Commissioner of Puerto Rico and having submitted evidence that he/she is covered under a professional public liability policy. Section 4. Paragraph B of Section of Act No. 77 of June 19, 1957, B. Regarding viatical settlement buyers residing in Puerto Rico, a person shall not operate as a viatical settlement investment agent without first obtaining a license as life insurance producer issued by the Insurance Commissioner pursuant to Chapter 9 of this Code. The annual fees for the viatical settlement investment agent license shall not be greater than the cost of the annual contribution required for a life insurance producer license. If there is more than one buyer on a single

7 policy and the buyers are residents of different jurisdictions, the viatical settlement purchase agreement shall be governed by the laws of the jurisdiction in which the buyer having the largest percentage ownership resides. Should the buyers hold equal ownership, the viatical settlement purchase agreement shall be governed by the laws of the jurisdiction of residence of one buyer, as agreed upon in writing by all the buyers concerned. Section 5. Subparagraph (7) of paragraph (H) of Section of Act No. 77 of June 19, 1957, as amended, is hereby eliminated. Section 6. Paragraph D of Section of Act No. 77 of June 19, 1957, A.... B.... C.... D. Require a mechanism for accountability of negligent acts to viatical settlement providers and brokers; and Section 7. Section of Act No. 77 of June 19, 1957, as amended, is hereby amended to read as follows: Section Jurisdiction. The Office of the Insurance Commissioner of Puerto Rico shall have exclusive jurisdiction to oversee viatical settlement transactions and viatical settlement purchase contract transactions. Section 8. This Act shall take effect ninety (90) days after its approval.

8 CERTIFICATION I hereby certify to the Secretary of State that the following Act No (S. B. 1404) of the 4 th Session of the 16 th Legislature of Puerto Rico: AN ACT to amend paragraphs F and G, respectively, of Section ; amend paragraphs A and B, respectively, and eliminate subparagraph (7) of paragraph (H) of Section ; amend paragraph D of Section ; and amend Section of Act No. 77 of June 19, 1957, as amended; and for other purposes. has been translated from Spanish to English and that the English version is correct. In San Juan, Puerto Rico, on the 28 th day of February, Juan Luis Martínez Martínez Director Interino