I haven't studied the new Art. 9 as collateral perfection rules as that
isn't directly what I audit. Others do that. But I was asked a question
about it and I appreciate your opinions.

We are considering refinancing a loan secured by a variable annuity that
originated this year. In this particular case, the borrower has no tax
consequences from this pledge as long as it is in the current year (it was
and will be if refinanced). We need to be sure that there is nothing
special we need to do on consumer purpose loan to a consumer where we are
taking cash collateral outside of our control (i.e. with a brokerage firm).

Everything my lender has read says that Article 9 really changed commercial
cash collateral and did not change consumer. We will transfer the
assignment of this account that is already in place; however, since it was
done prior to 7-1-01 it would not have had to comply if there is some
compliance required by amended Article 9.

------------------
Andy Zavoina
Opinions stated are not necessarily that of my employer.

Andy Z,

Are you dealing directly with the insurance company that issued the annuity or was it purchased though a broker and credited to the customer's account with the broker?

------------------
Jack McElroy

I'm not sure if this is the proper venue to post this, but I have some questions concerning annuities taken as collateral. So, here goes...

1. What kind of collateral is an annuity? What is its classification?

2. Is a Security Agreement and a central filing of a UCC- 1 and, in some cases, an Assignment from the Insurance company the correct documentation for this product? Will this perfect our lien position?

An annuity comes in three different flavors:
1. A contract,
2. An instrument, and
3. An insurance policy.
Attachment and perfection is controlled by the annuity's flavor.

Can you clarify further?

We have one example that states, "This policy is a legal contract..."

So, is it a contract or is it an insurance policy?

What differientiates the 3?

What is required to perfect the lien in each case?

Assuming the jurisdiction for perfection and priority is not Louisiana, the following would apply:

1. If the annuity is a contract and not an insurance policy, then have the annuity contract assigned to you (taking possession of the contract would be wise) and have the grantor of the annuity contract acknowledge the assignment. Also, filing a financing statement as to the contract, which is a General Intangible.

2. If the annuity is an insurance policy (an insurance policy is also a contract), have the insurance annuity assigned to you (taking possession of the insurance annuity would be wise) and have the insurance company who issued the policy acknowledge the assignment. (No UCC filing is necessary or effective to perfect the security interest – the acknowledged assignment will suffice.)

3. If the annuity is an instrument, perfection can be obtain by either filing or possession. I would recommend having the annuity assigned to you, take possession and have the maker of the annuity instrument acknowledge the assignment. The acknowledgment is not required but it may make it easier if you have to rely on the assignment to pay the loan. Do a UCC search to see if anyone has filed on instruments.

You may have noticed the similarities in all three. It would appear that if you have the annuity assigned to you, file a financing statement in the proper jurisdiction of General Intangibles, have the grantor of the annuity acknowledge the assignment and take possession of the annuity it will not matter which flavor you are dealing with. My comments are for general instruction only and should not to take the place of advice from your legal council.