Structured settlements appeal to people who want safety, security and guarantees. The tax benefits of structured settlements are almost secondary. This video explains.
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While some say that structured settlement business is down, structured settlement annuity premium was up at MetLife for the first quarter of 2012, said Eric T. Steigerwalt, Executive Vice-President and Interim Chief Financial Office of MetLIfe, Inc. (Source: Met Life Inc. Earnings Call Transcript of April 27, 2012 on Seeking Alpha).
MetLife Inc. underwrites structured settlement annuity contracts through Metropolitan Life Insurance Company and reinsurance through MetLife Insurance Company of Connecticut.
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The post sale departments at structured annuity issuers need to pay more attention to settlement documentation before issuing policies.
I recently had a case that involved multiple annuity issuers and payments being made into a Settlement Preservation Trust. With all but one of the annuities the Settlement Preservation Trust was to be the secured payee pursuant to a Qualified Assignment Release and Pledge Agreement. With one of the annuities the payee was to be the Settlement Preservation Trust, but the annuity issuer did not offer a pledge agreement.
Four out of five companies issued annuities with the incorrect payees, despite it being listed in the Settlement Agreement and Release and the annuity, Qualified Assignment and annuity application.
Three out of five companies incorrectly listed the Trust beneficiary as the secured party as opposed to the party to whom payments are due to be made, despite language noting the correct secured party in the Settlement Agreement and Release and Qualified Assignment Release and Pledge that were executed by the annuity issuer's qualified assignment company!
There is an obvious need to review polices for errors prior to sending them to agents and there is an obvious need for agents to review the contracts before sending them out to their clients. The annuity contract must match up to the other documents.Here is a brief but not exhaustive list.
Errors such as those described are frustrating. The needless but easily avoidable delay is a waste of everyone's resources.
The time it takes to issue a structured settlement annuity contact has been in need for improvement for the entire time I have been in the structured settlement industry.
Inadequate "push" communication between the life insurance company and the structured settlement consultant. When I began my career with Northwestern Mutual in 1983 agents received daily and weekly status reports regarding pending cases. Despite the fact that technology is available, the best on offer ( if offered at all) is in 2012 is "pull" technology. This involves memorizing passwords and the need to sign into multiple places to obtain information. In the limited cases where there is "push" it is usually delivered infrequently and by fax.
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If there' s a lesson to be learned from the handling (or mislhandling as they case may be) of Executive Life Insurance Company of New York debacle is that a well thought out long term approach is critical. The Hartford is not going into liquidation or rehabilitation, but regulators will face critical decisions in the future if a spin off of the certain aspects of The Hartford's operations is to be approved and proceed.
The March 22, 2012 Walls Street Journal contains another excellent piece on The Hartford "break up" story by the trio of Leslie Scism, Erik Holmand Gina Chon, which features quotes from current and former insurance regulators that underscore that regulatory approval is necessary for any action and that protection of policyholders is paramount.
Former New Jersey Insurance Commissioner Tom Considine
“Sometimes, masters of the universe don’t realize that regulators really do have the ability to say no"
"Spinning off the property-casualty business, and leaving a “less vibrant part behind would be closely scrutinized,” he said, adding: “Approval would be unlikely in this environment.”
Former Connecticut Insurance Commissioner Thomas Sullivan
" a spin off would be viewed “with a jaundiced eye.”
Current Connecticut Chief Insurance Honcho Thomas B. Leonardi
“Certainly, in any such regulatory approval process that involves a Connecticut-based carrier, policyholder protection is paramount".
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Hartford Life Insurance Company will cease writing new structured settlement annuity business effective April 27, 2012. The Hartford had only re-entered the business last summer after a brief hiatus, but pressure put on the parent company to narrow the company focus to its property casualty business by major shareholder John Paulson, was the impetus to the action. Hartford Financial Services Group Inc. also announced it will stop selling individual annuities and seek buyers for parts of its life-insurance unit, according to various news reports today.
Hartford previously exited the structured settlement business in October 2009 "as part of the company's decision to exit the institutional business" , spokesman David Potter said on August 23, 2011- Forbes Here is the video podcast that Mark Wahlstrom and I published October 30, 2009.
Despite this, "revisionist historians" Tulsa attorney Dick Risk and Patrick Hindert continue to mischaracterize the 2009 withdrawal (Risk on his website, Hindert on his S2KM blog) as the result of the settlement of the Spencer v Hartford lawsuit when none of the other attorneys associated with the lawsuit make the same claim. Proud of success yes, but those attorneys have moved on.
Hartford CEO Liam McGhee is quoted in Bloomberg News March 21, 2012 that he opted against the complete breakup advocated by billionaire John Paulson because it wasn’t the best way to create value.
Credit-default swaps on Hartford Financial Services Group Inc. fell by the most in a day since Nov. 30, 2011. The cost to protect debt tied to Hartford Financial from default for five years slid to the lowest level since August 2011, according to Bloomberg.
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Pat Hindert enters the debate about Product Suitability standards in the settlement industry with the first in what promises to be an exhaustive blog series on the subject. Although there is no collaboration agreement between us it appears that this is a subject in which we have mutual concerns.
A structured settlement IS an appropriate solution for many litigation scenarios, not just personal injury or workers compensation. But like a good medication, it needs to be dispensed in an appropriate dosage. Since 2007, the term "over structured" has been used publicly by a number of folks in the primary and secondary market as one possible impetus for factoring of structured settlement payment rights. In my opinion it weakens the plaintiff's "immune system" to a degree that it becomes susceptible to the amusing midnight "Sirens" of "unemployment TV" seductively wailing "cash now" and they steer their financial ship onto the rocks.
The theory is that by not providing for enough up front cash to account for immediate cash and short term cash needs and anticipated future expenses in the solution, people resort to factoring. That's great business for the factoring company or factoring broker providing the liquidity, but a potential financial disaster for the structured settlement annuitant. A structured settlement that is factored within a month or two of its creation could result in a loss to the recently former plaintiff of a significant part of the cost that went into the portion of the structured settlement payments they are selling.
Basic fact finding should be able to uncover the plaintiff's needs and wants. Once again it is of critical importance is to get an understanding of of the plaintiff's immediate cash and short term cash needs. A good illustrative case is one we've previously reported on, which involved a Connecticut resident who executed a Settlement Agreement and Release on August 21, 2008. The terms of the release included a large structured settlement. On October 21, 2008, 60 days later, a transfer petition was filed in the Connecticut Superior Court in Milford to initiate the sale of 16% of the plaintiff's recently created monthly structured settlement payments to raise $150,000 in cash. According to the structured settlement transfer petition obtained by this author, the annuitant stated that the need for cash was related to needed modifications to the plaintiff's home. Because logic holds that discussions of the transfer must have ensued in advance of the October 21, 2008 transfer submission to Milford Superior Court it means that the shortfall in cash needs was uncovered within 4-6 weeks following the execution of the release. Wouldn't it have been cheaper to simply have $150,000 more up front cash?
In the Connecticut case the product itself WAS suitable however, the dosage proved not to be correct, in very short order. Was the amount structured suitable for the plaintiff in the case? Is there anything that the plaintiff's structured settlement consultant or plaintiff attorney could have done differently when the case was settled to have prevented the loss of the plaintiff's capital? Was there another solution? On a broader scale, where do you draw the line on over structuring? How do you define over structuring?
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Surprisingly I see draft settlement documents and Orders which would eviscerate the plaintiff's structured settlement more often than I would like to see. Thankfully they are just drafts. Settling attorneys and insurance representatives must be very careful. The actions of the parties as memorialized in the language in the release must be carefully documented, and must be acceptable to the annuity issuer and the qualified assignee (or non-qualified assignee or reinsurer where applicable).
Structured settlement expert John Darer explains "What is constructive receipt?" and how to avoid constructive receipt to take advantage of structured settlement benefits.
Please read my October 4, 2010 blog post " A Constructive Recipe to Avoid Constructive Receipt With Stuctured Settlements.
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Structured attorney fees offer an excellent income planning opportunity for personal injury lawyers, aviation lawyers and other contingency fee lawyers and law firms . There are a number of ways to structure legal fees. Planning ahead should be your mantra. New York/ CT area structured settlement broker and settlement planning expert John Darer frames the issues for lawyers to consider in this video
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An insurance company or Defendant that funds a structured settlement in advance of receiving a signed Court Order or signed release is doing themselves a favor in addition to the other parties involved in the case.
With a case that requires court approval, it could take months to receive the Court approval. This is most likely due to a backlog in the system. Courts in and around New York City are notoriously slow, particularly Surrogate's Court. One of my clients recently encountered a Court in Connecticut that wouldn't even commit to a date for a hearing. Sometimes delays are the result for the time it takes for the plaintiff's lawyer to draft documents or for defense counsel to review them.
With cases that involve Court approval and a structure, the Court must consider the structured settlement payments it is being asked to approve. In order to fix the benefit the structured settlement consultant must "lock-in" the benefits to preserve the negotiated cost for those benefits.
The problem exists when a combination of the above factors comes into play. Some carriers have free lock ins for 6 months, others for 90 days and still others 30 days or less. When you are dealing with large settlements that often includes prudent diversification, this can present a major challenge as some charge hefty lock in fees after the free lock in period expires.. Talk about being the proverbial balancer of spinning plates on long sticks!
The Solution
To encourage insurers and defedants to fund structured settlements in advance of a release or court approval, most life insurance companies that issue structured settlement annuities will issue some sort of refund letter that says to the effect that the life insurer will refund the premium paid, if the court does not approve of the settlement. So there is no risk to the insurer or defendant to fund the structured settlement.
This solution has worked with some of the world's major insurers on cases involving significant sums of money in the millions of dollars.
When you're talking small settlements in the $25,000-$50,000 range, the money is sitting in short term reserves, earning little to no interest on what has to be short term money. So why not just pre-fund the structure having previously obtained a premium refund letter executed by the annuity issuer, through your structured settlement broker?
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An industry colleague and I were ruminating about the reasons we are each having good business years in a terrible economy , with low interest rates and where reportedly, some in our industry are struggling to do even $1,000,000 in production.
We agreed that it is what we are selling: Safety, Security and Guarantees.
We also agreed that 5 years ago, the level of confidence in the stock market was such that a heavy down day would be discounted as simply a bad day. The current environment has sapped that confidence. If you can lose 6% in a couple of days and 15=20% or more in a couple of weeks, it could take years (that you may not have) to recover. A CNBC TV analyst announced today that we are in a Depression.
I joined the financial services industry at just about the pinnacle of interest rates in 1983. For almost 20 years I have heard "your business must suck because interest rate are lower (than they were) ". Despite the curmudgeons, somehow through creative vision, hard work and a great product solution, I have been able to "eke out" a living that apparently, exceeds the median income in the United States.
"Figuratively" a structured settlement is neither "36-24-36" with a "tramp stamp" and "FMPs", nor an Adonis with washboard abs, Popeye arms, Aviators and a Porsche.
But a structured settlement does have "strong shoulders" to protect your financial future. A structured settlement IS for you if you want "On Time Every Time®"
If you want a "Bucking Bronco", invest a few bucks in a mechanical bull. Don't waste your settlement.
On Time Every Time® is a registered trademark of 4structures.com, LLC
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