by John Darer CLU ChFC MSSC CeFT CLTC
What Are Structured Settlement Daily Rates?
Structured settlement daily rates are an important part of the pricing process of creating structured settlements, structured sale or secured installment sales of real estate or businesses, and non qualified structures used for non qualified assignments. Annuity issuers of structured settlements circulate book rates (name "book rates" originated from "the old days" when a manual rate book or rate sheet and calculator were used) to structured settlement brokers on a regular basis. Book structured settlement rates change from time to time reflecting the general market conditions.
Structured settlement rates will vary by carrier according to the annuity issuer's investments, statutory guidelines as to reserves, surplus position, overall business plan and philosophy, whether or not there is a rated age and other factors. Structured settlement brokers that have access to the wide spectrum of markets can shop the market of structured settlement annuity issuers for the most competitive rates. Structured settlement book rates must be set responsibly considering the large and varying flow of premium income and the fact that statutory guidelines of most states require the matching of assets to liabilities.
Most carriers also offer daily structured settlement rate pricing. When a competitive structured settlement offer is being made or structured settlement is being finalized, the structured settlement broker will take the proposed payment stream to the structured settlement annuity issuer or issuers in an attempt to see if the proposed payment stream can be funded at a rate more competitive than book rates. Taking into account the statutory asset/liability match requirements it may be possible in the spot rates in the bond market to find assets to match to the proposed liability (to the annuity issuer) created by the proposed structured settlement (which will permit better daily rate pricing). Please note that this is not always a given, particularly in periods of declining interest rates.
Minimum premium for structured settlement daily rate pricing ranges from None to $2,000,000 depending on the structured settlement annuity issuer. Structured settlement daily rates may be extended until noon of the next business day to up to 10 days depending on the carrier with most being good "until the end of the next business day". If case negotiations are ongoing some will consider an extension on a case by case basis, if market conditions permit. One carrier will give greater extensions on cases with structured settlement annuity premium (to that annuity issuer) of over $3,000,000.
The use of structured settlement daily rate pricing may be just the thing that bridges the gap between in negotiations over a hotly disputed item of damages. In another application it may be used to enhance the value of a policy limits offer where the defendant has limited coverage and no assets.