by John Darer® CLU ChFC CSSC RSP
Less than a year ago Burt Kroner, CEO of Client First Funding published Benefits of Purchasing Structured Settlement Annuities Directly From The Annuitant in NuWire Investor.
It's a well written article.
Here are just a few excerpts:
Kroner: Purchaser has control throughout the process; Purchaser receives assignment of the Structured Settlement payment rights directly from the seller through an approved court approval process, and the Purchaser receives the future cash flows directly from the rated insurance company that is obligated to make the payments. At no time during the lifecycle of the asset should the broker have possession, or control, of the Purchaser’s money
The security of the annuity is directly related to the claims paying ability of the insurance entity. The designation of an annuity as a “claims paying” obligation means that these obligations supersede obligations to bond holders, stock holders and other debtors. The insurance entities are required to hold capital to support these obligations as required by the applicable state insurance regulator. To date, a situation has not been reported where an insurance company rated A, or better, by Standard & Poors has defaulted on an annuity obligation that supported a structured settlement, and a concomitant loss has resulted to the payee. However, as the current financial markets illustrate, past history is not a guarantee of future results, and there could be future issues that arise relating to Structured Settlements that have not existed in the past.
Comment: Kroner has not accounted for Executive Life of CA shortfalls resulting from that company's 1991 financial problems.
Kroner: Annuities, depending on the amounts owed, are partially or fully guaranteed by state insurance funds, and are designed to protect annuity holders from loss. This may provide an additional level of security to the potential Purchaser.
Comment: Licensed insurance agents are forbidden by state law from discussing the existence of state guaranty funds in sales presentations. Yet in an article that holds the product out as an annuity, in the title of the article) it's a virtual free for all. For some reason regulators have ignored a requirement to have a licensing requirement for factors, factoring brokers and the like, even though they refer to these purchases as annuities. The restrictions on guaranty fund solicitation are being made mockery of as a result. Why is their no symmetry for the protection of insurers AND investors?
Kroner: Because most state guaranty funds have dollar limits on the amount that they can be obligated to pay in respect to annuities and life insurance policies issued by insolvent insurance companies, Purchasers should be cognizant of the size of the underlying annuity that supports the Structured Settlement relative to those limits.
Comment: Ditto to the immediately previous comment
Message to Structured Settlement industry from Burt Kroner?
"These structured settlements normally earn more than two times the yearly rates of Municipal or Corporate Bonds , Bank Issued Certificates of Deposit (CD’s), or Government Issued Treasury Securities . Investors can certainly purchase an annuity directly from an insurance company, but these Direct Annuity Investments are backed by the same insurance companies as the Structured Settlements arranged by a broker, and THEY are typically originated with large sales charges or commissions, and offer substantially lower yields".