by John Darer® CLU ChFC CSSC RSP
Structured settlement planners and settlement consultants may have been heard telling their clients that they "have been working very hard to squeeze the most out of the annuity providers on your behalf". This usually DOESN'T involve any "wiseguys", water boarding or any forms of medieval torture.
Here's how a well respected settlement consultant articulated it (the text of which can be verified as a matter of public record) when asked about it by a lawyer:
"You look for daily rates. There's just, you know , day you can get a-if the markets are running in the right-and I don't work for the life insurance companies. I'm not sure exactly how they do it. But you can get daily rates based on what's happening in the interest-rate environment that day. So you're calling companies.
Then you say, well this settlement has a pretty good size. It was whatever, 1.5 million. What can you do for my client at 1.5. Well, what can you do for my client at 1.5. Well he can do this; can you- you know, deal for your client".
How about this?
Short response: On any given trading day, it is possible that the bond rates in the open market may be more favorable than the investments (or investment assumptions) used to set the "book rates" set by the company. If such favorable investments are available, the insurance company may be willing to extend a more favorable daily rate which ultimately helps to achieve a more favorable result for our clients.Furthermore, a company with a large amount of surplus reserves may be inclined to extend a daily rate, for competitive reasons.
Expanded Response Bullet points (take your pick):
- Depending on the company daily rates may be available on even the smaller cases.
- Daily rates are usually required over certain premium thresholds due to the potential impact on surplus reserves and regulatory asset/liability matching requirements.
- The insurance companies that issue structured settlement annuities are legal reserve life insurance companies/ Legal reserve life insurance companies are required to submit annual statements to the insurance departments of each state in which they are licensed to do business. The format and contents of the forms used are prescribed by the State Insurance Commissioners. They give a detailed report of an insurance company's financial status, an important factor in evaluating the company's solvency and compliance with the insurance laws. Every few years, depending on a company's state law of domicile, companies operating in multiple states undergo a more detailed home office examination of its financial position. This audit is conducted by a team of State Insurance Department Examiners representing the various areas in which the company is licensed to do business. Companies licensed in a single state are subject only to an annual home office examination by their State Insurance Department.
- One way of looking at it is it's like a restaurant that has its daily specials. So do insurance companies!