by John Darer® CLU ChFC MSSC RSP CLTC
When structured settlement consultants tell you that they "have been working very hard to squeeze the most out of the structured settlement annuity providers on your behalf", this DOESN'T involve any "wiseguys", water boarding in an undisclosed location, or any form of medieval torture.
What Are Book Rates for Structured Settlement Annuities?
Most structured settlement annuity pricing is initially done on using so-called book rates*. Book refers to rate book, a term from a bygone era when structured settlement consultants actually carried rate books bearing the costs per $1.000 of each benefit and used calculators to price a structured settlement annuity. Insurance companies are subject to regulatory requirements designed to help assure that the insurers have adequate capital and reserves to meet their liabilities. There are also individual company business requirements that come into play.
- Berkshire Hathaway subsidiaries being the exception [ Underwriting companies include Berkshire Hathaway Life Insurance Company of Nebraska, First Berkshire Hathaway Life Insurance Company, which operates in New York and structured settlement issued through Berkshire Hathaway's reinsurance arm, National Indemnity Company]
What Are Daily Rates for Structured Settlement Annuities?
Bonds are an important asset carried by structured annuity issuing life insurance companies to back up their liabilities. On any given trading day, it is possible that 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 insurance company. If such favorable investments are available, the insurance company may be able to buy an asset to back up a particular liability at a more favorable rate and be willing to extend a more favorable daily rate which ultimately helps to achieve a more favorable result for our clients. Furthermore, it is possible that a company with a large amount of surplus reserves may be inclined to extend a daily rate, for competitive reasons.
What Are Structured Settlement Daily Rates [Expanded Response Bullet points]
- 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.
- Surplus are those assets of the insurance company that are not reserves, and are basically "stand by" assets that are available to back any future policies that the company might underwrite. Another way to look at surplus is that it represents the capacity of the insurance company to take on new business. The permitted asset rules typically do not apply to surplus, meaning that the surplus can be invested in any investment that is otherwise legal and prudent for the insurance company to invest in.
- Daily rates are usually required over certain premium thresholds due to the potential impact on surplus reserves and regulatory asset/liability matching requirements. Among other reasons, diversification may be prudent to structure under these thresholds to achieve better aggregate pricing on a given case.
- Depending on the company daily rates may be available even on the smaller cases.
- One way of looking at structured settlement daily rates is that they're like daily specials at a restaurant. Just like daily specials at your favorite restaurant can vary from day to day, so can daily rates for structured settlement annuities.
Structured Settlement "Blue Plate Special"
Generally daily rate come out in the morning. But like the blue plate special that attracts scores of tighter budget or fiscally conservative diners to lower priced meals within a restricted time periods, bond markets are fluid and it may be possible to get a better rate at different times of day. It's always worth a try.
Are Daily Structured Settlement Rates Always Better Than Structured Settlement Annuity Book Rates?
No, sometimes the structured settlement rates are worse on a daily rate basis than the book rate. Sometimes the daily rates are better only for specific types of cash flows.