by John Darer CLU ChFC MSSC RSP CLTC
Sometimes I have to chuckle...
One of my industry colleagues said this in a blog on his company's website
"One of our clients recently agreed to a mediation agreement that left the control of the determination of the structured settlement product in the hands of the defendant’s advisor, who ended up placing the full $2 million settlement into an annuity with a Life company with an A- rating, instead of an underwriter with an A+ rating. They did this because the A- Life company was owned by the same property and casualty carrier thus recycling some of their settlement dollars. We did the math and calculated that the defense advisor’s choice will end up costing the plaintiff $190 per month for life because they didn’t test the free market to get the best internal rates of return. Also, the better rates were with a stronger Life company with a A+ or better rating which provides better security for plaintiff".
- Agreed that putting all your eggs in one basket is usually not a good idea.
- If the entire settlement was $2 million, it's unlikely that all of it would be going into an annuity. Perhaps what the broker meant to say was that 100% of the money being structured was placed with a single life insurer.
- The rating that the blogger used does not specify which rating agency, but generally the first one that rolls off the tongue is A.M. Best
- I assume this broker is referencing either Liberty, USAA, BH or AIG, however neither of their A.M. Best ratings is A-
- Upon information and belief the broker in question, when faced with a choice, has recommended and participated in the placement of structured settlement annuity with an AIG subsidiary for a minor or incompetent, where the insurer for the released defendant was not AIG.
- What this may say is that the process by which the attorney on the case introduces their settlement expert may need a little tweaking. Lining up in the same formation or running the same play has its limitations.
Much hubbub has been raised about casualty company approved lists of structured settlement annuity issuers that include one of its subsidiary companies. Notwithstanding that the broker has placed business with the subsidiary previously, if that subsidiary has competitive pricing and it fits the risk profile for the participants, then why should it not at least be considered as part of the solution?