by John Darer CLU ChFC MSSC CeFT RSP CLTC
Structured settlement factoring industry attacks on Berkshire Hathaway's Hardship Exchange Program are generally rooted in self-serving distorted logic.
Berkshire Hathaway has been the leading issuer of annuities and reinsurance to fund structured settlement payments through its subsidiaries, Berkshire Hathaway Life Insurance Company of Nebraska, First Berkshire Hathaway Life Insurance Company and National Indemnity Company. Coveting the volume of potential prey like predators on the Serengeti Plain, it's no wonder that glasses of "whine" have been raised by structured settlement buyers.
Some structured settlement factoring companies are under the false assumption that Berkshire Hathaway cost of money is around 1%. They are using this false assumption to attempt to discredit the intentions of Berkshire Hathaway (which are to provide a measure of support to its annuitants that encounter liquidity issues and protect its brand from the vultures that lurk).
Our sources tell us that the Berkshire Hathaway "cost to borrow for structures is the interest rate we pay across the portfolio. The structured settlement marketplace is pretty price competitive, so Berkshire Hathaway tends to win the cases where Berkshire Hathaway is willing to pay a healthy interest rate (usually more than its competitors)".
"One measure of our theoretical “cost of money” is what we have to pay when we issue public debt. While we don’t have a lot of public debt, but we do have some, so we do have a yardstick". There are a few maturity dates in Bloomberg that I have trouble finding at a free source. Selected maturity dates are here. (Note: The link goes to the longest-dated bond, maturing in 2043 and shows a 4.5% coupon with a 4.18% current yield. There are links there to others. Some of the bonds are issued in Euros, which have strange looking interest rates, so just ignore those and look at the bonds issued in dollars). A screen-shot of the relevant data point shown there. The bond doesn’t appear to trade very often, but the yield does get updated from day to day on this site.
I for one, fully support the efforts of Berkshire Hathaway and wish more companies would do the same to further drive down rates and protect the brands of structured settlement annuity issuers from vultures of the structured settlement secondary market. I am not alone. Another industry colleague of mine writes, "Berkshire Hathaway appears to be doing something about it. They are running a pilot program in about 10 states where they are providing education and information to the annuitants that hold their paper. This is a good start. They are buying their own paper back at 6.5 percent and 7 percent discount rates. A very good deal for Warren Buffett, and a source of competition for market makers JG Wentworth".