by John Darer CLU ChFC MSSC CeFT RSP CLTC
Bad News for Structured Settlement Investors in the Event of Insolvency
On November 30, 2021, the NAIC Receivership and Insolvency (E) Task Force adopted a draft memorandum that encourages state insurance departments to review their receivership and guaranty fund laws to ensure they address: (i) conflicts of law between the guaranty fund law or the provisions of any other law; (ii) continuation of coverage; (iii) priority of distribution of estate assets; (iv) full faith and credit stays and injunctions; (v) the 2021 revisions to the Holding Company Models; (vi) treatment of workers’ compensation large deductible policies; and (vii) the 2017 revisions to the Life and Health Insurance Guaranty Association Model Act (#520).According to the Task Force, the above have been identified as critical for states’ laws with respect to multi-jurisdictional receivership
Source: Wilkie Farr & Gallagher LLP report "NAIC Report Fall National Meeting 2021" p 20 Section G (vii)
The 2017 revisions to the Life and Health Insurance Guaranty Association Model Act (#520) expressly exclude protections for structured settlement investors and provide for a retroactive exclusion that would affect structured settlement investors who acquired structured settlement payment rights in the secondary or tertiary structured settlement market prior to the effective date of the adoption of the revisons. According to the NAIC, 34 states have adopted the 2017 revisions as of March 11 2022. These states include AK, AR, AZ, CT, DE, FL, IA, ID, IL, IN, KY, LA, MD, ME, MN, MO, MS, MT, NC, ND, NE, NH, NV, OK, PA, SC, SD, TN, TX, UT, VA, WV, and WY. Two more states, Washington and Rhode Island, were under consideration at the time of posting.
Source: NAIC State Legislative Brief
Given the passage of time and adoption by more states and eventually all states, investors contemplating buying other people's structured settlement payments (and those that already have) now must pay more attention to what they are buyin than ever before.
Remember acquired structured settlement payment rights are not annuities no matter what the intermediary or financial adviser says.