by John Darer® CLU ChFC MSSC CeFT® RSP CLTC
A big thanks goes out to Livingston County, New York attorney Kevin Van Allen continuing to post a June 6, 2013 blog " Oh No! My Structured Settlement is With AIG!" leaving good opportunity for commentary.
Van Allen: "Structured settlements are also a good deal for the defendant's insurance company, as they pay less money to the structuring company than they would pay up front to the client".
Comment: Structured settlements benefit both sides. Van Allen implies some short changing. Not an accurate reflection of what typically happens. How structured settlements work. Mandatory disclosures under New York General Obligations Law Section 5-1702 would reveal the cost of a structure, as would any New York structured settlement expert retained by plaintiff or their counsel. Furthermore, money is not paid to the "structuring company", it is paid to a qualified assignment company.
Van Allen: "One of the largest structured settlement companies is American International Group. Yes, that AIG. Understandably, many people who have structured their case with AIG are worried that they will get nothing if AIG goes belly-up. Just what would they receive if their structured settlement company went bankrupt?"
1. American International Group is neither a structured settlement company now, nor was it in June 2013, when Van Allen's post was published, nor in September 2008 when AIG was bailed out.
Here is an excerpt from the Wikipedia entry for American International Group:
American International Group, Inc., also known as AIG, is an American multinational finance and insurance corporation with operations in more than 80 countries and jurisdictions. The company operates through three core businesses: General Insurance, Life & Retirement, and a standalone technology-enabled subsidiary General Insurance includes Commercial, Personal Insurance, U.S. and International field operations. Life & Retirement includes Group Retirement, Individual Retirement, Life, and Institutional Markets.
2. American International Group's legal reserve insurance subsidiaries are regulated life insurance companies that issue structured settlement annuities. Structured settlement annuities issued by American General Life Insurance Company are distributed only through appointed agents in all states other than the State of New York. In the State of New York, structured settlement annuities are underwritten by AIG subsidiary United States Life Insurance Company in the City of New York (US Life) which was founded in 1850.
US Life is one of the few life insurance companies currently writing structured judgment annuities to enable Defendants and/or their insurers, to comply with New York CPLR 5032 and CPLR 5042, also known as Articles 50A and 50B
American General was founded in 1926.
3. AIG serves 87% of the Fortune Global 500 and 83% of the Forbes 2000. AIG was ranked 49th on the 2016 Fortune 500 list. According to the 2016 Forbes Global 2000 list, AIG is the 87th largest public company in the world. On December 31, 2016 AIG had $76.3 billion in shareholder equity.
AIG was a central player in the financial crisis of 2008. It was bailed out by the federal government for $180 billion, and the government took control. The Financial Crisis Inquiry Commission (FCIC) of the US government concluded AIG failed primarily because it sold massive amounts of insurance without hedging its investment. Its enormous sales of credit defau;t swaps were "made without putting up initial collateral, setting aside capital reserves, or hedging its exposure — a profound failure in corporate governance, particularly its risk-management practices." (Wikpedia)The US government sold off its shares after the crisis and completed the process in 2012. On October 20, 2010, a published article entitled "Bank Bailout Returns 8.2% Beating Treasury Yields" Bloomberg reported "The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30-year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades"
4. Can the a life insurer issuing a structured settlement annuity go bankrupt? The Bankruptcy and Consumer Protection Act of 2005 amended the bankruptcy code and continued the long standing bar against insurance company bankruptcies.
Neither a domestic insurer nor "a foreign insurance company", engaged in such business in the United States" are eligible for relief under Chapter 7. 11 U.S.C. § 109(b)(2)-(3).
Van Allen: "Well, that depends. There is a law in New York that basically says if the insurance company with whom you have contracted for a structured settlement goes bankrupt, you may be eligible to receive payment from the Life Insurance Guaranty Corporation of New York. (LIGC) LIGC was created by the State of New York to compensate people for their loss, under certain conditions, when the insurance company that owes them the dough goes under.
So how does this work? Assume that Peter Plaintiff was injured in a car accident and that his case was resolved by jury verdict or settlement, after payment of all fees and expenses, for $475,000. This payment would be made by Doug Defendant's insurance company. Instead of accepting the $475,000 up front, Peter decides to "structure" his payout instead, by which Doug's insurance company pays maybe $450,000 to the settlement company. (The $25,000 difference is the benefit that Doug's insurance company realizes by the structured settlement) The settlement company (AIG, for instance) then promises to pay Peter a total of $900,000 by making monthly payments to him of $$$$ for the next xxx years. If AIG were to go bankrupt before anything were paid to Peter, LIGC would step in and pay Peter $450,000. Peter would not get the $900,000 AIG promised to pay, nor would he get the $475,000, which was the original amount Doug's company was obligated to pay. But at least he gets $450,000".
1. New York State insurance law precludes agents from discussing the mentioned entity, however I will say that Van Allen's example distorts the facts, which are readily available on the internet.
2. See above re inability of insurer to file for bankruptcy.
3. The consideration for settlement of a lawsuit includes payment of all fees and expenses, may include payment of liens and up front cash as well as periodic payments.
4. The insurance company does not pay a check to the settlement company, they pay a check to wire funding to the qualified assignment company related to the structured settlement annuity issuing life insurance company or, in rare instances, buy and hold the annuity themselves to fund their obligation.
Losing all their Money, Really?
Even in the unusual circumstances of Executive Life Insurance Company of New York Liquidation, which was liquidated in 2013 after more than 22 years of rehabilitation, nobody "got nothing". Most didn't lose anything.
A structured settlement expert holding a New York insurance license is a good resource for New York residents.