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Structured Settlement Lingo | What is A Qualified Assignment?

by John Darer® CLU ChFC MSSC RSP CLTC

A qualified assignment is an assignment of an obligation to make future periodic payments which satisfies the requirements of Internal Revenue Code §130. The periodic payments must represent damages payable by the defendant, its liability insurer, or a QSF and excludable under §104(a)(1) or §104(a)(2)

In a structured settlement agreement, the original obligor (the defendant, insurance carrier for the defendant, or the trustee of a qualified settlement fund, assigns its obligation to make the future periodic payments called for in the settlement agreement to a "qualified assignee". Generally, a qualified assignment company is a special purpose company, which does little more than hold an annuity as a qualified funding asset to back up the obligations it assumes from Defendants, Insurers or qualified settlement fund trustees. A qualified assignment company may actually be an insurance company itself. The qualified assignment company is usually related to the life insurance company issuing the structured settlement annuity. The qualified assignment company typically purchases an annuity from the related life insurance company as a qualified funding asset pursuant to IRC §130(d). A qualified assignment requires the plaintiff's consent.

What is a Qualified Assignment? (4structures.com)

We've noticed that some in our industry state incorrectly (for example, see below) that the qualified assignment is "to a financially secure insurance company", or "an assignment to the life company".

"From the plaintiff’s perspective, an assignment to a financially secure insurance company gives them the assurance that future payments will be made as promised. For many plaintiffs, this assignment to the life company alleviates the stress of future contact with the defendant, their insurer, or any party responsible for the injury".

Of the companies offering structured settlements only the qualified assignee of New York Life (New York Life Insurance and Annuity Corporation) is a life insurance company. That being said many annuity issuers provide a wraparound guarantee of periodic payment obligation assumed by the affiliated qualified assignment company.

 

Current and Former Structured Annuity Issuers Listed Among The Street.Com Ratings (Weiss) Strongest Life and Health Insurers in US

The most recent quarterly financial safety ratings from The Street.com Ratings (formerly Weiss Research ratings) include a number of structured settlement annuity issuers:

Allstate Life Insurance Company A-
American General Life Insurance Company B+
John Hancock Life Insurance Company A
Massachusetts Mutual Life Insurance Company A
Hartford Life and Annuity Insurance Company B+
Metropolitan Life Insurance Company B+
New York Life Insurance Company A
New York Life Insurance and Annuity Corporation (NY Life qualified assignment company)
Pacific Life and Annuity Company A
USAA Life  A
Variable Annuity Life Insurance Company (VALIC) A-

Ratings agencies such as Standard & Poors, Fitch and Moodys have recently come under fire from regulators such as Rep. Henry A. Waxman (D-California) who is Chairman of the Committee on Oversight and Government Reform.  On October 22, 2008 the committee held a hearing "Credit Rating Agencies and Financial Crisis in which the aformentioned agencies actions leading up to the financial crisis were examined. The objectivity of these agencies was called into question given the fact that they are compensated by the entities they rate.

On the other hand, The Street.Com expressly states "we don't accept compensation from the companies we rate for issuing the rating. Nor do we give the companies an opportunity to preview the ratings or suppress their publication if they're unfavorable. We are totally independent and unbiased because our loyalty is to you -- the customer".

Every quarter, The Street.Com Ratings evaluates the financial strength of more than 13,000 institutions, including life, health, and annuity insurers, property and casualty insurers, HMOs, Blue Cross Blue Shield plans, banks, and savings and loans.   In addition, it tracks the risk-adjusted performance of over 20,000 mutual funds and more than 6,000 stocks.

What may be surprising to the AIG "hacky sack dancers" is that both American General Life and former structured annuity issuer VALIC are on the list.

The Street.Com gives consumers, tort victims, potential and existing structured settlement annuity recipients, property casualty insurers, their attorneys, judges and the media a different perspective.

Life Insurer Solvency Record During Great Depression Was Remarkable

by John Darer CLU ChFC MSSC RSP CLTC

A 1964 paper "Cash Flow and Solvency of Insurance Companies by Robert H. Mills PhD CPA examined how dependable life insurance companies are under varying economic conditions and whether life insurance companies lent stability to capital markets in severe periods of economic stress. The "acid test", as Mills referred to it, was the period of the 1930's known as The Great Depression.

According to Mills' research at page 621, which was cited to the United States Congress, Hearings Before the Temporary National Economic Committee: part 28, Life Insurance, U.S. Government Printing Office, 1940 page 15678, the total assets of life insurance companies which ceased operations companies between 1929 and 1938 that were impaired, amounted to only 2% of all assets of ALL life insurance companies. By 1940 "the impaired policyholder liability reserves were rebuilt by the reinsuring companies so that the maximum aggregate loss had been reduced to 6/10ths of 1 percent".

I am compiling research about how various structured settlement annuity issuing insurance companies fared during the years of The Great Depression

Metropolitan Life  Founded 1863 Current status: Still standing!

"In March 1929 Frederick H. Ecker became president of Metropolitan upon Haley Fiske's death. Several months later the stock market crashed and the Great Depression started. Metropolitan's conservative investment policies helped it to weather the hard times. The company had stayed out of the speculative equities markets and had focused instead on real estate and bonds. The stock market crash initially had a positive impact on life insurance sales. Investors who had lost heavily tried to supplement the losses to their estates by increasing their life insurance. Ordinary insurance sold at record volume in 1930 and 1931. As the Great Depression deepened, however, and unemployment reached massive proportions, new policies stagnated and many policyholders were forced to discontinue their premium payments and allow their policies to lapse (SS4R Factoid: controlling lapses is an important factor  towards the profitability of an insurer following the notion that it is less expensive to maintain existing accounts because the acquistion costs have already been paid). In addition, many borrowed money against their policies or surrendered them for the cash value. Metropolitan was in sound financial condition and had no trouble meeting its obligations. Adjustments in the company's investment portfolio were necessary as rents fell and farm commodity prices dropped; Metropolitan reduced its investments in city  mortgage and farm lending".  Source: Answers.com

New York LIfe  Founded 1841  Current status: Still standing
"The company's assets were not involved in the stock market crash in October 1929 because state regulation and conservative planning had kept New York Life investments out of common stocks and in more secure government bonds and real estate. Its greatest losses during the Depression were in the form of lapsed payments and canceled policies, a trend finally reversed by the booming wartime economy of the 1940s".  Source: Answers.com

Allstate   Current status: Still standing

Allstate was founded during The Great Depression, in 1931.

Manulife/John Hancock   Current Status: Still standing
" The onset of the Great Depression had a serious dampening effect on the life insurance industry, but also demonstrated its stability when compared to other areas such as the Banking sector in the United States"  Source: Manulife website

Prudential  Founded 1873 Current status: Still Standing

"During Duffield's term, Prudential stayed much the same. While the company innovated by offering group insurance coverage to home office staff in 1924 and started group health in 1925, the Great Depression strangled most growth. Mortgages valued at $1.5 billion in 1931 bottomed at $787 million in 1935, even though the value of policies in force grew $1.5 billion between 1930 and 1935. In 1938, when Duffield died suddenly, he left a company still tremendously successful, but no longer a leader in the industry".

Source: Answers.com

Structured Settlement Annuity Companies Stand The Test Of Time

by John Darer® CLU ChFC MSSC RSP CLTC

A.M. Best Company has been issuing financial strength ratings for 102 years-over a century! These financial strength ratings represent A.M. Best's opinion concerning the ability of individual insurance companies to pay claims on the the policies of insurance they have written.

Claims paying ability is something that should be of prime importance to tort victims receiving or contemplating structured settlements, their lawyers, and anyone owning or contemplating the purchase of life insurance, disability insurance, long term care insurance, annuities, medical insurance or accepting a payment stream involving any non qualified assignment covering a long term payment obligation like structured sales, structured celebrity endorsements, structured attorney fees, divorce structured settlements, employment structured settlements or environmental structured settlements

The July issue of Best's Review named 48 property and casualty insurers and 15 life and health insurers who have maintained a Best's Financial Strength rating of A (Excellent) or better for at a least 75 years. A number of these companies issue structured settlement annuity policies, or are former issuers of structured settlement annuities.

75 years of AM Best "A" (Excellent) or better

• Aviva Life and Annuity (and predecessors)
• John Hancock Life Insurance Company
• Genworth Life and Annuity (and predecessors-former structured annuity issuer)
• Metropolitan Life Insurance Company
• New York Life Insurance Company
• The Prudential Insurance Company of America

Best's ALSO lists companies with:

50 years of AM Best "A" (Excellent) or better

• American General
• American Home Assurance Company (one of AIG structured settlements qualified assignee)
• National Union Fire Insurance Company of Pittsburgh, PA (one of AIG structured settlements qualified assignee)
• Hartford Life Insurance Company
• Canada Life Assurance Company (former structured annuity issuer)
• Liberty Life
• Massachusetts Mutual Life Insurance Company (former structured annuity issuer)
• Transamerica Occidental Life (AEGON structured settlements-former structured annuity issuer)
• United of Omaha (former structured annuity issuer)

In these challenging financial times the aforementioned information is important. To put things in perspective, in the 75 years since the bottom of The Great Depression, a number of dramatic world events have occurred

• World War II
• Korean War
• Suez Crisis
• Kennedy Assassination
• Six Day War
• Cuban Missile Crisis
• Vietnam War
• 1970s Terrorism
• Yom Kippur War and the 1973 Oil Crisis
• Mini-Recessions of 1980 and Recession of 1981-1982
• Oil crises of 1979, 1990 and 2008
• AIDS pandemic 1981+
• Stock Market Crash of 1987
• US Recession 1990-1992/ Global 1990-1993
• Gulf War
• Global Recession 1998
• 1997 Asian Financial Crisis
• 1998 Russian Financial Crisis
• 9-11
• Global Recession 2001-2002
• 7-7
• Wars on Terror/ Iraqi Freedom Iraq & Afghanistan War

The following numbers, from Best's Review, illustrate that these structured settlement annuity companies have not only have stood the test of time to pay their claims, but they have experienced long term growth despite having had to navigate turbulent economic times over many years:

Assets in 1928

• Metropolitan Life Insurance Company  $2.3B
• New York Life  $1.4B
• Prudential Insurance Company of America  1.78B

Assets year end 2007

• Metropolitan Life Insurance Company  $297.46B
• New York Life  $122.75B
• Prudential Insurance Company of America  $252B

Allstate Goes Retro

The Allstate Structured Settlement Program has gone retro, apparently for strategic business reasons.

Until today tort victims who faced a defendant or respondent that was an Allstate insured, who wanted a structured settlement could essentially have the structure placed with any annuity issuer rated A+ (Superior), or better, by AM Best & Company.  Prior to the guidelines in place until today the Allstate Structured Settlement Program was fairly restrictive. The change to the immediately prior guidelines was generally received favorably by the entire settlement community.

Tort victim attorneys should note that the new more restrictive guidelines apply to ANY claims involving Allstate Property Casualty, Encompass, Deerbrook and Allstate Commercial insureds. According to the news release "any case that settles from today forward should be placed with Allstate Life Insurance Company  (AM Best A+XV), AIG/American General Life Insurance Company (AM Best A++XV) , John Hancock Life Insurance Company (AM Best A++XV) or Metropolitan Life Insurance Company (AM Best A+XV). The release goes on to state that "all non-qualified cases must utilize Allstate International Assignments, Ltd." Exceptions require corporate approval. It was unclear from the release whether the New York subsidiaries of Allstate Life Insurance Company or AIG would be permissible under the new Allstate Structured Settlement Program. For example to read the release literally, the only two companies on the list that are New York licensed and approved are MetLife and John Hancock. Allstate should issue a clarification on the New York issue as soon as possible to avoid unnecessary confusion.

What this all means is that tort victim attorneys and their advisers must be prepared in advance. Involve your settlement planner or structured settlement broker early on in the process. I'M NOT KIDDING! The above four companies are all fine life insurance companies but the structured settlement planner or structured settlmeent broker must shop the entire marketplace to assure your client is getting the best deal. If that deal can be had by doing the considerable required leg work and then getting one of the 4 companies to match, the tort victim should then be OK with respect to pricing. It will generally be a less costly route than going the qualified settlement fund strategy for cases under $1 million. 

John Hancock Life Ratings Upgrade to Aa1 by Moodys Is A Testament to Financial Strength of Structured Settlement Annuity Issuers

Moodys recently upgraded John Hancock to Aa1, its second highest category. This upgrade together with the recent upgrade of New York Life by Standard & Poors is a testament to the financial strength of the annuity issuers of structured settlement annuities.

The recent press release concerning factoring company JG Wentworth's recent securitization received a "AAA" primarily due to the financial community's perception of the financial strength of the annuity assets backing their financing.

I would not be surprised to see further upgrades. The long term prospects for annuity issuers, including those that issue structured settlement annuities looks bright when one considers their potential share of the enormous flow of Baby Boomer retirement capital over the next 20-25 years.