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Structured Settlements Industry 2009 | A Review of the Year's Impactful Stories

by John Darer CLU ChFC CSSC RSP

The Doom and Gloom concerning structured settlement annuity issuers of late 2008 has abated somewhat. At this time last year our industry was in the throes of significant     uncertainty created by the government bailout of AIG. the sudden withdrawal of Aviva from the structured settlement market and the media reports creating jitters about The Hartford and others and which weighed heavily on our minds. Other stories (not necessarily in chronological order)

1. From what we've been hearing, 2009 saw a number of industry producers taking meaningful hits to their production, particular in the early part of the year.Others saw flat to slight increases in production. Perhaps my experience is an anomaly, but I've noticed a meaningful increase in activity since July 2009.
2. Following the Madoff fraud exposed in late 2008 which had nothing to do with structured settlements, 2009 brought us $16.5B in fresh exposed frauds including two purportedly about structured settlements that weren't. Media characterization of Scott Rothstein as a "mini Madoff" added to the stigma.  The cherubic Rothstein didn't even come close. Credit to Mark Wahlstrom, Jan Schlictmann, Roger Bernstein, Peter Arnold. Bruce DeBacher, Matt Bracy and this author John Darer for their considerable collective efforts to diffuse and undo any damage done when former Elian Gonzalez' and U.S. attorney Kendall Coffey mislabeled structured settlements in a complaint against Rothstein which sparked a media mislabeling frenzy.
3. The "Connecticut Woman" factoring saga gave us a live case which underscored (1) the need for structured settlement consultants, settlement planners and plaintiff lawyers to ask more questions about, and do a better job of addressing plaintiffs' immediate liquidity needs; (2) the fact that fast cash now (for structured settlements) is a load io B.S.; (3) the need for regulation of the advertising practices of factoring companies; (4) the potential exposure to the settlement consultant and attorney for failing to address the aforementioned need that resulted in a loss of principal in line with stock market losses, from a safe investment. To remind everyone the woman took an estimated 30% hit to principal to sell the payment rights and had to wait 6 months to get the money to address her immediate cash needs.
4. The issue of Structured Settlement Servicing was brought to the forefront. Allegations that certain structured settlement annuity issuers were not slicing or dicing structured settlement payments to multiple payees when an annuitant only wanted to sell part of their structured settlements to meet emergency liquidity needs. The result is a structured settlement servicing agreement in which all of the payments, not just the sold payments, are paid to the servicing company (the factoring company, Structured Asset Funding in the CT Woman case), which then takes its cut and passes the balance of the payment to the annuitant. This raised the issue of what happens to the annuitant's payments in the event of Chapter 7 bankruptcy of the servicing factoring company? In a series of pod casts John Darer addressed the structured settlement servicing issue together with guest, Houston attorney Bruce Akerly.
5. The issue of credential puffery in the structured settlement industry was brought to the forefront and substantially improved. Through the considerable public efforts of this author NSSTA has now published guidelines on promoting the Certified Structured Settlement Consultant certification. It's only too bad it took so long and required extreme peer pressure to get it right.
6. Prudential's decision to withdraw from the non qualified structured settlement market was a biggy. The market has not quite filled the void.  As other industry commentators have noted, there are considerable opportunities in this area for insurers and settlement professionals.
7. JG Wentworth Chapter 11 Bankruptcy.  Call it shadenfreude, but I consider this one of the best things to happen for the industry in 2009. (1) These guys really needed some humility; (2) The bankruptcy disclosure made by JG Wentworth coughed up some useful information supplying proof that the size of factored structured settlements does not match up against the perception by plaintiff attorneys created by the advertising noise;  (3)The continuous bombardment of false advertising "cash now" that $40 million will buy you was tempered dramatically.
8. The withdrawal of Hartford from the structured settlement market place was not unexpected. The parent company suffered jitters for almost 12 month before the life company withdrawal,  due to fears over its exposure to credit default swaps and variable annuity guarantees. During those months the companies structured annuity rates were rarely competitive. Hartford Financial services Group, Inc. stock has rebounded from its 52 week lows of 3.33 over 7 fold.  It was sad to see some long time industry colleagues lose their jobs but many of them have landed on their feet. Industry veteran Mal Deener has landed at Symetra and John Meaney is trying his hand at settlement planning with Delta.
9. In a number of published legal decisions, the United States continued to render useless, the attempts to factor annuities placed as part of Federal Tort Claims Act settlements. 
10. One can observe that more settlement firms are making an Investment in websites and other web 2.0 technology. This blog has highlighted the information on static content websites are boring, neither attract or retain traffic and sometimes embarrassing when failure to update outdated information comes to light. Industry members caught in the headlights have simply had to put up with the minor annoyance of peer pressure for the greater good.
11. The nation's first Registered Settlement Planners (RSP) rolled off the assembly line. This author was among the first in the United States to earn the designation. Kudos to the leadership of the Society of Settlement Planners for laying the foundation, and to Joe Tombs and his crew at Texas Tech for the delivery. The RSP designation has a lot of promise, yet it faces significant challenges to become a force which will be covered in a separate post. 
12. Priority guidance for single claimant qualified settlement funds has been removed from the 2009-2010 United States Treasury Priority guidance list
13. Jeremy Babener, a 3rd year law student at NYU challenged a statistic that alleged basis of the structured settlement tax subsidy in a white paper. Babener was "pimped" all over by Patrick Hindert as if he was the "Elvis Presley of structured settlements".  The "Dissipation Myth Bab-oon" road show hit a new low at the annual meeting of the National Association of Settlement Purchasers in November.
14. While Hindert, in his annual summary, places the take over of The Settlement Services Group by Forge as a seminal event, we simply see it as a way for Forge to justify having defense brokers in an organization that markets itself as plaintiff exclusive. The timing of the announcement suspiciously followed our September post about an anonymous plaintiff exclusive organization that had defense brokers.
15. In 2009 the industry lost some good people due to cancer, Mary Lynn Izzo and Richard G. Halpern. Most people loved Mary Lynn. While the brilliant and innovative Richard Halpern was not universally loved by the industry, he was an important force in the history of the structured settlement industry,  who challenged the status quo and succeeded (by a wide margin). I was sad to lose both of these friends this year. 
16. After extended period of reductions, the 10 year bond is again approaching 4% and the 30 year bond approaching 5% as I type. It is my prediction and others that by end of 2010 we may see 10 year bonds in the 5.5% range with a meaningful increase in the long bond. 
17. As an aside and some industry news just "sliding in the door" at year's end, the popular Jeanne Ragusa, formerly at Aviva, has joined John Hancock as Internal Sale Manager.

Concluding with a light hearted summary of the events of 2009, courtesy of JIb Jab...

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Madoff Ponzi Scheme and Structured Settlements. Any Exposure?

by Structured Settlement Watchdog

As the extent of the fallout from the massive Madoff Ponzi scheme continues to unfold, the breadth of investors and firms affected is already staggering. According to reports several Israel insurers, European Banks, the owners of the Mets, the IRA of the Chief Economist for Market Watch, numerous charitable foundations (some of whom have been forced to close) and the North-Shore-LIJ Health System. 

As if the financial services community needed another confidence sapper, the New York Post reports that international losses alone could exceed $8 billion!

While Mr. Madoff appears destined to meet his maker in jail (unless he does a Ken Lay), the reporting of the fraud in the financial press is likely to cause some confusion. Therefore 4structures.com, LLC has conducted a brief structured settlement survey of the primary structured settlement annuity issuers for official statements on their Madoff exposure, if any. As the responses come in they will be posted here.

Stuctured Annuity Issuers and other Litigation Recovery Management Vendors Who Have Declared NO EXPOSURE to the Madoff Ponzi Scheme

American General Life Insurance Company and American International Life Assurance Company of New York 

Download AIG structured settlements response to 4structures re Madoff

First Capital Surety and Trust Company

Download First Capital Surety Response on Madoff

Pacific Life and Annuity 

Download PL Response to 4structures re Madoff

(other structured annuity companies and litigation recovery management vendors will be listed as their responses come in)