by John Darer® CLU ChFC MSSC RSP CLTC
A structured settlement factoring transaction with the qualified assignment company, in which the annuitant receives a stream of payments in lieu of a lump sum seems like a viable alternative to traditional structured settlement factoring where the annuitant is in hardship situation and cannot wait for a future lump sum payment.
One currently writing structured annuity issuer responded to my inquiry about servicing, with respect to one of its own annuitants, by stating that "If a client wants to factor a portion of his/her payments, the entire payment is sent to the factoring company and the factoring company takes over the payments involved. If there is a portion to be sent to the claimant after the factoring company takes out their portion, the factoring company will forward a check to the claimant".
On December 12, 2013, the LA Times carried this story about the Consumer Financial Protection Bureau stepping into regulate service of student loans after complaints of shoddy service by payment servicing companies. It's a good read to understand what servicing is. in the story, it appeared that banks acting as payment servicers are regulated but non-banks are not.
By restructuring from within, the obligor remains either a regulated insurance company, an upstream holding company of a regulated insurance company, or an entity that is guaranteed by a regulated life insurance company. If an annuitant has a New York Life Insurance Company structured settlement for example, the assignment company is New York Life Insurance and Annuity Corporation, a regulated insurance company, which on December 31, 2013, according to its filed annual statement had over $120 billion in assets.
In 2014 the IRS published PLR-143928-13, as part of its blessing the tax status of an index linked structured settlement payment adjustment for Pacific Life Insurance Company, the IRS approved a Hardship Conversion. Any structured settlement annuitant with receiving payments from a structured settlement annuity issued by Pacific Life Insurance Company or Pacific Life and Annuity Company claimant can request a present value lump sum commutation payout of their annuity by submitting a Notice of Hardship Conversion request to the Pacific Life and Annuity Services,Inc., which will review and consider it on a case by case basis.