Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Conseco Dumps Seniors' LTC policies into Trust

In an article entitled "Insurer Casts Off Long Term Care Policies" in today's Wall Street Journal, it was reported that Conseco, Inc. has transferred many of its long term care policies into a state supervised independent trust. The move, which affects 140,000 policyholders was made allegedly because "the policies were a drag on the company's earnings because they were underpriced and required continuing capital infusions to meet the long-term needs of policyholders".

Click here for how Conseco, Inc. announced the transaction on November 12, 2008

WSJ reports of fear among policyholders, most of whom are seniors. or families of the seniors. California plaintiff's attorney, Frank Darras was said to have estimated that former Conseco Senior Health Insurance policy owners would have to pay at least $2,083 more in premiums over the next five years under the new trust, a problem for owners whose average age is 80. The Pennsylvania insurance department wasn't specific, saying only that some rate increases are likely to be necessary to avoid insolvency based on current information and projections.

Frankly, and in my personal opinion, this is totally Con SUCKO!

The statement that long-term-care policies are guaranteed up to a limit of at least $100,000 in every state, according to Peter Gallanis of the National Organization for Life and Health Insurance Guaranty Associations or in one-third of states, limits are up to $300,000; and in another third, up to $500,000 gives many little solace.

I have both sold and owned long term care insurance for many years. I feel fortunate to not own a Conseco LTC policy because in Stamford, CT the cost of a nursing facility is $300 per day plus or over $113,000  annually! What good is a $100,000 limit to me?

US Government Intervention with AIG Postmortem

by John Darer CLU ChFC MSSC CeFT RSP CLTC

It's September 17, 2008 and the financial panic over AIG appears to be over

According to CNBC, BBC and other published sources. the Fed will lend AIG $85B in exhange for a 79.9% interest in the company. As I understand it taxpayer money is secured by the assets of the company and its subsidiaries. The board of the Federal Reserve made its decision about AIG "with the full support of the Treasury Department", it said in a statement, adding that the secured loan included conditions designed to protect "the interests of the US government and taxpayers". The thing is if the Fed stepped in Friday, before the credit downgrades the loan would be much smaller.

The BBC reports that "the AIG plan calls for the government to seize up to 80% of the company and remove its management, in a similar fashion to the way it took control of mortgage giants Fannie Mae and Freddie Mac which were crippled by the US housing crisis."

Commentary

1. The core insurance business of AIG was not the problem that created the crisis.
2. The fact that it took the fear mongering financial media over 24 hours to let consumers know that the core insurance operations of AIG were safe has not gone unnoticed. The irresponsible reporting that "the company was toast" led to needless panic among consumers. Reporters should be educating consumers not effectively committing what was referred to on CNBC as "financial homicide". Ridiculous!
3. After the announcement of the bail out, financial columnist Suze Orman reiterated her support for the bali out and said that in a "what if" scenario people with AIG insurance policies would have "been just fine" in the event of the company going belly up and, that claims and other obligations would have been paid.  Orman erred however, in implying that state guarantee funds would guarantee the full face amount of a life insurance policy in the event the company went belly up. This is simply not the case in every situation. The National Organization of Life and Health insurance Guaranty Associations website contains relevant information on the topic for consumers.

4. Insurance is a highly regulated industry. All US insurers are regulated by state law and are required to maintain enough capital and surplus to satisfy the obligations to their policyholders. The September 2008 issue of Best's Reviews states that US insurers will pay $1.5B for states to regulate them in 2009! In addition the type and quantity of investments that insurers may invest in is limited by state law. With respect to AIG, its subsidiaries that write structured settlement annuities are individually responsible for the liabilities associated with the policies they write. Each subsidiary insurer is individually regulated by the state of its domicile( and in all all states admitted), for compliance and financial solvency tests independent of its parent or any affiliates. Major transactions regarding insurance companies are generally required to be approved by the resposible state regulator.

5. The general accounts of the structured settlement annuity issuing companies of AIG/American General are not obligated to support any other AIG businesses.

 

State Insurance Guaranty Funds and Structured Settlements

The question often comes up in a discussion of structured settlements and other financial products, "what insurance is available or what happens if the annuity issuer goes belly up?"

It's a great question but one which many state laws preclude the licensed insurance agent or broker from answering. It's not a flim flam, it's designed to be a disincentive for a salesperson from making a recommendation to a customer for an inferior product or company with the reasoning that it's covered by such insurance.

So how does one find out information? 4structures.com, LLC has compiled a list of State Insurance Department websites, including their contact numbers as a starting point for your research. Click here to access the list.

The National Organization of Life and Health Guarantee Assocations (NOLHGA) is another useful resource. NOLHGA was founded in 1983 when the state guaranty associations determined that there was a need for a mechanism to help them coordinate their efforts to provide protection to policyholders when a life or health insurance company insolvency affects people in many states. Click here to access the NOLHGA website.

Structured Settlement Quotes | Funding Issues Related to Structured Settlements

by John Darer® CLU ChFC MSSC RSP CLTC

Here are some common issues related to structured settlement quotes and funding of structured settlements, which should be of importance to plaintiff attorneys, plaintiffs, insurance adjusters and defense attorneys and other interested parties or stakeholders in the structured settlement process.

Structured Settlement Quotes| How Long Are Structured Settlement Annuity Quotes Good For?

Let's say you are looking for structured settlement quotes, how long are they good for? The answer depends on the type of quote. A book rate may be good for 5-7 days while a daily rate may be good for 24 hours or less  A Treasury Funded Structured Settlement Quote is just an illustration. There are no lock-ins. The final numbers are determined when the Treasuries are purchased after funding. If you are making or accepting on offer based on a quote that has been given to you be sure to check for an expiration date. Some brokers place a disclaimer on the quote stating that "rates are subject to change unless the case is locked-in with a commitment to accept". If the quote is based on a rated age, the rated age must be valid. Generally rated ages are good for 6-12 months (depending on the structured annuity issuer). If a case has been pending for sometime, the rated age request must be renewed or the quote may not be valid. A request for renewal or reconsideration of the rated age determination is a good business practice. Occasionally a rated age has been based on aged medical information. New medical information can be helpful in improving the rated age if there has been a change in the plaintiff's medical condition.

Structured Settlement Quotes and Timing Issues

The timing of structured settlement funding may vary by (1) who is funding the structured settlement  ("the payor"); (2) the statutory requirements of the jurisdiction as to timing of payment (e.g in New York, per CPLR §5003-a prompt payment of settlement statute,  a defendant has 21 days to pay from the time he/she/it has been delivered the release of liability;(3) the nature and business practice of the payor (some stretch it out to the last possible day, others pay very quickly, or will even pre-fund the structured settlement prior to receiving a release); (4) whether Court approval of the settlement, or approval of the plan of distribution of the settlement proceeds, is required before releases can be executed; (5) whether the payor is a government entity, like the City of New York, New York City Health & Hospitals Corporation,  New York City Transit Authority or the State of New York, that has special funding consideration as to timing of payments; (6) whether the payor is a state insurance guaranty or liquidation fund or insolvency scheme of arrangement; (7) anything that may be stipulated by and between the parties;

A key factor in the pricing structured settlement quotes is the purchase date. This is the date that the annuity issuer expects the structured settlement funding. If the structured settlement funding arrives later than the purchase date it can affect the cost of the annuity. Why does it affect the cost of the annuity? As an example, consider an obligation to pay $150,000 in 10 years. If this has been priced based on a purchase date of December 1st with the payment date on December 1st, 10 years later,  it will have a particular price. If the structured settlement funding is not received on time and is instead received one month later on January 1st it is 9 years and 11 months until the payment date. Thus it makes sense that the cost could be higher.  Of course if interest rates were to rise in the interim then the price could be the same or better.

Playing interest rate trends with your or your client's money is a dangerous game. If you are taking such calculated risks, you need to continuously evaluate whether those risks are working for or against you. Fortunately the the broker that creates structured settlements (i.e not the factoring company representatives masquerading as structured settlement brokers) have lock-in privileges with the annuity issuers. In exchange for the agreement to fund on a certain purchase date in the future the annuity issuers will generally agree to lock-in the interest rate associated with that quote. This is particular useful when Court approval is a required for the settlement.

Structured Settlement Lock-Ins

It's important to note that agreeing to a lock-in is a commitment.  The annuity issuer actually goes out and secures investments to balance the liability created by the periodic payment obligation (as is required under the insurance laws of most states). If interest rates rise in the interim and the plaintiff attorney, who previously agreed to the lock-in commitment, goes somewhere else to get a better rate the annuity issuer agreeing to the lock-in is left screwed. Occasionally an insurance company may be willing to extend the lock-in provided the annuity payment dates are moved a number of days commensurate to the days delay in funding. However the message is that you should exercise care in agreeing to a lock-in commitment. Use structured settlement rate lock-ins for the valuable tool that it is,  in the right situation. If you or your structured settlement broker abuses the privilege, the annuity issuer may not grant lock-ins in the future.