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

NSSTA Regional To Feature Segment On " In Force" Structured Settlement Annuity Mkt

This author has learned that the NSSTA will feature a segment on the In Force structured settlement annuity market at its Regional Meeting in Las Vegas to be held in mid November 2010.

It is believed to be the first educational segment on the subject of factoring to industry members in the association's history since NSSTA's compromise with the National Association of Settlement Purchasers in 2001, that led to inclusion of  factoring provisions in the Victims of Terrorism Tax Relief Act of 2001, the creation of IRC 5891, all that has happened since and the state of affairs today.

This author hopes that the material will focus on significant opportunities for NSSTA members' natural markets that arise because of the secondary market , while balancing with due diligence steps that members can take to avoid the pitfalls in a market that may not be fully familiar to many NSSTA members.

It is hoped that the presentations will avoid the easily refutable assertion set forth in a recent Wall Street Journal article that certain returns are not achievable.

The last 6-10 months have seen a dramatic increase in the number of financial planners outside the industry who are offering this product, occasionally in competition with NSSTA members.

In this author's opinion a healthy ethical discussion should ensue and this author is willing to chair or co-chair a caucus or workshop on the subject concurrent with the Regional for interested parties. For those with an open mind who are interested in an information exchange, healthy debate and helping to shape the ethical leadership in this area please contact this author.

WSJ on Investing in Structured Settlement Secondary Market-2

by John Darer CLU ChFC MSSC RSP CLTC

The comments to Jason Zweig's Wall Street Journal Online article, "Another Can't-Miss Deal That Can Miss Spectacularly" , offer an opportunity to address some areas of financial literacy

A. One reader says (as an alternative to purchasing structured settlement payment rights) "Buy a 20 year muni bond and you can receive over 5% tax-free. You'll get a similar payoff with virtually no risk".

• First Point

Here's what was attributed to "legendary investor" Warren Buffett on June 15, 2010 (as published in the Wall Street Journal):

"Warren Buffett is warning of a “terrible problem” in municipal debt and has trimmed his investments. The cost of insuring municipal debt – through credit default spreads — has increased as some communities, such as Central Falls, R.I., have inched closer to insolvency"

• Second Point

in February 2010, Market Oracle analyst Graham Summers wrote an article titled, The Municipal Bond Crisis is About to Begin. The main points were:

1. Most state governments are broke or in the process of going broke
2. Tax receipts were falling (so less money for state coffers)
3. Muni bonds would collapse as governments chose to default rather than honor their payments
4. Politicians are terrible allocators of capital. (added 7/1/2010)

• Third Point

Here is a link to the current municipal bond rates from Bloomberg.com

B. Another reader has got individual purchases of structured settlement payment rights confused with structured investment vehicles.

C. Another reader says buying structured settlement payment rights is only worth a second look fi you believe interest rates will stay at current levels for the next 20 years

• Comments

I guess that reader isn't aware that a deal featuring 6% for the next 10 years, with payment rights backed by an annuity from an AAA rated carrier was on offer last week? 

If interest rates rise then the deals available will have higher yields, just as there will be higher CD rates and higher bond rates, higher dividend yields on life insurance policies etc.

Secondary Market Structured Settlement Payment Rights As An Investment

One of the more notable opportunities in this week's secondary market specials is the ability to get a 6% IRR on payment right to a $50,000 single deferred lump sum payment to be paid in 9 years and 8 months , backed by a AAA rated annuity issued by USAA Life Insurance Company.  The deal would require $28,783 now.

At the time of publication, the yield was better than the 10 year Treasury Bond issued by 5 major industrialized nations

Australia 5.22%

UK   3.35%

USA  2.95%

Germany 2.65%

Japan 1.10%

Source: Bloomberg.com

Employing a Secondary Market Ladder 

If you had around $92,000 in total and wanted to employ a laddering strategy you could hitch onto the above, another 6% IRR deal over about 11 years, this time backed by structured settlement payment rights from Allstate Life Insurance Company. Approximately $63,597 down today would get you a guaranteed lump sum of $120,000 August 24, 2021.

Notes:

• Purchases of structured settlement payment rights require Court approval to assure that the transfer of ownership in the payment rights is in the best interest of the seller.
• Structured settlement payment rights represent an outstanding opportunity for retirement plans, especially Roth IRAs, and may be suitable for plaintiffs as part of an overall settlement planning solution.  Bear in mind these are factored structured settlement payment streams, NOT annuities and carry transactional risks that are not present with annuities.