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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.

"Puffery" The Magic Dragon?

"Puffery the Magic Dragon"

by Structured Settlement Watchdog

Why do some twits continue to mischaracterize structured settlements funded with Symetra Life Insurance Company annuities, as being provided by a "Berkshire Hathaway entity"? 

The obvious answer (as I pointed out in November 2009) was to increase confidence over Symetra's ratings by shamelessly attempting to insinuate the imprimatur of Warren Buffett. I mean nobody appears to making an equally shameless and inaccurate statement that "it is being provided by a "White Mountains Insurance Group Ltd entity"

Consider the following:

Link to subsidiaries of Berkshire Hathaway, Inc.  Note there no link to Symetra

Link to subsidiaries of White Mountains Insurance Group, Ltd. Note that there is no link to Symetra

Link to the Board of Directors of White Mountains Insurance Group, Ltd.   Note that neither Warren Buffett, nor any other officer of Berkshire Hathaway is listed on the Board of Directors.

Link to Symetra Board of Directors. Note that neither Warren Buffett, nor any officer of Berkshire Hathaway, Inc is listed on the Board of Directors. However, two White Mountains executives serve on the Symetra Board.

On January 20, 2010 the Associated Press' Tali Arbel reported that Berkshire Hathaway and White Mountains each own 26.3% of Symetra Financial Corp.  Arbel reported that "Symetra,  which was originally slated to go public in November 2007 with a $750.5 million IPO, canceled the offering due to market turmoil just prior to the recession's start. At the time, major shareholders White Mountains Insurance Group Ltd. (NYSE:WTM) , and Buffett's Berkshire Hathaway had both planned to sell their entire stakes".

While Arbel notes that the two investors later decided to keep their shares, the idea that the two investors were seeking to dump their entire block of shares shows the potentially fleeting nature of an investment.

The bottom line is that there is no need for insurance agents to lie. Anyone who uses a statement that is grossly misleading to induce someone to agree to a structured settlement needs to get their ass kicked around the block a few times.

On the positive side of things Symetra reports improving numbers for the segment in its Q1 2010 results. The following is an excerpt from a statement released by the company on April 28, 2010.

"Income Annuities

The Income Annuities segment, which includes single premium immediate annuities (SPIAs) and structured settlements, reported pretax adjusted operating income of $6.4 million in first quarter 2010, compared with $14.4 million in the same quarter a year ago. Mortality losses in first quarter 2010 were $0.1 million, compared with higher-than-normal mortality gains of $4.3 million in first quarter 2009. A lower interest spread from reduced investment yields also contributed to the decline in adjusted operating income.

Sales for the quarter totaled $66.3 million, a 64% increase over sales of $40.4 million in first quarter 2009. Income annuity products continued to gain favor with consumers seeking a low-risk investment vehicle that provides income for life. Sales of structured settlement annuities also accounted for growth in this segment".  Full report here

 

 

 

 

Symetra Life Insurance Company IS NOT a "Berkshire Hathaway entity"

by Structured Settlement Watchdog

Symetra is of course owned by an investor group led by White Mountains Insurance Group Ltd. and Berkshire Hathaway Inc.

As it clearly states on the Symetra Financial website 

"Originally a part of a Seattle-based Fortune 500 insurance company, on Aug. 2, 2004, the life insurance and investments subsidiaries were purchased by an investor group led by White Mountains Insurance Group, Ltd., and Berkshire Hathaway Inc.

Together, these companies became the privately held corporation known today as Symetra Financial".

For those who have doubts check out the Berkshire Hathaway website. You will find links to all Berkshire Hathaway subsidiary companies You won't find Symetra there!  (as of 11/20/2009)

Non worldly financially ignorant competitors like this simply make my life easy. On an industry level however,  I'm not sure whether I should grab a hankie. Sniff Sniff!